Construction contracts in Canada typically include a requirement that the builder obtain builder’s risk insurance (often known as All Risk Builder’s insurance) which covers both the builder and the owner of the property in the event of loss arising from the work being performed. The purpose of the insurance is to provide to the owner the promise that the funds will be available to rebuild in case of loss arising from negligence on the part of anyone involved with the construction.
A contractor will also typically carry a policy of commercial general liability (CGL) insurance to protect against third party liability.
The purpose of each policy, All Risk Builder’s insurance and the CGL policy, is different, as illustrated in the recent decision of Pre-Eng Contracting Ltd. v. Intact Insurance Company 2019 ONSC 1700 (CanLii).
In the Pre-Eng Contracting case, a builder was hired to do a number of renovations at a school, including work on the roof over the gymnasium. As a result of negligent work, rain entered through the roof and damaged the floor of the gymnasium.
The builder had All Risk Builder’s insurance with Northbridge General Insurance Corporation and a CGL policy with Intact. A dispute arose between the two insurers as to which policy was responsible for responding to the claim for the damage to the floor. The issue was brought before Bawden J. of the Ontario Superior Court of Justice by way of motion.
The Builder’s Risk policy extended coverage to “property in course of construction, installation, renovation, reconstruction or repair…”
Bawden J. reviewed a conflict in the cases on the scope of Builder’s Risk insurance, which was addressed by the Court of Appeal of Newfoundland and Labrador in the very recent decision of Dominion of Canada General Insurance Company v. Viking Fire Protection Inc., 2019 NLCA 13.
The Court of Appeal case involved a renovation project at a hospital in St. John’s. Viking was responsible for work on the sprinkler system. In the course of the work, water escaped from the sprinkler system, causing damage to some of the work which formed part of the renovation project and damage to pre-existing areas of the building. The parties agreed that the damage to the renovation work was covered under the Builder’s Risk policy. They could not agree if the damage to the pre-existing areas was also covered under the policy. The Court of Appeal held that it did not. The Builder’s Risk policy extended to the new construction and not the pre-existing property at the site.
Bawden J. adopted this approach. He found that the “property under construction” was the roof, not the floor of the gymnasium. Therefore the CGL policy was required to respond to the claim, not the Builder’s All Risk policy.
Intact argued that there was ambiguity in the language of the Northbridge policy, which should be resolved in favour of coverage. This argument was rejected.
This result accords with the purpose of All Risk Builder’s insurance: to insure the property under construction; not consequential loss, which falls within the scope of the CGL policy. It also accords with commercial sense. If the damage to the floor fell under the Builder’s Risk cover, then contractors responsible for only a small portion of a project could be burdened with the cost of an All Risk Builder’s policy.