BC Supreme Court Dismisses Yet Another Leaky Condo Contractor's Claim for CGL Coverage

The saga of coverage litigation involving leaky condo contractors in British Columbia now has yet another chapter. The issues have been vetted so frequently throughout the industry that perhaps they are starting to become tiresome. Nonetheless, some of you may be interested to learn that the B.C. Supreme Court is continuing to deny CGL coverage for contractors in respect of building deficiency claims in that Province.

The latest case is Progressive Homes Ltd. v. Lombard General Insurance, a decision released March 29, 2007. It follows hot on the heels of GCAN Insurance Co. v. Concord Pacific Group which was released the previous month. See our related bulletin.

Both cases stand for three propositions which were articulated by Justice Cohen in Progressive Homes as follows:

• "Liability insurance policies governing physical injury to tangible property do not contemplate the artificial division of work of the party responsible for that work into component parts for the purpose of establishing resultant damage, unless that is the clear intention of the entirety of the policy.";

• "Defective construction is not an "accident" unless there is damage to the property of a third party.";

• Lawsuits against a building contractor for defects and damage to the very building constructed by that contractor do not trigger the insuring agreement in the latter’s CGL policy and the liability insurer has no duty to defend the same.

The court in the Progressive Homes case also addressed the issue of the subcontractor exception in the broad form "work" exclusion. The insured had argued this exception was designed to ensure coverage for a contractor for property damage arising out of substandard work performed by a subcontractor. It invoked the 2006 Ontario Court of Appeal decision in Bridgewood Building Corp. v. Lombard which had held "on a plain reading, [the subcontractor exception] would seem to indicate that coverage will be provided if the work out of which the damage arises is performed on behalf of the insured by a subcontractor". The Ontario Court was considering the question "why would there be an exclusion if it was not meant to be covered in the first place?".

Justice Cohen in the Progressive Homes decision held that,

One can’t help but wonder what happened to the fundamental principle that the interpretation of a contract (including an insurance contract) is to be determined by reading the policy as a whole. Nonetheless, the Progressive Homes decision now joins both the GCAN and Swagger Construction cases as compelling recent authority that, in B.C. at least, there is no coverage under a CGL policy for a general contractor in respect of deficiencies and damage to the very building that the contractor built.

It seems likely that the Progressive Homes case is destined for the B.C. Court of Appeal. Given the diametrically opposed outcomes on this very issue from courts all over North America, the situation cries out for a comprehensive analysis and ruling from not only the Court of Appeal but perhaps the Supreme Court of Canada as well.

Readers who are interested in reviewing the Progressive Homes decision can access the same at:
http://www.cwilson.com/insurance/reviews/Cohen.pdf

If you have any questions about this decision or other insurance related issues, please contact Nigel Kent (tel: 604.643.3135, email: npk@cwilson.com), or any other member of the Clark Wilson LLP Insurance Practice Group.