Is Your General Contractor Covered (Part 2)? SCC Rules on Insurance Coverage for Project Damage


The Supreme Court of Canada has just issued an important judgment on liability insurance coverage for developers, construction managers, and general contractors. The SCC reversed the BC Court of Appeal’s decision in Progressive Homes v. Lombard Insurance which denied liability coverage to a general contractor that had been sued for the cost of fixing construction defects and resulting damage to a project.

We commented on the BCCA decision in the April 2009 edition of Construction Law Bulletin. To recap, the BC Housing Management Commission (“BC Housing”) hired Progressive as a general contractor to build four housing complexes. Some time following completion, BC Housing sued Progressive, alleging that construction defects had caused water ingress resulting in significant rot, infestation and deterioration in all four complexes. Lombard Insurance had provided Progressive with successive commercial general liability insurance polices (CGL) during and after construction but Lombard denied coverage for the BC Housing claim.

Progressive sued Lombard but both the BC Supreme Court and the BC Court of Appeal ruled there was no coverage under the Lombard policies. These courts concluded that the typical CGL policy did not cover “whole project” insureds such as developers, construction managers, and general contractors when deficiencies in a project caused damage to other parts of the project. Instead, CGL policies only covered damage to property outside the project. For example, if a defective electrical system in a completed project caused a fire which destroyed the project and a neighbouring property, the liability policies of the project developer, construction manager, and general contractor might cover the neighbouring property but not the project.

In the Progressive case, the SCC ruled otherwise. The CGL policies in issue were fairly typical and the SCC found that they while they might not cover Progressive for the cost of fixing the deficiencies that led to the water ingress, they would cover the resulting rot, infestation, and deterioration. The SCC’s reasoning would also apply to CGL policies held by developers and construction managers.

The Progressive decision brings BC into line with the law in other Canadian provinces and provides welcome news to the BC Construction industry.