No Freestanding Principle that Assumption of Risk Follows a Covenant to Insure

Risk management

By Brian Poston and Lauren Zeleschuk

In Capital Sewer Servicing Inc. v. Crosslinx Transit Solutions Constructors, 2022 ONCA 10 affirming 2021 ONSC 1091, the Ontario Court of Appeal ruled that an assumption of risk does not always follow a contractual covenant to insure against that risk. A contract must be read as a whole in its particular factual context to ascertain the objective intentions of the parties regarding the assumption of risk.

Facts leading to the appeal

This matter involved a dispute concerning contractual indemnity. The appellant (Capital) was subcontracted by the respondent (Crosslinx) to do construction work associated with the Crosstown Light Rail Transit project. The subcontract between Crosslinx and Capital (the “Subcontract”) provided that Capital would indemnify and hold harmless Crosslinx from all claims relating to the Subcontract. The Subcontract also incorporated by reference the terms and conditions of the principle contract between Crosslinx and its parent company (the “Principal Contract”), which included an obligation on Crosslinx to secure Primary Wrap-Up insurance coverage for the project (the “Primary Wrap-Up Insurance Provision”).

The Subcontract provides the following declaration of the intention of Crosslinx and Capital:

The parties agree that it is their mutual intent that Construction Contractor [Crosslinx] not incur for its own account and without recourse to Subcontractor [Capital] any obligation or liability under or in relation to the Subcontract Work.

The incorporation of the terms and conditions of the Principal Contract was subject to “the changes necessary to give full effect to the intent of the Parties as set out in this Subcontract, and subject to the express terms and conditions hereof.” It further gave the Subcontract priority over the Principal Contract if there was “a conflict, ambiguity, or contradiction”.

While one condition was the placement of Primary Wrap-Up Insurance, the incorporation of the same was governed by the parties’ mutual intent that Crosslinx not incur any liability in relation to Capital’s work. Moreover, the Subcontract obliged Capital to obtain its own $5,000,000 liability policy (“Capital Insurance Provision”).

During construction, a sewage backup occurred damaging three properties. Two of the property owners sued Capital and Crosslinx for property damage on the basis that Capital and Crosslinx were negligent.

The Application on Appeal

Crosslinx brought an application seeking a declaration that Capital had a contractual duty to indemnify it. Capital brought its own cross-application seeking a declaration that that it had no obligation to indemnify or defend Crosslinx in the underlying actions by virtue of the Primary Wrap-Up Insurance provision. The application was based on contractual indemnity and not a priority dispute between one insurer and another.

The application judge applied the well-established principles of contractual interpretation to address the various provisions in the Subcontract, including those provisions incorporated from the Principal Contract.

The application judge determined the objective intention of the parties to hold that Capital was required to indemnify Crosslinx in respect of any amounts Crosslinx was found liable to the property owners and in respect of any amount Crosslinx owed pursuant to its indemnity obligations, except insofar as the liability was based on Crosslinx’s own negligence. The application judge also concluded that Capital had a duty to defend Crosslinx and indemnify Crosslinx for all legal and other costs payable by Crosslinx, including amounts payable under Crosslinx’s indemnity obligations. Finally, the application judge held that Capital had an obligation to indemnify Crosslinx for any deductibles paid or payable by Crosslinx or any person to whom Crosslinx had indemnity obligations.

No Freestanding Principle that Assumption of Risk Follows a Covenant to Insure

The Court of Appeal confirmed that there is no free-standing legal principle of contractual interpretation (or otherwise) that a promise to insure against a certain risk will lead to the logical conclusion that the party undertaking to insure against the risk had agreed to be responsible for any damages should the risk ensue. Rather, a contractual interpretation exercise was required.

The court found that contractual interpretation is controlled by the language of the contract and its context. Despite similar provisions being interpreted to have placed the risk with the party promising to insure against that risk, differences in the wording between each case are determinative.  There are no binding authorities requiring that the risk of loss follow a covenant to insure. The effect of the Primary Wrap-Up Insurance Provision depended on the objective intention of the parties determined by an examination of the contract as a whole and the consideration of individual terms within their broader context.

In this case, the Primary Wrap-Up Insurance Provision was subject to the changes necessary to give full effect to the intent of the Parties as set out in this Subcontract, and subject to the express terms and condition hereof. While the application judge had to give meaning to the Primary Wrap-Up Insurance Provision, the judge also had to give meaning to the plain language of the Subcontract, which directly addressed the intention and obligations of the parties: that is, the intention that Crosslinx not incur any obligation or liability without recourse to Capital. Holding otherwise would render the Capital Insurance Provision ineffective, and would denude Capital’s contractual indemnity of Crosslinx of almost all utility.


The Court of Appeal agreed with the application judge that Capital was contractually obligated to indemnify and hold harmless Crosslinx in relation to the claims made by the property owners. This obligation included a duty to defend Crosslinx. The appeal was dismissed and Capital was ordered to pay Crosslinx full indemnity costs fixed at $25,000 inclusive of disbursements and relevant taxes.