A Leaky Roof And A Tale Of Two Policies feature image

A Leaky Roof And A Tale Of Two Policies

Anyone who has been through a home renovation knows that they rarely go according to plan. Budgets, scope of work, and all kinds of other hidden surprises can have an impact on construction. One type of problem that nobody wants to deal with is when damage is caused to a home or building during a renovation. While contractors performing work should have insurance, it doesn’t necessarily mean property owners are protected from any damage that arises from a particular contractor’s work. This was recently discussed in a case decided by the Ontario Superior Court of Justice.

Renovations gone wrong

A builder had been hired to do a number of renovations for a school. One of these renovations was to repair the roof over the school’s gymnasium. Due to negligent work by the builder, rain came through the roof, landing on the floor of the gym. The rain caused approximately $164,000 in damages to the floor and another $100,000 due to project delays.

A tale of two insurers

The builder had obtained All Risk Builder’s insurance from an insurance company called Northbridge. The builder also had a commercial general liability policy with another company, this one called Intact. The two policies were meant to compliment one another, with the later meant to cover anything not covered by the former.
Following the accident, the insurance companies disagreed over which of them should be responsible for the damage to the floor.

A conflict in jurisprudence

Canadian courts have been arriving at conflicting conclusions over the scope of builder’s risk insurance policies. The most senior of these decisions is from the Court of Appeal of Newfoundland and Labrador, which released a decision on March 6, 2019 stating,

“Having considered the conflicting authorities, and the respective analysis and conclusion in Medicine Hat and in William Osler, I am of the view that the interpretation in William Osler accords more directly with the functions of Builders’ Risk insurance. The Court in William Osler also adopts an interpretation of the policy language that is consistent with the parties’ reasonable expectations, and produces a realistic result that the parties would have contemplated in the commercial atmosphere in which the insurance was obtained.”

The court summarized that decision as follows,

“A builder had been hired to renovate a kitchen within a large hospital. The builder hired a plumber to move pipes under the kitchen. As a result of negligence on the part of the plumber, flooding occurred in many other areas of the hospital which gave rise to significant damages. The builder had obtained Builder’s Risk insurance with terms which were substantially the same as those which had appeared in the policy at issue in Medicine Hat College. Justice Firestone concluded that the Builder’s Risk insurance held by the contractor only covered damages to the kitchen itself, not to the other areas of the hospital which had been flooded.”

In this case, the policy stated it provided coverage to “That particular part of real property on which the Named Insured or any contractor or subcontractor working directly or indirectly on the Named Insured’s behalf are performing operations, if the property damage arises out of those operations…” The court agreed with Northbridge, finding that the builder’s risk policy was not intended to cover anything other than the roof, and certainly not the gym floor.

HMC Lawyers acts on behalf of contractors, subcontractors, lenders, and developers, both advancing and defending claims arising from negligent construction and negligent professional advice.  As a team, we have decades of experience successfully advocating for our clients in the construction industry in Calgary and across Alberta. To make an appointment to discuss a potential or emerging claim, call 1-800-480-3534or contact us online.



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