When an engineering company purchased liability insurance for a design they were working on, they had the option to include subcontractors in the policy. At the time the policy was purchased they didn’t think they needed subcontractors. However, they eventually decided to use subcontractors and a dispute arose after damage was discovered following the build. The issue put before the Supreme Court of British Columbia was whether the subcontractors could be covered under the policy despite not being named.
The engineering company was hired to design and build two hospitals in British Columbia, which each included a parkade. They were responsible for the design and build, but were allowed to hire subcontractors if needed. A number of arrangements were later made, which saw the design of the parkades subcontracted to two other companies (the “subcontractors”). Neither subcontractor was listed as an insured party on the policy.
After the construction was complete, the subcontractors were informed that there were cracks in the parkades. The subcontractors were responsible for repairing the cracks and applied for coverage under the engineering company’s insurance policy. They were denied coverage and responded by applying to the court to determine whether they were entitled to coverage.
The policy’s definition of “insured” was as follows:
- Any other firm(s) which have or will provide PROFESSIONAL SERVICES in regard to the project;
- Any other firm(s) which have or will provide professional services in regard to the Project provided that such additional firms are reported and accepted by the Insurer along with details of the professional services to be provided, the date on which the firm is to commence the provision of services, and their professional fees;
The positions of the parties
The insurance company took the position that clause 3 of the policy, stating that it covers any other firms providing professional services, was included by accident, and that the policy was intended to cover just the engineering company. They submitted that this was the intention of both them and the engineering company, and as such, only clause 5 should be considered. They were not ever provided with information about the subcontractors, nor did they charge an extra premium for their coverage.
The subcontractors argued they should be provided coverage because the clause 3 of the policy states they are included. Furthermore, it was their position that their inclusion fit in with the expectations of the parties, and that clause 5 does not override clause 3. They also submitted that not allowing them to be covered under clause 3 was “contrary to the principles of interpretation of insurance policies and contrary to the plain and ordinary wording of the Policy.”
The court’s position
The court found that the parties should be bound by the terms of the contract as it was written. After making that finding, the court then addressed whether clauses 3 and 5 acted in conflict with one another. The court found they did not, stating that clause 3 was meant to cover any additional contractors performing work described in the insurance application, while clause 5 was meant to cover additional professional services, which would require approval in order to obtain coverage.
The team at HMC Lawyers believes that most disputes that develop over the course of a project can be avoided through proactive legal advice. We help our clients draft clear and thoughtful contracts designed to avoid ambiguity. We work closely with our clients to understand their business and personal needs in order to identify the best possible outcome. We then diligently work to resolve matters. Please call us at 1-800-480-3534 or reach us online to talk today.