Recent Insurance Coverage Decisions from the Alberta Court of Appeal
The Alberta Court of Appeal released two insurance coverage decisions on April 28, 2020 giving further direction and consideration to analysis of policies and coverage issues arising from same.
Intact Insurance Company v. Clauson Cold & Cooler Ltd. [2020 ABCA 161] addressed the issue of whether Intact had a duty to defend its insured Clauson. Clauson operated a cold storage business. Clauson’s customers had suffered damage when goods stored in the warehouse had thawed. Those customers sued Clauson alleging breach of contract and negligent performance of contract and Clauson sought a defence from Intact. Intact refused to defend. The Master found that Intact owed Clauson a duty to defend the underlying action and this was affirmed by the Court of King's Bench. In another related decision the Court of King's Bench also awarded Clauson 40% of its actual solicitor and costs.
Intact appealed this decision and ultimately the Court of Appeal determined the Chambers judge had made the correct decision and the appeal must be dismissed.
The principles to be applied when determining if a duty to defend is owed have been set out in Progressive Homes v. Lombard Insurance [2010 SCC 33]. One must look at the pleadings. If the allegations in the pleading was proven true (which we assume would be the case) would that give rise to indemnifying the insured for the claim? If the answer is yes then a duty to defend is triggered. It is well understood that the duty to defend is broader than the duty to indemnify. What is required is only the “mere possibility” that a claim falls within the insurance policy.
Intact had attempted to used extrinsic evidence as an interpretive tool and ultimately conceded that was not appropriate. The Court of Appeal agreed with the Chambers judge that the language of the CGL provision relating to the “duty to defend pertained to the entire policy”. If Intact had intended the duty to defend to only apply to the CGL form it could have expressly set that out and it did not. It was also noted that Intact had assigned only one policy number to the entire bundle of approximately 150 pages of insuring documents.
Intact conceded if the Court of Appeal found the CGL duty to defend provision applied to obligations under other parts of the policy then coverage for the loss would be triggered. The Court of Appeal made that finding and therefore did not go further in considering Intact’s argument that exclusions in other parts of the Policy would apply to deny coverage.
The second decision released on April 28, 2020 by the Court of Appeal, with the same three judges on the Appeal panel as the above decision, was Condominium Corporation No. 9312374 v. Aviva Insurance Company of Canada [2020 ABCA 166]. This decision was another negative result for the insurer this time involving a multi-peril policy of insurance.
The issue in this case was whether damage to the structural integrity of the Condo’s parkade, resulting from faulty work of contractors, was covered under the Policy.
The parties had proceeded to a summary trial on the coverage issue. The Condo had sued the contractors and others and had reached a settlement by agreement on that claim however there was a shortfall which the Condo was seeking from Aviva.
The Master had found the damage was covered, Aviva appealed and was successful when the Chambers Judge found the damage was excluded. The Condo appealed to the Court of Appeal and was successful in front of that Court. The Court of Appeal found the damage was covered and the Appeal was allowed.
The parties spend a lot of time referencing and arguing the application of the well-known Supreme Court of Canada decision Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Company [2016 SCC 37]. The Condo argued Ledcor was the governing framework for the Court to interpret policy exclusions. Aviva argued Ledcor did not apply because Ledcor was a builder’s all-risk policy and the policy at issue was an all-risk property policy. Further, the language of the relevant exclusion clauses were different.
Those interested in coverage matters will likely recall that Ledcor involved a loss during the course of construction when the owner of the project hired a contractor to clean the windows. The contractor used improper tools and as a result the windows were scratched and required replacement. The insurers denied coverage based on the wording of the faulty workmanship exclusion. The SCC determined the exclusion clause was ambiguous and the “resulting damage” exception allowed for coverage for the damage to the windows and the cost of their replacement.
The issue in the case at bar became whether the exclusion clause was ambiguous and therefore the reasoning in Ledcor would apply. If the exclusion clause was not ambiguous then Ledcor would not apply. Ultimately the Court of Appeal in this case found no reason to depart from the analytical framework at outlined in Ledcor.
Aviva argued the Policy wording was not ambiguous. The property damage involved a single peril of faulty workmanship that cause the damage. Aviva argued to be brought back into coverage the faulty workmanship would have to cause a second, resultant peril, which caused separate, distinct damage.
The Court of Appeal concluded in this case that the exclusion clause and exception to the exclusion, when taken as a whole, were ambiguous (as the term “resultant peril” was not defined) and it was therefore necessary to apply the principles of contract interpretation as outlined in the well-known SCC decision of Progressive.
The Court went back to basics to review what the purpose of multi-peril or all-risk policies, like the one at issue, were meant to do and that was to “provide broad coverage for fortuitous loss or damage, affording the insured certainty, stability and peace of mind.” This interpretation was in keeping with a sensible commercial result and within the expectation of the parties to the contract.
The Court then turned to analyze the faulty workmanship exclusion. As the SCC cases had noted “insurers are prepared to insure risks relating to problems caused by faulty…workmanship but they are not prepared to insure the quality…of the workmanship in a construction project per se…”
Aviva argued the “Condo Corp’s suggested interpretation of the clause is an attempt to separate the consequences of the contractor’s actions – that is, the loss of structural integrity – from the contractor’s faulty workmanship. Aviva argues that is an artificial separation.”
The Court did not agree with Aviva that there needs to be a “second peril” that caused damage. In the Court’s view the resultant peril or consequence was the loss of structural integrity to the parkade.
Both of these decisions contain interesting comments about coverage issues and as discussed, the Court did not look favourably on the position advanced by the insurers.
These cases are a good refresher of general principles related to coverage analysis and are a reminder of how important it is to know those principles and assess coverage properly.