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THE INSURANCE CONTRACT - Coverage provisions and exclusion clauses

Thursday, April 09, 2020 @ 9:54 AM  


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Appeal by the insurer from summary judgment finding that it was liable under a commercial general liability insurance policy issued to the respondent. The respondent, an electrical contractor, contracted with Cargill Ltd. to carry out electrical work for the construction of a canola processing facility. The Construction Contract required the respondent to obtain a commercial general liability insurance policy and required Cargill to self-insure or purchase builder’s risk property insurance for the work at the site. Cargill decided to self-insure. While the respondent was conducting work at Cargill’s facility, a fire broke out because of an error in the respondent’s electrical work, an improperly connected conductor. The fire damaged Cargill’s building and equipment and resulted in some construction delays. Cargill held the respondent responsible for all costs related to the damage caused by the fire and withheld $191,011 from its payments to the respondent under the Construction Contract to account for these costs. The appellant refused to indemnify the respondent arguing that the loss should have been covered by insurance that Cargill was obliged to provide as a term of its contractual relationship with the respondent and, if the policy was engaged, the respondent’s loss fell within an “other insurance” limiting clause. The chambers judge determined that the appellant’s policy was engaged because the damage caused to Cargill’s property fell within the definition of “property damage” in the policy and the amount Cargill withheld from the respondent as a result constituted compensatory damages that the respondent was legally obligated to pay. The only portion of the loss excluded from coverage was $1,884 for the cost to the repair the incorrectly performed work which led to the fire. The chambers judge held that Cargill’s self-insurance, while fulfilling the requirements of the Construction Contract, did not amount to Other Insurance such that the appellant could rely on the limiting clause.

HELD: Appeal dismissed. The chambers judge was correct to conclude that the loss claimed by the respondent fell within the scope of coverage set out in the appellant’s policy. The chambers judge did not ignore the Construction Contract, but properly focused on the terms of the policy. The policy contained no specific reference to any limits on coverage that would result from obligations Cargill might have had under the Construction Contract. The chambers judge was correct to find that the “Your Work” exclusion applied only to the extent of repairing the defective work. The chambers judge employed the correct approach and arrived at the proper interpretation of the policy as it pertained to whether the respondent’s loss fell within the initial grant of coverage. Cargill’s self-insurance did not operate for the benefit of the respondent. In the absence of an insurance policy with detailed wording, the self-insurance Cargill undertook in the Construction Contract did not meet the ordinary definition of insurance. While the Construction Contract contained an undertaking by Cargill to indemnify the respondent against loss or liability for loss, the extent of that undertaking was not clearly defined. There were no statutory provisions or public policy considerations that weighed in favour of a finding that Cargill’s choice to self-insure should be seen as Other Insurance. The policy’s Other Insurance provision limited the appellant’s liability only in the face of other valid and collectible insurance. Self-insurance was conceptually and materially different from an insurance policy and, in this case, Cargill’s self-insurance was not “other valid and collectible insurance”.

Community Electric Ltd. v. Royal and Sun Alliance Insurance Company of Canada, [2020] S.J. No. 53, Saskatchewan Court of Appeal, R.K. Ottenbreit, L.M. Schwann and J.D. Kalmakoff JJ.A., February 21, 2020. Digest No. TLD-April62020008