Focus On

LIABILITY INSURANCE - Construction projects

Wednesday, October 21, 2020 @ 6:23 AM  


Lexis Advance® Quicklaw®
Appeal by the plaintiff from the dismissal of its claim against the respondent insurer. The appellant entered into contracts with Marnoch Electrical Services for the construction of two solar energy projects. On completion of the projects, the appellant sold them to Firelight. Under the contracts, Marnoch agreed to indemnify the appellant against Marnoch’s failure to perform its contractual obligations. Marnoch also agreed to name the appellant as an insured under its comprehensive general liability insurance policy with the respondent only with respect to liability arising out of Marnoch’s work on the projects. Fires occurred at both projects that originated in the electrical transformers. The appellant incurred liabilities to Firelight for remediation costs and loss of revenue. In arbitration between the appellant and Marnoch, the arbitrator dismissed the appellant’s claims, finding the transformers were selected by the appellant and Marnoch played no role. The parties agreed the findings of fact made by the arbitrator would be binding on the trial judge. The trial judge fixed the costs payable by the appellant at $356,452.

HELD: Appeal dismissed. The language of the contracts between the appellant and Marnoch did not affect the interpretation of the insurance policy. The trial judge did not err in interpreting the insurance policy and in finding that the appellant’s liability did not arise out of the operations of Marnoch. The trial judge did not adopt an unduly narrow construction of the policy. He did not err in finding the appellant’s approval of the transformers took its liability to Firelight outside the scope of coverage. As found by the trial judge, Marnoch’s connection with the failure of the transformers was merely incidental. Marnoch’s operations under the contracts did not require it to select the transformers, which was done by the appellant. The trial judge did not err in finding the insurer had not breached its duty of good faith. The insurer’s initial rejection of coverage did not amount to bad faith. The trial judge’s conclusion that there was no reason to continue to investigate when there was an objectively reasonable basis on which to deny coverage was entitled to deference. The costs award was fair and reasonable.

Sky Solar (Canada) Ltd. v. Economical Mutual Insurance, [2020] O.J. No. 3750, Ontario Court of Appeal, G.R. Strathy C.J.O., P.D. Lauwers and K.M. van Rensburg, September 9, 2020. Digest No. TLD-October192020006