Builder’s Risk and Commercial General Liability Insurance policies have been in existence for ages but there are arguments still raised by various involved parties on the role of these policies, scope of coverage afforded under each type, their probable overlapping nature in certain circumstances and which policy should respond to a loss when an incident occurs.
A Builder’s Risk Policy is a property damage policy that affords coverage to property that gets damaged during the course of construction i.e. the property (or part of the property) that is actually being worked upon. It provides complimentary coverage to a Commercial General Liability policy that specifically excludes real property being worked upon. Essentially, whatever is not covered by a Builder’s Risk should be picked up by the Commercial General Liability Policy when the loss occurs due to negligence of the entity/contractor(s) working on the project site.
The purpose of effecting a Builder’s Risk Insurance is described in Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., 1976:
……its function is to provide to the owner the promise that the contractors will have the funds to rebuild in case of loss and to the contractors the protection against the crippling cost of starting afresh in such an event, the whole without resort to litigation in case of negligence by anyone connected with the construction, a risk accepted by the insurers at the outset.
In Pre-Eng v. Intact, 2019, the Ontario Superior Court of Justice discussed the nature of coverages afforded under each of these policies, while conducting a conflicting law analysis on these issues.
The facts of the case are as under:
The builder (plaintiff) was given a task to carry out numerous renovations on a school. One of the renovations involved repairing the roof over the school gymnasium. As a result of negligent work by the builder, rain spilled through the roof onto the wooden floor of the gym causing damages to the gym floor and losses due to delay in the project.
The builder had obtained the following policies:
· All Risk Builder’s Risk Insurance from Northbridge General Insurance Corporation; and
· Commercial General Liability Insurance from Intact Insurance Company
POSITION OF THE INSURERS
Northbridge General Insurance Corporation
Northbridge further argued that “its policy covers only the portion of the property which was actually under construction, renovation or repair. If the gym floor was not covered by the Builder’s Risk policy, Intact must cover the loss”.
Intact Insurance Company
Intact took the position that “the Northbridge policy should be held to cover any damage caused at the Project Site”.
Did the Builder's Risk insurance policy which was obtained for this project cover only the part of the structure that the builder was actually working on or did it cover the entire school?
Until recently, there were conflicting case laws in this matter [see Medicine Hat College 2007 CarswellAlta 1649; Osler Health 3959, Team Mechanical Construction 2017 CarswellNfld 370]. However, in March 2019, the Court of Appeal of Newfoundland and Labrador clarified the law [see Dominion of Canada General Insurance Company v. Viking Fire Protection Incorporated, 2019].
It would be unfair on part of the contractor carrying out a small job at a large project site to be held liable for the entire project under a Builder’s Risk Insurance. One cannot expect the contractor to insure the entire project while working only on a small portion of the project. The intent of the builder’s risk insurance is clear. The object of Builder’s Risk insurance is to ensure that the builder has sufficient insurance to complete his work in the event of an unforeseen failure.
It provides coverage to only those portions of the project work that are being carried out by the Insured. And sum insured/premiums are set accordingly, based on the contract price plus the materials and products which would be required to complete the job. Everything else should be on the account of the Commercial General Liability Policy. A position contrary to this will not be commercially viable and will make obtaining builder’s risk insurance for contractors prohibitively expensive.
Clearly, the damaged floors were not under any renovation and/or construction. Mr. Justice Peter Bawden, writing for the court, and dismissing Intact’s motion for summary judgment seeking declaratory relief and an Order dismissing the action against it, stated:
……… the words “property in course of construction, installation, renovation, reconstruction or repair” are sufficiently clear to exclude the gym floor from coverage under the Builder’s Risk policy. The gym floor was not being installed, renovated or reconstructed and there is no evidence to suggest that it was.
The court allowed Northbridge’s Cross-Motion for both declaratory relief and an Order for summary judgment seeking an Order dismissing all claims against it.
When a claim relates to a constructions project, it goes unsaid that there may be multiple policies in place and such policies may or may not provide overlapping coverages. The scope and intent of the policies must be taken into consideration before raising arguments on which policy should respond. Further, it is a wise idea to consider the basis of Sum Insured and charged Premiums to determine the scope of coverage afforded.