Voids in Soil Held to be “Property Damage”, Resulting in CGL Coverage


Madam Justice Janet Wilson of the Ontario Superior Court has released a significant decision in the interpretation of commercial general liability insurance policies. In York Region Condominium Corporation No. 772 v. Lombard Canada, she rejected coverage arguments raised by Lombard and gave summary judgment against the company for $2 million (the limits of the policy). In the course of her reasons, she rejected Lomard’s argument, that this was a case of “pure economic loss”, not “compensatory damages because of property damage”. She also discussed the meaning of the word, “occurrence”.

One reason that the case is of interest is that Her Honour was satisfied that there had been “property damage” without, apparently, any evidence of actual injury to the building. This raises the question of just what deleterious conditions that create a risk of physical injury to property will, themselves, suffice as “property damage” so as to trigger coverage.


Lombard had insured Bradsil, a contractor that had constructed a condominium building in Richmond Hill in the late 1980’s and early 1990’s. In 1995, it was discovered that one of Bradsil’s subcontractors had installed a faulty dewatering system, with the result that the sand and soil layer under the building had gradually been pumped away. The building had become unstable. It was evacuated for months while remedial work was done. This included filling voids in the substratum, replacing the lost soil and stabilizing the structure. The remedial work cost more than $7 million.

In an earlier proceeding (referred to in Justice Wilson’s judgment as “the 1996 Action”), Bradsil and others were sued. Lombard refused to defend Bradsil. The 1996 Action culminated in summary judgment being given against Bradsil by Mr. Justice William P. Somers in November, 2003. (Justice Wilson’s reasons indicate that the judgment of Somers J. was rendered in November, 2003. The decision with respect to costs was made in December, but the judgment was dated November 14, 2003.)

The amount of the judgment was considerably greater than Lombard’s $2 million policy limits.

This Action

The plaintiffs in the 1996 Action, armed with an unsatisfied judgment against Bradsil, sued Lombard directly, under s. 132 of the Insurance Act. The plaintiffs then brought this motion for summary judgment. Lombard also moved for summary judgment, dismissing the action. All parties agreed that there were no material facts in dispute and that a motion was an appropriate way of dealing with the issues.

Justice Wilson granted judgment for the plaintiffs, in the amount of $2 million.

The first issue she considered was whether the damages claimed were “compensatory damages because of property damage”.

Compensatory Property Damage

Without reciting the facts in detail, it was not disputed on the motion that the work done by Bradsil’s subcontractors in the course of the original construction had left massive voids beneath the condominium building, resulting from silt and sand gradually being removed. Much of the remediation work involved introducing material into these voids, to provide a proper foundation for the building.

Justice Wilson’s reasons indicate that the problem was discovered when part of the garage appeared to be sinking. While the foundation of the building was found to have been damaged (the “massive voids”), it does not appear from Her Honour’s reasons, that the building itself suffered damage. (The reasons of Somers J. on the motion for summary judgment in the 1996 Action do speak of “major structural damage to the building” but he seems to have been referring to the same phenomenon of voids being left in the ground beneath the building.)

On this motion, Lombard argued that the claim that had been made against Bradsil in the 1996 Action, for which Somers J. had granted summary judgment and which the plaintiffs sought to enforce against Lombard in this action, was not one for compensatory damages because of property damage caused by an occurrence, as the policy required. Rather, said Lombard, the claim was one for “pure economic loss”, for which there was no coverage.

Wilson J. accepted a definition of “compensatory damages” taken from Black’s Law Dictionary. She acknowledged that “[t]raditionally the courts have characterised the cost of repairing or replacing defective work and products as ‘economic loss’ on the ground that such cost does not arise from injury to persons or damage to property, apart from the defective work or product itself.” [para. 39]

She then reviewed the caselaw that has discussed “property damage” vs. “economic loss”. In particular, she focused on the Supreme Court of Canada’s decision in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., saying, “[i]n Winnipeg Condominium the stonework cladding was falling off the condominium, creating a dangerous situation. The Supreme Court extended the insurer’s responsibility for the contractor’s tort liability to include the economic losses associated with repairing dangerous defects experienced by third parties.” [Emphasis added]

However, Winnipeg Condominium was not an insurance case. It dealt with the liability of a contractor in tort, to a subsequent purchaser of a building, for negligence in construction of the building. The Supreme Court did not consider the liability of an insurer.

The other case upon Justice Wilson placed great reliance was the Court of Appeal’s decision in Alie v. Bertrand & Frere Construction Co. That was an insurance case and, as Wilson J. pointed out, the Court of Appeal in Alie did apply the reasoning in Winnipeg Condominium in an insurance context. It held that “the classification of the insured’s own work or product as economic loss is not particularly instructive. Rather, the focus should be on the language of the insuring agreements and their interpretation.”

Her Honour commented on the murky state in which the law of “economic loss” has been left and concluded that, in the context of construing insurance policies, the courts must look to “the actual words of the Policy” and be guided as well by general principles of interpretation and relevant competing policy [lowercase “P”!] concerns.

Here, Wilson J. felt that the facts were similar to those in Alie. The defective dewatering system was likened to the defective concrete found to have been supplied in that case. Here, she found that the dewatering system had caused “damage” but again, that damage does not seem to have involved any actual “injury” to the building itself:

The defect caused damage to property owned by third parties. The damage of the third party property owners was the voids under the Property caused by the removal of soil. The voids destabilised the Property, and caused consequential damage to the foundation. The plaintiffs are not seeking to repair the defective dewatering system. Rather they are seeking compensation to rectify the consequential damages incurred including the cost of filling the voids, altering the water table and repairing the foundations damaged as a result of the voids. There is no allegation that the foundation as originally constructed was defective. [para. 78]

Justice Wilson was satisfied that what the plaintiffs were claiming did not amount to the cost of rectifying the faulty workmanship of Bradsil’s subcontractors. Accordingly, the damages claimed were found to be “compensatory”, as required by Lombard’s Policy.

Caused by an “occurrence”?

The Policy provided that, to be covered, “property damage” had to have been “caused by an ‘occurrence'”. It defined “occurrence” as “an accident”.

The plaintiffs cited the definition of “accident” usually given in these cases: “any unlooked for mishap or occurrence”. Lombard invoked another definition propounded by Black’s Law Dictionary: “an unforeseen and injurious occurrence not attributable to mistake, negligence, neglect or misconduct“. [Emphasis is that of Wilson J.]

This time, Her Honour was not prepared to accept the definition offered by Black’s. She held that it would be contrary to the principle of insurance if recovery were unavailable for “accidents” that resulted from someone’s negligence (at least in the insurance context). (Lombard would certainly have had an uphill battle arguing for Black’s definition.)

Here, Wilson J. held that the negligence of Bradsil and its subcontractors had left large voids under the condominium building that had destabilized it and that this was an “occurrence” that was “an accident”, within the Policy language.

“Sisterhood” Exclusion 

It appears that Lombard had originally defended on the basis of five Policy exclusions, but on the motion, was relying on only one: the “sisterhood” exclusion. This was perhaps a surprising choice, since it is usually encountered in the products liability sphere. The provision would exclude coverage for repairs to the insured’s work, if the work is withdrawn or recalled from the market or from use because of a known or suspected defect, inadequacy or dangerous condition in it.

It appears that counsel for Lombard argued that because the remediation of the defective dewatering system entailed the evacuation of the condominium building for several months, the “repair” of that work was “withdrawn from the market”. Wilson J. rejected that argument. We haven’t summarized her analysis here, but it can be found in paragraphs 105 to 127 of her reasons.

Lombard’s “sisterhood exclusion” argument was probably even more of a long shot than arguing that “accident” does not include negligence. To us, the important part of the decision is the “property damage” and “occurrence” analysis and its implications for future CGL claims.

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