In York Region Condominium Corporation No. 772 v. Lombard Canada Ltd., the Court of Appeal rejected the appeal by Lombard from a judgment holding that its CGL policy covered a claim against its insured, a general contractor.
The plaintiff condominium corporation had sued the contractor for damage caused to the foundation of the condominium building by the negligence of the insured general contractor. The insurer, Lombard, had denied coverage to the contractor. The condominium corporation obtained summary judgment against the contractor (for an amount in excess of the policy limits), which judgment was not satisfied, and it then commenced this proceeding against Lombard for payment up to the policy limits.
The condominium corporation was successful in recovering summary judgment against Lombard and the insurer appealed. The appeal was dismissed.
In the course of its work on the condominium corporation’s building, the contractor (Lombard’s insured) had negligently punctured a layer of clay soil that prevented the underlying waters of the aquifer from permeating the layer containing the building’s foundation. To correct the situation, the contractor hired subcontractors to install a dewatering system, but that work was also done negligently. The result was that the dewatering system began to pump away silt and sand from beneath the building, from 1989 to 1995. This created large voids in the foundation which left parts of the building unsupported. The unit owners had had to vacate the premises for several months while remedial work was undertaken.
Lombard’s denial of coverage was based on its contention that the loss had been caused by its insured’s own work and that to find that there was insurance coverage would convert the policy into a performance bond.
The Court of Appeal rejected this argument. It said that Lombard’s submission stemmed from confusion about “the dual meaning of the term ‘foundation'”:
In relation to a building, the foundation can refer either to the structural components constructed by the contractor that anchor the building: the “constructed foundation”, or to the compacted soil, earth or rock that forms the natural base upon which the building is erected: the “natural foundation”
The Court of Appeal held that its decision in Alie v. Bertrand & Frère Construction Co. was controlling. (It was found in that case that a defect in the fly-ash component of ready-mix concrete had caused homeowners’ foundations to fail. The cost of the concrete itself was held not to be covered by insurance but the cost of repairing and replacing the foundation and the damage to the houses was covered.)
Applying that decision, the Court of Appeal held that here, the contractor’s negligence damaged the natural foundation, which was not part of the contractor’s work and was therefore covered by the policy.
Lombard also argued that there was no coverage because the loss had been caused by the contractor’s negligence and that it was therefore not an “accident”, as required by the policy. The Court of Appeal made short work of this submission, saying that while the cost of repairing a negligently-manufactured product might not be considered an “accident”, damage to the property of a third party (as in this case) certainly was.