{"id":58,"date":"2005-04-11T16:31:31","date_gmt":"2005-04-11T21:31:31","guid":{"rendered":"http:\/\/www.cavanaghwilliams.com\/blawg\/?p=58"},"modified":"2005-04-11T16:31:31","modified_gmt":"2005-04-11T21:31:31","slug":"court-says-repair-costs-like-environmental-cleanup-cgl-must-pay","status":"publish","type":"post","link":"https:\/\/www.cavanagh.ca\/blog\/?p=58","title":{"rendered":"Court Says Repair Costs Like Environmental Cleanup — CGL Must Pay"},"content":{"rendered":"

We are happy to report that The Canadian Legal LEXPERT Directory for 2005<\/a> lists Steve Cavanagh as a \u201cLeading Practitioner\u201d in \u201cCivil Litigation\u2014Commercial Insurance\u201d, one of only five lawyers in eastern Ontario to be so recognized. Congratulations also to the other four Ottawa lawyers who made the LEXPERT list: David Scott, Q.C., Brian Parnega, Pat Santini and Bruce Carr-Harris.\u00a0 Bridgewood<\/strong>Building v. Lombard Insurance<\/strong><\/font><\/em><\/p>\n

At last week’s\u00a0Canadian Defence Lawyers<\/a> \u2019 CGL seminar in Toronto yesterday, everyone was talking about the decision released\u00a0the previous\u00a0Friday, in Bridgewood Building v. Lombard Insurance<\/em>. Tom Donnelly <\/a>of Cassels Brock, one of the winning counsel, was good enough to forward to us a copy of the reasons, which are attached. (The case has not yet been reported, so the attachment is a PDF of a fax.)Just when Alie v. Bertrand<\/a> <\/em>was starting to recede from memory, Bridgewood <\/em>deals again with claims arising from failed concrete foundations. The builders in Bridgewood <\/em>had sought coverage from their insurer, Lombard, for the cost of repairing homes damaged by a subcontractor\u2019s defective concrete. The court found that the builders were entitled to indemnity for the repair costs (approximately $2 million).\u00a0This decision may represent a rather startling expansion of coverage under CGL policies. In finding coverage for major repair costs, Justice Stewart likened those expenses to the cost of cleaning up environmental spills. She justified saddling the insurer with this cost on grounds of public policy, rather than an interpretation of the policy language. (To be fair, she concluded that the policy language, which she interpreted against Lombard , did not preclude<\/em> her expansive interpretation.)At yesterday\u2019s CDL conference, one speaker expressed surprise that Lombard had not attempted to argue either the \u201cwork\u201d or \u201cproduct\u201d exclusions in the CGL. (The reasons of Stewart J. make it clear that indeed, Lombard did not argue either exclusion.) Instead, Lombard advanced three other arguments in support of its denial of coverage: 1.\u00a0\u00a0\u00a0\u00a0 the insureds were not \u201clegally obligated to pay as damages\u201d the repair costs resulting from the faulty concrete, as required by the insuring agreement;2.\u00a0\u00a0\u00a0\u00a0 the payments made by the Insureds were \u201cvoluntary\u201d and so, not recoverable; and<\/p>\n

3.\u00a0\u00a0\u00a0\u00a0 the \u201cliability assumed in a contract\u201d exclusion applied.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u201cLegally obligated to pay\u201d<\/em> The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.But the evidence showed that both the homeowners and the administrator of the Ontario New Home Warranty Plan would<\/em> have sued, had the homes not been repaired.<\/font>Justice Stewart held that \u201cthe plain meaning of \u2018legally obligated to pay as damages\u2019, construed broadly, embraces the statutorily imposed warranty obligations which are the subject of this dispute\u201d. She had no difficulty finding that the potential claims against the insured builders were within the insuring agreement.\u00a0\u00a0<\/p>\n

<\/font>Voluntary payments\u201d<\/em>Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.The court\u00a0rejected this argument: [T]he simple principles of good faith and reasonableness which apply to the obligations of the parties to the Policies would require Lombard to acquiesce to the responsible conduct of the Applicants in this instance. Under Lombard\u2019s interpretation, the Applicants would be required to breach the statute by refusing to repair, run the risk that the houses would collapse or cause personal injury and have their licences to carry on business placed in jeopardy for failure to comply with the statute. I agree with the Applicants that such an interpretation is contrary to both public policy and common sense and would not have been in accordance with the reasonable expectations of the parties. Accordingly, I am sure of the opinion [sic] that the costs incurred by the Applicants are not \u201cVoluntary Payments\u201d within the meaning of that term in the Policies.\u00a0<\/p>\n

The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.The court\u00a0rejected this argument: [T]he simple principles of good faith and reasonableness which apply to the obligations of the parties to the Policies would require Lombard to acquiesce to the responsible conduct of the Applicants in this instance. Under Lombard\u2019s interpretation, the Applicants would be required to breach the statute by refusing to repair, run the risk that the houses would collapse or cause personal injury and have their licences to carry on business placed in jeopardy for failure to comply with the statute. I agree with the Applicants that such an interpretation is contrary to both public policy and common sense and would not have been in accordance with the reasonable expectations of the parties. Accordingly, I am sure of the opinion [sic] that the costs incurred by the Applicants are not \u201cVoluntary Payments\u201d within the meaning of that term in the Policies.\u00a0<\/p>\n

Contractual liability exclusion<\/em>Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply.<\/p>\n

Repair costs as environmental cleanup<\/em> Even though Lombard , for some reason, did not raise the \u201cwork\u201d and \u201cproduct\u201d exclusions, it did make some submissions in a similar vein. It said that it had \u201cnever expected to provide the [Insureds] with coverage tantamount to that offered by a Performance Bond, and thereby insure the quality of the [Insureds\u2019] work and the work and materials of the [Insureds\u2019] subcontractors\u201d. And it argued that a \u201cCGL policy, by its very nature, is intended only to cover an insured\u2019s tortious liability to third parties, not including the cost of repairing or replacing the insured\u2019s own defective work or product\u201d. If the court were to allow this claim, Lombard argued, the \u201cfloodgates\u201d would thereby be opened to all sorts of other claims, such as building code infractions, substitution of sinks, repair of chipped tiles, drywall repair and essentially all of the builders\u2019 work. (It is just this sort of argument that is usually made in the context of the \u201cwork\u201d and \u201cproduct\u201d exclusions.)The court\u2019s handling of the \u201cperformance bond\u201d argument will be rather alarming to insurers. Stewart J. stressed that Lombard had not <\/em>relied on the \u201cwork\u201d or \u201cproduct\u201d exclusions. But quite apart from that, she seems to have rejected the \u201cperformance bond\u201d argument solely on the basis of public policy concerns, treating the remedial work on these homes as being equivalent to an environment cleanup. She said: I am cognizant of Lombard \u2019s election not <\/strong>to rely on certain other provisions of the Policies, including the \u201cwork\u201d and \u201cproduct\u201d exclusions. Further, I am <\/strong>of the view that the facts of these cases, combined with the ONHWP legislative requirements, raise public policy considerations that serve to outweigh Lombard \u2019s concerns.It is evident that the Act and ONHWP are in the nature of consumer protection legislation, designed to assist and protect the purchasers of new homes. In my view, this no-fault remedial and protective legislative scheme is akin to environmental protection legislation which requires pollution clean-up and the costs thereof to be carried out and absorbed by persons regardless of proof of negligence or fault.If courts are now going to require CGL policies to pay millions of dollars in repair costs, \u201cregardless of proof of negligence or fault\u201d, underwriters should probably be warned.Many at the CDL meeting anticipated an appeal of the Bridgewood <\/em>ruling. Stay tuned.\u00a0<\/p>\n

The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply.<\/p>\n

The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply.<\/p>\n

The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply.The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.The court\u00a0rejected this argument: [T]he simple principles of good faith and reasonableness which apply to the obligations of the parties to the Policies would require Lombard to acquiesce to the responsible conduct of the Applicants in this instance. Under Lombard\u2019s interpretation, the Applicants would be required to breach the statute by refusing to repair, run the risk that the houses would collapse or cause personal injury and have their licences to carry on business placed in jeopardy for failure to comply with the statute. I agree with the Applicants that such an interpretation is contrary to both public policy and common sense and would not have been in accordance with the reasonable expectations of the parties. Accordingly, I am sure of the opinion [sic] that the costs incurred by the Applicants are not \u201cVoluntary Payments\u201d within the meaning of that term in the Policies. The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.The court\u00a0rejected this argument: [T]he simple principles of good faith and reasonableness which apply to the obligations of the parties to the Policies would require Lombard to acquiesce to the responsible conduct of the Applicants in this instance. Under Lombard\u2019s interpretation, the Applicants would be required to breach the statute by refusing to repair, run the risk that the houses would collapse or cause personal injury and have their licences to carry on business placed in jeopardy for failure to comply with the statute. I agree with the Applicants that such an interpretation is contrary to both public policy and common sense and would not have been in accordance with the reasonable expectations of the parties. Accordingly, I am sure of the opinion [sic] that the costs incurred by the Applicants are not \u201cVoluntary Payments\u201d within the meaning of that term in the Policies.Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply. Even though Lombard , for some reason, did not raise the \u201cwork\u201d and \u201cproduct\u201d exclusions, it did make some submissions in a similar vein. It said that it had \u201cnever expected to provide the [Insureds] with coverage tantamount to that offered by a Performance Bond, and thereby insure the quality of the [Insureds\u2019] work and the work and materials of the [Insureds\u2019] subcontractors\u201d. And it argued that a \u201cCGL policy, by its very nature, is intended only to cover an insured\u2019s tortious liability to third parties, not including the cost of repairing or replacing the insured\u2019s own defective work or product\u201d.The CGL\u2019s insuring agreement only provided coverage for what the builders were \u201clegally obligated to pay as damages\u201d. However, because the builders had gone ahead and repaired the damaged homes, no one had sued them. Lombard argued that this meant that there was no coverage.Lombard also submitted that its insureds were not entitled to go ahead and incur the cleanup costs and then look to the insurer for recovery. It characterized these as \u201cvoluntary payments\u201d that were not recoverable.Justice Stewart also made short work of Lombard \u2019s argument, that there was no coverage because the liability was one imposed by contract. She pointed out that the builders\u2019 liability under the Ontario New Home Warranty Plan stemmed not from contract, but from statute. Therefore, in her view, the \u201cliability assumed in a contract\u201d exclusion did not apply.<\/p>\n","protected":false},"excerpt":{"rendered":"

We are happy to report that The Canadian Legal LEXPERT Directory for 2005 lists Steve Cavanagh as a \u201cLeading Practitioner\u201d in \u201cCivil Litigation\u2014Commercial Insurance\u201d, one of only five lawyers in eastern Ontario to be so recognized. Congratulations also to the … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[28,34,12],"tags":[],"class_list":["post-58","post","type-post","status-publish","format-standard","hentry","category-cgl","category-environmental","category-insurance-news"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=\/wp\/v2\/posts\/58","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=58"}],"version-history":[{"count":0,"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=\/wp\/v2\/posts\/58\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=58"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=58"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cavanagh.ca\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=58"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}