The court ordered the Insurer to defend the Insured under a commercial general liability policy where the Plaintiff alleged that the Insured was negligent in performing building inspections which resulted in property damage in a condominium development project. The policy covered property damage caused by an accident or property damage which arose out of the operations performed on or incidental to the Insured’s development project.

Blue Mountains (Town) v. Royal and Sun Alliance Insurance Co. of Canada, [2003] O.J. No. 4881, Ontario Superior Court of Justice

The Applicant was the named Insured in a commercial general liability policy issued by the Respondent Insurer. The Insured had been sued in a separate action in which the Plaintiff alleged that due to the Insured’s negligent building inspections damages incurred, including the loss of use of the Plaintiff’s property. The Insured sought a Declaration that the Insurer had a duty to defend the action.

The Insurer denied coverage on the basis that the policy had been terminated prior to the Plaintiff’s loss and because the policy did not provide coverage for negligent performance of services.

With respect to the alleged termination of the policy, the policy had been cancelled by the Insured’s developer in August 1990 to be effective May 1990. However, the policy stated that after the policy period termination date, the “Completed Operations Hazard” portion of the policy would continue to apply for a period of twelve months. The court held that it was not clear and unequivocal that the Insured intended to cancel the remaining term of the policy as well as the coverage set to run after the expiry of the term of the policy. All coverage in place immediately prior to the cancellation therefore remained in force. One of those coverages was the Completed Operations Hazard. Accordingly, the court held that the coverage under that section was in effect during the time period in which it was alleged in the underlying action that the Insured acted in a negligent manner.

The court also held that there was coverage for the Insured under both the “property damage liability” section and the “operations insured” section of the policy, stating that a negligent inspection causing damage was an “accident” within the definition of the policy. The court determined that it was clear that the property damage arose out of the operations [i.e., the inspections] performed in or incidental to the project. Therefore, the allegations against the Insured fell within the “operations insured” provision. The Insured was therefore entitled to a defence as provided in the policy of insurance.

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