The plaintiff’s action against the defendant insurer, alleging liability according to section 24 of the Insurance Act, was dismissed. The court found that the CGL policy held by the third-party insolvent insured did not provide coverage for losses arising from breach of contract when air conditioning equipment rather than refrigeration equipment was installed by the third-party insured. The defendant insured was not estopped from denying coverage as a result of its actions in defending the claim advanced by the plaintiff against the third-party even in the absence of a formal non-waiver agreement or reservation of rights by the insurer.

29. December 2004 0

Alpine Florist & Food Market Ltd. v. Axa Pacific Insurance Company, [2004] B.C.J. No 2710, 2004 BCSC 1731, British Columbia Supreme Court

By Notice of Motion, the plaintiff sought judgment against the defendant insurer pursuant to section 24 of the Insurance Act, R.S.B.C. 1996, c. 226. Section 24(1) of the Insurance Act provides that if a judgment has been granted against a person in respect of a liability against which the person is insured and the judgment has not been satisfied, the judgment creditor may recover by action against the insurer. The plaintiff’s entitlement to recovery under section 24 is dependent upon coverage for indemnity from the defendant insurer.

In the underlying action, the plaintiff, a grocery store, contracted with a third-party, Climatic Air Conditioning Ltd. (“Climatic”), for the installation of refrigeration equipment. Climatic subsequently installed air conditioning equipment rather than refrigeration equipment. The trial judge concluded that Climatic had not complied with the terms of the contract and, as a result, damages were ordered to be paid by Climatic. When Climatic became insolvent, the plaintiff brought this action against Climatic’s insurers Axa, the defendant in these proceedings, as Axa had insured Climatic under a comprehensive general liability policy.

In the case at bar, two issues arose. First, whether the CGL policy provided coverage for the subject of the judgment against the third-party Climatic. Second, if the CGL policy did not provide coverage, whether the defendant insurer was estopped from denying coverage as a result of its action in defending the claim advanced by the plaintiff against the defendant’s insurer.

Melvin, J. found that failure to provide goods called for by the contract did not result in coverage citing Pier Mac Petroleum Installation Ltd. v. Axa Pacific Insurance Co. (1997), 41 B.C.L.R. (3d) 326 at 334, where the court noted that in that case, the insurance policy was intended by the parties to be a general liability insurance policy and not a performance bond. Melvin, J. emphasized that the material provided by Climatic to the plaintiff was not defective, but that it was not in accordance with the terms of the contract with the plaintiff. He therefore concluded that the CGL policy did not provide coverage for failure to perform a contract to provide specific equipment.

The court also considered whether the defendant insurer, by its conduct in defending the action and in communicating in the fashion that it did with its insured and its insured’s solicitor, was estopped from denying the coverage.

In applying the law relating to estoppel, the court considered whether a representation is made to the representee and whether that representation is made with the intention of inducing the representee on the face of the representation to alter his position to his detriment. The burden is on the representee to show that the representation existed and that he relied on it to his detriment.

In this case, no formal non-waiver agreement was entered into between the insured and insurer. However, as a result of correspondence between Climatic’s solicitor and the insurer’s solicitor, Melvin, J. found that the insured Climatic knew for approximately four years prior to the trial date in the underlying action that there were serious issues to be addressed in terms of coverage, and that in the event the plaintiff was successful, Climatic would not be insured. This was so although no formal non-waiver agreement was executed between the insurer and the insured, nor was a letter expressly stating a reservation of rights sent to the insured. Under these circumstances, the insurer could not be estopped from denying coverage.

The plaintiff’s action was therefore dismissed.

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