The Chambers Judge found that the liability insurers of a general contractor were not required to provide a defence against claims for the cost of repairing work damaged by the other allegedly defective work within the same structure because such damage did not fall within the meaning of the term “property damage” under the policy

Swagger Construction Ltd. v. ING Insurance Co. of Canada, [2005] B.C.J. No. 1964, British Columbia Supreme Court

The Petitioner, Swagger Construction Ltd. (“Swagger”), was the general contractor for construction of the Forest Science Centre at the University of British Columbia (“UBC”). Swagger sought an order that three liability insurers had a duty to defend it against a counterclaim brought by UBC for damages arising from the construction project.

Each of the Respondent Insurers issued a commercial general liability (“CGL”) policy covering some portion of the construction. The policies provided indemnity to Swagger in the event of liability for personal injury or property damage. The Insurers argued that the counterclaim was a claim for deficiencies in Swagger’s own work, which was not covered by the policies.

The counterclaim by UBC against Swagger contained allegations that Swagger caused construction deficiencies in the project and that these deficiencies caused additional damage to the building that formed part of the project. There was no allegation of damage to property other than the Forest Science Centre.

The main issue was whether or not Swagger’s claims for the costs of repairing work damaged by the other allegedly defective work fell within the meaning of the term “property damage” under the policy. This category of damages, defects in one part of the building causing damage to other parts, did not arise in the seminal case of Privest Properties Ltd. v. Foundation Co. of Canada Ltd. (1991), 57 B.C.L.R. (2d) 88. The Court held that the basic principle set out in Privest, and the authorities on which it was based, is that for the purpose of CGL policies, damage to “tangible property” does not include the cost of remedying defects in the Insureds’ own work.

However, even if resulting damage to non-structural portions of the Plaintiff’s own work could be called property damage for the purpose of these policies, it would be necessary to consider whether that property damage might be the result of an “occurrence.” The policies defined an occurrence as an “accident.” The Court cited the Supreme Court of Canada’s decision in Canadian Indemnity Co. v. Walkem Machinery and Equipment Ltd., [1976] 1 S.C.R. 309, which defined an “accident” as “any unlooked-for mishap or occurrence” including a mishap that would have been avoided by the exercise of greater skill.

The Court found that AXA Pacific Insurance Co. v. Guildford Marquis Towers Ltd. (2000), 74 B.C.L.R. (3d) 194 was distinguishable on the basis of the policy wording. The Court also found that it was not bound to follow F.W. Hearn/Actes – A Joint Venture Ltd. v. Commonwealth Insurance Co. (2000), 75 B.C.L.R. (3d) 272 because subsequent decisions affected the validity of that judgment and it was demonstrated that some binding authority in case law or some relevant statute was not considered by the judge in that case.

In the result, the Court found that Swagger’s claim did not fall within the insuring agreement. In addition, the policy contained a general exclusion clause relating to the Insured’s own work. Furthermore, the allegations in the counterclaim did not come within the insuring agreements of any of the policies and therefore none of the insurers were required to provide Swagger with a defence and the petition was dismissed.

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