An insured (“MWH”) under a professional liability policy was successful in obtaining a declaration that its insurer (“Lumbermens”) owed a duty to defend MWH where the Court found that MWH had reported a “circumstance” which might result in a claim within the policy period

MWH International, Inc. v. Lumbermens Mutual Casualty Co., [2006] B.C.J. No. 319 British Columbia Supreme Court

MWH provided design and engineering services for the design and construction for the Keenleyside 170 megawatt power plant in Castlegar, British Columbia. Lumbermens provided professional liability insurance coverage (the “Policy”) for various parties involved in the design and construction of the project. On April 30, 2004, the approach channel’s concrete liner was damaged which necessitated the shutdown of the power plant.

MWH requested coverage under the Policy, arguing that Lumbermens had a duty to defend MWH upon the reporting of a “circumstance”. A “circumstance” was included under the definition of “claim” in the Policy and was defined as “an event reported during the Policy Period from which the insured reasonably expects that a claim could be made”. MWH argued that a “circumstance” was reported to Lumbermens in 2004. Lumbermens denied coverage on the basis that the reporting of a “circumstance” did not trigger the duty to defend which required the reporting of a “claim” against the insured seeking damages. The Policy was effective from January 1, 1999 to January 1, 2005. Notice of a claim by the operator of the power plant was not provided to the general contractor until March 31, 2005.

The Court reviewed correspondence from counsel for MWH to Lumbermens on June 10, 2004 in which Lumbermens was advised that no formal proceedings or formal claim had yet been advanced against MWH. Counsel for MWH did indicate that both the owner of the power plant and the general contractor had “intimated their claim may well be made depending on the outcome of the current investigation into the cause of the failure of the concrete approach channel”.

The Court reviewed endorsement no. 6 to the policy and found that this endorsement modified the definition of “claim” to include a “circumstance”. The Court noted that the title of this endorsement, “Definition of a Claim”, strengthened the view that a “circumstance” was to be included as part of the definition of a “claim” throughout the Policy, including the provisions relating to providing notice of a claim.

The Court found that the June 10, 2004 letter from counsel for MWH contained all of the details required to provide notice of a potential claim, including the identity of the party, the time, place and circumstances of the failure, the name of the project, the name of the insurer and the policy number. On an objective assessment, the Court found that there was no question that the letter provided notice of a “circumstance” and therefore a “claim” under the Policy.

In the result, the Court found that Lumbermens’ coverage obligations arose from June 10, 2004 and that the duty to defend was triggered at that time.

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