A condominium corporation is entitled to subrogate against their general contractor, even though the general contractor is a unit holder in the corporation

The Alberta Court found that the provisions of the Condominium Property Act, the applicable Bylaws, and the applicable insurance policies did not bar a claim by the Plaintiff Condominium Corporations against their general contracting company which was also a unit holder and they were entitled to subrogate against it.

Condominium Corp. No. 9813678 v. Statesman Corp., [2006] A.J. No. 1578, Alberta Court of Queen’s Bench, Wittmann A.C.J.Q.B., December 7, 2006

In this case, the Court was asked to determine a preliminary issue regarding the interpretation of two insurance policies. The Applicants, Condominium Corp. 981 and Condominium Corp. 001 were two of the Plaintiffs in an action brought against the developer and general contractor of the Waterford Buildings, Statesman Corporation (“Statesman”). It was alleged that a fire which damaged the Waterford Buildings was caused by the negligence of an employee of a company subcontracted by Statesman to provide construction services. The Applicants were required by the Alberta Condominium Property Act to place and maintain insurance against loss resulting from destruction or damage caused by a variety of perils including fire. The applicable bylaws required that they each obtain and maintain “all risks” insurance, including fire, and that a waiver of subrogation be provided against various entities including the unit owners. At the time Statesman acted as a developer, it also owned units in the buildings damaged by fire.

The Insurers who paid out the full amount of the loss sought to recover approximately $25 million, standing in the shoes of the Applicants by way of a subrogated action.

The first issue was whether Statesman was entitled to the benefit of the waiver of subrogation. The Court found that because the subrogation provision did not include Statesman in its capacity as a contractor, the policies were not intended to cover the business activities of the unit owners, and Statesman was not entitled to the benefit of the waiver of subrogation.

The second issue was whether Statesman could be subrogated against, as an Insured under the policy. The Court stated that s. 25(3) of the Condominium Property Act expressly provided that a condominium corporation may bring an action against an owner. Because the condominium corporations are capable of bringing the action, so too their insurers and Statesman could therefore be subrogated against as an Insured under the policy.

The third issue was whether the risk of loss or damage by fire was transferred from Statesman to the Plaintiff corporations pursuant to a covenant in the bylaws to provide and obtain insurance coverage. The Court found that in its capacity as the general contractor, Statesman was not a party to the bylaws and the covenant to insure therefore did not extend to Statesman in its role as general contractor. Accordingly, Statesman qua contractor was barred from relying on the covenant.

In the result, the Court found that the provisions of the Act, the Bylaws, and the policies did not bar the Applicants’ claim against Statesman and the Applicants were entitled to subrogate against Statesman.

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