“Leaky condo” defects are not property damage and do not create an entitlement to coverage for a general contractor

The Court dismissed the general contractor’s petition that the respondent Insurer had a duty to defend it in four underlying actions because the alleged damage was to the very building the general contractor was contracted to build and the allegations therefore did not involve “property damage” under the terms of the policy.

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2007] B.C.J. No. 651, British Columbia Supreme Court, Cohen J., March 29, 2007.

The petitioning general contractor, Progressive Homes Ltd. (“Progressive”), sought a declaration that the Respondent liability insurance company, Lombard General Insurance Co. of Canada (“Lombard”), was required to defend it in four actions. The four underlying actions were brought against Progressive by the BC Housing Management Commission (“BC Housing”), which alleged “leaky condo” type defects in the construction of four condominium developments. Lombard argued it had no duty to defend because the claims made in the underlying actions did not fall within the initial coverage grant under the insurance contract, as they did not relate to a claim for personal injury or damage to third party property outside the building.

The sole issue for determination was whether Lombard, under the terms of the policies, was obligated to defend Progressive with respect to the underlying actions. The Court relied on Swagger Construction Ltd. v. ING Insurance Company of Canada which held that any damage to other parts of the building resulting from the contractor’s defective workmanship was not covered by the policy based on the principle that a CGL policy is not intended to be a performance bond. Furthermore, any defect in the structure is a defect in the quality of the whole and it is artificial to treat a defect in an integral structure as a dangerous defect liable to cause damage to “other property”.

 In the result, the Court found that the allegations in the underlying actions did not allege “property damage” because the alleged damage was to the very building Progressive was contracted to build. Accordingly, coverage under the insurance contracts could not be triggered, Lombard was under no duty to defend Progressive and the application was dismissed.

This case was originally summarized by Steve Vorbrodt and originally edited by David W. Pilley.

To stay current with the new case law and emerging legal issues in this area, subscribe here.