A general contractor had a commercial general liability insurance that contained a clause that excluded coverage for property damage caused by the general contractor. The property being developed suffered substantial damages and the developer sued the general contractor and a number of sub contractors. A contentious issue was whether one of defendants was a sub contractor or an independent contractor. The general contractor commenced an action against his insurer to compel the insurer to provide a defence to the action. The insurer refused on the basis that the contract excluded coverage for property damage caused by the general contractor, which includes sub contractors. In assessing the application, the court noted that this was not an appropriate case to refer to extrinsic evidence – the court should only look at the pleadings – in deciding whether the insurer owed a duty to defend the action commenced against their insured. The court determined that, based on the statement of claim, that the damages claimed amounted to property damage caused by the general contractor or a sub contractor. The court noted that the determination of whether the sub contractor was an independent contractor was too contentious an issue to resolve in an application for insurance coverage and would have to be resolved at the damages trial commenced against the general contractor.
Russel Metals Inc. v. Ball Construction Inc.,  O.J. No. 4673, Ontario Superior Court of Justice, B.A. Allen J., November 29, 2007
The Insurer issued a “Prime Hard Hat” liability insurance policy to the Insured, which provided for commercial general liability insurance and commercial umbrella coverage insurance (the “Policy”). The Policy insured “property damage” up to a limit of $2,000,000, with a deductible of $5,000 for each “occurrence”. The umbrella policy insured “property damage” up to a limit of $8,000,000, with a self-insured retention of $10,000 for each “occurrence”.
In the underlying action, the Plaintiff claimed damages for the cost of correcting deficiencies in the structure of a building, lost productivity and the cost incurred in investigating the building deficiencies. The Plaintiff entered into a contract with the Insured, the General Contractor on the project, for the construction on the Plaintiff’s property of a steel processing facility, which involved the erection of five overhead cranes. The Insured subcontracted with Spencer Steel Ltd. to supply the structural steel and to build several runways to support the overhead cranes. Larco Industrial Services Ltd. was retained to supply, install, relocate, retrofit and commission the five overhead cranes. The Plaintiff began to notice vibrations when the cranes were in use. As the operation of the facility proceeded, improperly aligned crane runways, shifting crane runways, cracked concrete block walls and broken or loose runway bolts were discovered. The Plaintiff commenced an action against the Insured and other defendants involved in various capacities in the construction of the building for general damages for breach of contract and negligence.
For damage to be “property damage” under the Policy, the damage had to be to work other than that of the General Contractor. Damage to work of the General Contractor was excluded under the Policy. For the incident that resulted in the damage to be an “occurrence” under the Policy, the damage had to be to work other than what the General Contractor had contracted to perform.
The Insured argued that in this case it was appropriate to look outside the Statement of Claim to determine the true nature and substance of the pleadings. The Insured took the view that the Court could look to extrinsic evidence, other pleadings and a response to a Demand for Particulars to determine the substance of the pleadings. The Insured sought, with the assistance of external sources, to support its argument that Larco performed its work under an independent contract and that the damage to the Plaintiff’s property resulted from Larco’s work, which was outside the work the Insured performed in constructing the building.
The Insurer took the position that no claim for damage to work outside the work the Insured contracted with the Plaintiff to do could be inferred from the Plaintiff’s pleadings. In the Insurer’s view, it was not necessary, nor would it be appropriate to look outside the Statement of Claim to determine whether coverage was triggered.
The Court accepted the Insurer’s position that the substance of the Plaintiff’s allegations against the Insured was directed at the work of the Insured and contractors and not against work outside the Insured’s contract with the Plaintiff. The Court found that the question whether Larco was a subcontractor of the Insured or had an independent contract with the Plaintiff was contentious and it would not be appropriate to answer that question on a preliminary determination of coverage. Therefore, the Court declined to consider any pleadings other than those directed against the Insured.
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