A builder’s risk policy provides coverage to an entire structure, even if the builder is only providing an extension to a large existing structure

When a contractor expands an existing structure, the contractor’s insurance extends to the entire existing structure, such that an explosion caused by a contractor working on the expansion, that damages the existing the structure, is covered by the contractor’s insurance.

Medicine Hat College v. Starks Plumbing & Heating Ltd., [2007] A.J. No. 1337, Alberta Court of Queen’s Bench, McDonald J., November 14, 2007

The issue that arose on this motion was whether the loss suffered by the Plaintiff was covered by a comprehensive business policy such that there was a right of subrogation by the Plaintiff as against the Defendants; or, alternatively, was the loss covered by a builder’s risk policy held by the Defendants, such that there would be no right of subrogation by the Plaintiff against the Defendants.

The issue arose because the main Defendant’s contract with the Plaintiff related to an expansion of the Plaintiff’s existing facilities. All other authorities cited to the Court dealing with the issue of coverage under a builder’s risk policy involved a new construction project and not a situation involving an expansion and/or addition to an existing structure. Nevertheless, the Court found these situations to be analogous. It found that in a situation where there is an addition to an existing structure (as opposed to when a new stand-alone building is being constructed on the same property), the negligence of a trade or sub-trade employed to do the work could cause damage to all, or at least a portion of the existing structure. In this case, there was no question that the new construction caused damage to the existing building.

The Supreme Court of Canada in Commonwealth Construction Co. v. Imperial Oil Ltd., [1978] 1 S.C.R. 317 recognised that each trade and sub-trade on a project has an insurable interest in the entire project. In this case, the Court expanded that principle to the situation where there is an expansion or addition to an existing structure and as such, found that trades and sub-trades involved in the expansion work have an insurable interest in the entire interconnected structure and not merely the new addition that they are working on.

In the result, the Court found that all parties involved in the construction of this project had an insurable interest not only in the addition to the existing structure, but the existing structure itself. To hold otherwise would defeat the reasonable expectations of the parties and would require a clear language of exclusion, which was absent in this case. As such, the loss in question was covered by the builder’s risk policy.

This case was originally summarized by Cameron B. Elder and edited by David W. Pilley.

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