Coverage issues may not be resolvable without a full trial when there are facts in dispute

A fire burned down the student union building and the gym that was attached to the building.  A dispute arose as to whether the losses sustained to the gym were covered by the CGL policy issued to the construction company.  The property insurer brought an application for summary judgment. The court determined that it was not clear from the wording of the policy whether the gym was meant to be included in the CGL policy or not [in which case it would be covered by the property insurance]. The court found that determination of the issue would require a finding based on disputed facts and as such it was not a matter suitable for a summary trial.

University of Prince Edward Island v. Stevenson, 2008 PESCTD 8, Prince Edward Island Supreme Court – Trial Division, D.H. Jenkins J., January 28, 2008

A fire loss occurred at the UPEI Student Centre. The Centre was in the midst of a renovation and expansion whereby the old UPEI Alumni Gym would be selectively demolished and integrated within the new facility. The insurer had provided the “all risks” insurance coverage to the general contractor for the construction project. The insurer denied coverage on the basis that the fire loss involved the Gym, which according to the insurer was excluded from coverage under the “all risks” policy pursuant to a contractual exclusion for existing structures. UPEI then filed its proof of loss with its own property insurer which paid the claim and brought a subrogated action in negligence against all contractors and sub-contractors on the site who may have been tortfeasors.

Two sub-contractors brought third-party proceedings against the insurer for a declaration that the “all risks” policy that the insurer issued to the general contractor was the primary property insurance in respect of the loss and that the sub-contractors were unnamed insureds under that policy.

After the close of pleadings and completion of oral discovery on the third-party claims, the sub-contractors brought a motion for summary judgment against the insurer for judgment on the third-party claim.

The main issue on the motion was whether the fire loss occurred to a structure that was included or excluded from coverage. The policy provided as follows:

“1. This Policy, except as herein provided, insures

(a) property in the course of construction, installation, reconstruction, or repair.”

The insurer issued an endorsement on the “all risks” policy which stated:

“It is hereby agreed that permission is granted for the continuing use and occupancy of the premises for the purposes necessary or incidental to such premises.

It is further agreed that coverage under this policy attaches only to section under renovation and not to existing structure.”

The issue therefore was whether coverage under the “all risks” policy covered the damage caused by the fire that occurred in the Gym.

The court concluded that the Gym structure was dedicated to the construction project. The Centre was to be a new building.  The design of the Centre incorporated specific components of the Gym including three brick walls, foundation, steel roofing, and steel girders. During performance of the work, problems were discovered with the structural integrity of the Gym, and reinforcements were commissioned. That undertaking was assigned to one of the sub-contractors which brought the third-party proceedings.

The court also found that insurer’s understanding of the construction project was materially at odds with that description.  The insurer understood that the new construction was an addition that would be attached to an existing structure. The Certificate of Insurance described the project as “renovation/additions student union building…”. At the time of the fire, the Gym was within the construction envelope and under renovation. It was part of the construction site. The contractor had control of the building. It was not then a building for use and enjoyment as a Gym. The court concluded as follows:

“(1) that the property damaged by the fire was property within the construction site and subject to the construction project;

(2) that the fire loss occurred during the operation of the construction project; and

(3) that the “all risks” insurer was operating under a misapprehension that the project was an addition to an existing student-union building and that the Alumni Gym was an existing and occupied building.”

Despite these findings, the court found that the insurer’s defence survived the “good hard look that is to be applied at the summary judgment stage.” The court held that there were questions of fact that would or could involve full evidence at trial. When the fire occurred, the construction project was at a very early stage. There was also a question of fact regarding the nature of the property that was damaged by the fire. On this basis the Court found that the matter should proceed to trial and the motion for summary judgment was dismissed.

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

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