Insurer Had Duty to Defend Construction Company from Claim by Condominium Corporation

Commercial general liability insurer found to owe insured, a construction company, a duty to defend it in respect to a claim by a condominium corporation for alleged construction defects.

Canalta Construction Co. Ltd. v. Dominion of Canada General Insurance Co., [2013] A.J. No. 592, June 3, 2013, Alberta Court of Queen’s Bench, V.O. Ouellette J.

The insured, a construction company, sought a declaration that the insurer had a duty to defend it in an action commenced against it by a condominium corporation. The insured acted as the general contractor/developer of the project. During construction the insured obtained a commercial general liability policy from the insurer.

The condominium corporation sued the insured for breach of contract and negligence resulting in alleged deficiencies and/or defects in relation to the units which had been sold by the insured. The alleged deficiencies were in the design and construction of the condominiums, resulting in failure of a water main and failure of a roof system to repel water vapour and to provide insulation.

The insurer argued that coverage was excluded because: 1) the action relates to property damage that occurred outside the applicable period; 2) the essence of the action is a claim for breach of contract; 3) the action relates to damage to property that was sold by the insured prior to the damage occurring; 4) the definition of property damage is limited to third-party property damage.

The court, citing the Supreme Court of Canada decision in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, held that there was a possibility that the claims fell within the CGL policy. The court held that the damage had arguably occurred when the actual design and construction occurred, which was when the policy was in effect. The court also found that the claim of negligent design and construction was not simply derivative of a breach of contract claim. Finally, the court held that it was not obvious that the definition of “property damage” in the policy was limited to third-party property damage.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

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