A wrap-up policy which does not clearly exclude coverage will be required to defend a potential insured

An insurer was ordered to defend insured pursuant to a project specific wrap-up policy with respect to claims brought by owner of a building against the insured, the general contractor with respect to its construction.

PCL Constructors Canada Inc. v. Encon Group, [2010] O.J. No. 4566, October 27, 2010, Ontario Superior Court of Justice, D.A. Wilson J.

The applicant insured sought a declaration that the respondent insurer was obligated to provide a defence pursuant to a project specific wrap-up liability policy in an action commenced . The insured sought further orders that the insurer be required to reimburse the insured for expenses incurred in defending the action and that the insured be entitled to appoint its own counsel.

The insured is a company which is involved in the management of construction of commercial buildings. In this case the insured was the general contractor for the construction of a thirty-four storey highrise residential condominium which was constructed between 2000 and 2003. In 2006 the insured was sued by the condo corporation for damages for alleged defects and deficiencies in construction. The insurer declined to defend the insured on the basis that there was no coverage for the claims asserted.

The court found that on a reasonable reading of the claim the damages claimed by the plaintiff fell within the provisions of the policy and thus the duty to defend was engaged. Further, the court found that the insurer could not establish that an exclusion clause clearly applied. As the insurer had not discharged the onus of demonstrating that the “your work” exclusion clearly excluded coverage, the insurer would have to indemnify the insured on the claim as currently pled. As it was at that time impossible to separate the defence costs for claims that would be covered from those for which there would be no coverage, the insurer was liable to the insured for its defence costs. The court did not grant the order sought by the insurer that it be allowed to appoint its own counsel. The court cited the insurer’s contractual right to control the defence and appoint the counsel of its choosing.

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

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