Defence & Indemnity - April 2017

An Analysis of Insurance Case Law and Legislation

1. INSURANCE ISSUES

   1. The Alberta Court of Appeal reiterated that policies cover insured perils but not pre-existing deficiencies in the property that are not caused by the peril, but only discovered as a result of the peril, such as building by-law compliance.

   852819 Alberta Ltd v Sovereign General Insurance Company, 2017 ABCA 76

1. Facts and Issues

   The insured's building suffered ice damage and the Defendant insurer paid to have the damaged portions of the roof repaired. Subsequently, a building inspector advised the insured that the entire roof structure had to be changed because it was not compliant with the building code. The roof had not been compliant with the building code before the loss. The insured had the roof brought up to code at a cost of $527,497.46. It sought indemnity for this from the insurer. After a summary trial, the trial judge held for the insured and awarded it the indemnity. The insurer appealed.

2. HELD: For the insurer; appeal allowed and claim dismissed.

   1. The Court noted that the trial judge had not had the benefit of the Court of Appeal's decision in Roth v. Economical Mutual Insurance Company, 2016 ABCA 399 [briefed in the February 2017 edition of Defence & Indemnity]. The Court re-iterated its conclusion in that case to the effect that an insurance policy does not cover losses (such as lack of building code compliance) that are not caused by the loss, but are only discovered because of the loss:

   [8] In Roth at para 23, this Court decided that:

   It cannot reasonably be suggested that either the insurer or insured would have anticipated recovery for pre-existing deficiencies in a building where the peril insured against . . . did not actually create the bylaw issue. Extending coverage in such cases would require that the insurer determine in each case whether the property complied with all relevant bylaws, as it would be responsible for the costs of remedying any and all deficiencies unearthed as part of subsequent damage insured against. Quite apart from the fact that this would be practically impossible in most cases, it would also effectively turn an insurer into a guarantor of construction defects and building code violations. Insurance indemnifies against risk whereas requiring an insurer to be responsible for hidden damage pre-existing the fortuitous event in question is more in the nature of a warranty: University of Saskatchewan v Fireman's Fund Insurance Co. of Canada (1997), 1997 CanLII 9789 (SK CA), [1998] 5 WWR 276 (Sask CA) at paras 36-37. This cannot be reasonably expected of an insurer.

   Here the non-compliant roof may have been discovered as a result of the damage caused by the insured peril, but the damage was not caused by that peril.

   [9] For the same reasons as given in Roth, in our view the appellants are not obliged to indemnify the respondent for the $527,497.46 incurred to upgrade the entire roof of its building because this cost is not from "a loss resulting from an insured peril." The structural deficiency involving the undamaged portion of the building's roof did not come about as a result of the ice damage.

   2. Where a claimant pleads an intentional act as negligence, in the context of an exclusion clause for intentional acts, the claim for negligence may be considered to be "derivative" of the intentional tort and thus excluded by the exclusion clause.

   Reeb v. Guarantee Co. of North America, 2016 ONSC 7511 per Bondy, J.

1. Facts and Issues

   This case considered an application brought by Ryan Reeb (hereinafter referred to as "Ryan") seeking a declaration that he is insured under two policies of insurance. The first (the "Guarantee policy") was a policy issued to his father Tim Reeb ("Tim") by the...