Insurers: Guard Your Limits

• Published date: 18 March 2021
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Alexander Holburn Beaudin + Lang LLP
• Author: Mr Daniel Thompson

Is it possible to have unlimited coverage in an insurance policy? Does unlimited coverage accord with the reasonable commercial expectations of parties to an insurance contract? How will insurers provide mitigation coverage in the future?

In the recent decision of Surespan Structures Ltd. v. Llyods Underwriters, 2021 BCCA 65, a three judge panel of the British Columbia Court of Appeal grappled with these issues in an appeal of the interpretation of an insurance policy in place on a $400 million project. In particular, the Courts considered the applicability of coverage limits in respect of mitigation of loss coverage. In upholding the decision of the trial judge, the Court of Appeal found that the applicable coverage was not subject to the policy limits.

The brief facts of this case are that Surespan Structures Ltd. ("Surespan") incurred on the order of $10 million in costs to correct a defect in the design of a parking garage. The Insurer had bound project specific professional liability insurance covering all parties that provided professional services to the project. The policy had an aggregate limit of $10 million.

The policy language in question is not common in Canadian insurance policies, and in this case the policy was individually negotiated and drafted. At issue was the wording of coverage from damages associated with mitigation:

MITIGATION OF LOSS

The INSURERS will additionally indemnify the INSURED against the costs of remedying defects in the WORKS in order to fulfil contracts undertaken for others where such costs are necessarily incurred prior to SUBSTANTIAL COMPLETION with the prior written consent of THE INSURER (such consent not to be unreasonably withheld).

Provided that such defect in the WORKS must result from an error, omission or negligent act in the performance of PROFESSIONAL SERVICES by the INSURED or those employees or sub‑consultants for whom the INSURED is legally liable and the onus of satisfying this provision rests with the INSURED.

(the "Mitigation Coverage")

In finding that the Mitigation Coverage was not subject to the $10 million policy limit, the Court considered the coverage afforded under the policy as a whole, and in particular the language of the other categories of coverage.

The Court noted that the three other coverages under the policy, Damages, Defence, and Supplement Payment Coverages, included specific language limiting coverage to the policy limits.

The Trial Judge found this to be of particular...