Insurers Ordered To Defend Negligent Construction Action, Pay All Pre-Notice Costs

• Published date: 26 May 2022
• Subject Matter: Insurance, Real Estate and Construction, Insurance Laws and Products, Construction & Planning
• Law Firm: Theall Group LLP
• Author: Mr Dylan Cox

Introduction

In GFL Infrastructure Group Inc. v. Temple Insurance Company,¹ the Ontario Court of Appeal (ONCA) ruled for the insureds on an application brought after two insurers (the 'Insurers') refused to defend an action alleging negligent construction of a condominium building. The Court rejected the Insurers' argument that damages and defence costs associated solely with excluded claims could be distinguished from potentially covered damages and costs. These issues could not be addressed until after the underlying action was tried. The insurers had to provide a full defence.

Jeffrey Brown and Dylan Cox from our office acted for the insureds who took the lead on this appeal and the underlying application.

Facts

Toronto Standard Condominium Corporation No. 2299 ('TSCC') controlled, administered and managed a Toronto condominium. TSCC sued the developers, promoters and builders of the condominium (the 'Developer Parties'), alleging negligent construction, among other causes of action. The Developer Parties asserted claims for contribution and indemnity against multiple subcontractors involved in constructing the condominium, including Rite-Air Mechanical Co. Ltd. ('Rite-Air'), GFL Infrastructure Group Inc. ('GFL') and Ashland Construction Group Ltd. ('Ashland').

The Developer Parties, Rite-Air, GFL and Ashland were all insured under a wrap-up liability policy underwritten by the Insurers. The insureds each tendered the actions against them for coverage by the Insurers, who denied any duty to defend.

Application Decision

The Insurers raised several grounds for refusing to defend. As against GFL and Ashland, they argued that none of the underlying claims were potentially covered. To the extent there was potential coverage for the Developer Parties and Rite-Air, the quantum of damages pled for potentially covered claims was less than the policy's $10,000 deductible. Therefore, they argued that no insured was owed a defence.

In support of this argument, the Insurers sought to rely on extensive expert's reports referred to in the pleadings against the insureds.

The applications judge rejected these arguments, finding a duty to defend. He refused to consider the expert's reports in the applications by the insureds who faced potentially covered claims. The reports would not help him answer the question central to all duty to defend applications: 'Is there a mere possibility that the claim against the insureds falls within coverage?' The reports could not assist...