Progressive Homes Ltd. v. Lombard General Insurance Co. Of Canada, 2010 SCC 33

This morning the Supreme Court of Canada released its decision in Progressive Homes Ltd. v. Lombard General Insurance Co., on review from the British Columbia Court of Appeal (the decision may be found online at http://scc.lexum.umontreal.ca/en/2010/2010scc33/2010scc33.html ). The Supreme Court has overturned the decision of the BC Court of Appeal, and has ruled that Lombard owed a duty to defend to its insured, Progressive Homes Ltd.

This decision is of critical importance for liability insurers in Canada, as it resolves divergent lines of case law which have emerged across the country in respect of coverage for claims alleging construction deficiencies.

The Action arose out of a denial of coverage to Progressive Homes, who was being sued for having acted as the general contractor in the construction of four buildings alleged to have deficient building envelopes. Progressive Homes' CGL insurer denied coverage for the claim, asserting that all of the damages alleged were the normal expected consequences of faulty workmanship, and therefore the alleged damage was not caused by an "accident" or an "occurrence", nor did it constitute "property damage" as required by the policies.

In the decision below, the BC Court of Appeal sided with the insurer, ruling that the claim made against the general contractor did not allege fortuitous "property damage", as defined in Progressive Homes' liability policies, and therefore did not fall within the ambit of the coverage provided. The rulings of the BC courts stood in contrast to those of courts in Ontario (Bridgewood Building Corp. v. Lombard General Insurance Co. of Canada) and Saskatchewan (Westridge Construction Ltd. v. Zurich Insurance Co.) which each employed a broader reading of the coverage grant in similar liability policies.

This morning's decision of the Supreme Court of Canada has overruled the BC Court of Appeal, with Justice Rothstein writing for a unanimous court, as summarized in the Court's headnote:

The duty to defend only requires a possibility of coverage, and that possibility is made out in this case. The pleadings reveal a possibility of "property damage". The pleadings describe water leaking in through windows and walls and allege deterioration of the building components resulting from water ingress and infiltration. The pleadings also describe defective property. The pleadings also sufficiently allege an "accident" for the purpose of deciding whether Lombard owes a duty to defend. There is no reference to intentional conduct by Progressive which would suggest that the property damage was expected or intended. The pleadings allege negligence, which, on its face, suggests that the damage was fortuitous. In addition, it is clear from the pleadings that the damage alleged is the result of "continuous or repeated exposure to conditions", which squarely fits within the definition.

The Issues in Contention

It was alleged in the underlying action against Progressive Homes that it, as the general contractor in the construction of the four buildings in issue, was liable to the building owners because the owners had suffered damages...