September 26, 2008

Insurance

Ontario forming firm covered by liability coverage

Court of Appeal rules in defective concrete case

PETER KENTER

Correspondent

The Ontario Court of Appeal ruled recently that a contractor who poured foundations made of faulty concrete should be covered by commercial general liability insurance.

The case involved Ani-Wall Concrete Forming Inc., a Toronto company that, in 2002, had unknowingly ordered defective concrete from Dominion Concrete and used it to build houses. When the defective concrete deteriorated prematurely, Ani-Wall was sued by owners and builders. Ani-wall was insured by AXA Insurance (Canada) which agreed to defend the contractor against the claims, but refused to pay for the cost of removing or repairing the concrete.

Last October, AXA brought an application in the Superior Court for a series of declarations saying it had no obligation to indemnify Ani-Wall for the cost of removing or replacing the defective concrete, relying on the “Your Work,” “Your Product,” and “Rip and Tear” exclusions in the policy.

Thomas Gold Pettingill LLP acted for Ani-Wall and sued AXA to obtain coverage under the policy. Justice Paul Perell of the Ontario Superior Court agreed with Ani-Wall and held that none of the exclusions applied.

Part of the case hinged on whether Dominion Concrete could be considered a supplier or a contractor, who had performed work for Ani-Wall.

“If a sub-contractor performed work on my behalf, there should be coverage,” says Steve Indio, owner of Ani-Wall. “But our argument was that a supplier is a contractor if they perform customized work to the site. Ordering concrete isn’t like ordering two-inch spirals. Delivered concrete is a specific mix that can’t be used anywhere else. The product is ordered with a specific water amount, air amount and strength and has to be delivered at a certain time, after which it has a short lifespan. I don’t think liability insurance is meant to protect a contractor such as myself from their own screw-ups. but if the work is done on my behalf, the liability insurance is not supposed to exclude coverage.”

That’s just what lawyer Tom Donnelly argued in court.

“Our argument was that Ani-Wall wasn’t responsible for the faulty work, it was the sub-contractor who did the bad work and we rejected the insurance company’s argument on that point,” he says.

The lawyers also argued that the “Rip and Tear” exclusion could not be easily understood by policyholders.

“It’s very important that you have an insurance broker who can explain coverage and lack of coverage in each area,” says Donnelly. “In this case we argued that the exclusion — which is presumably intended to remove coverage for removal and replacement of defective concrete — was poorly drafted and difficult to comprehend if read literally.”

The Court of Appeal agreed with Ani-Wall and the lower court that the clause was poorly drafted and unenforceable. In the written decision Justice Moldaver of the Court of Appeal wrote: “AXA’s proposed interpretation is not illogical. It presumably reflects the limitation on coverage that AXA sought to achieve. But AXA cannot get out from under the wording it chose to use, at least not without having this court rewrite the clause. That is not our function.”

Bruce Thomas, founding partner of Thomas Gold Pettingill notes that, in some parts of Ontario, builders specifically agree by contract to become the concrete supplier. “If the contract says ‘I will supply and install the concrete’ and the concrete former gets the bill from the ready-mix company and then charges the home builder, the situation is different,” he says.

Indio says the case has taught him to be vigilant about contractor insurance. “Having learned a little bit about insurance over the past few years, I advise contractors to get a good broker who understands your business and your industry, and a good insurance policy that clearly covers the areas you need,” he says.

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