Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, (2010) 406 N.R. 182 (SCC)

• Judge: McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: April 20, 2010
• Jurisdiction: Canada (Federal)
• Citations: (2010), 406 N.R. 182 (SCC);2010 SCC 33;[2010] SCJ No 33 (QL);406 NR 182;AZ-50673491;323 DLR (4th) 513;93 CLR (3d) 1;[2010] CarswellBC 2501;89 CCLI (4th) 161;[2010] 10 WWR 573;JE 2010-1683;[2010] EXP 3049;9 BCLR (5th) 1;293 BCAC 1;[2010] ACS no 33;EYB 2010-179515;[2010] 2 SCR 245;73 BLR (4th) 163

Progressive Homes v. Lombard General (2010), 406 N.R. 182 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2010] N.R. TBEd. SE.016

Progressive Homes Ltd. (appellant) v. Lombard General Insurance Company of Canada (respondent)

(33170; 2010 SCC 33; 2010 CSC 33)

Indexed As: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada

Supreme Court of Canada

McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.

September 23, 2010.

Summary:

Four actions were brought against a general contractor (Progressive) who built four condominium projects. The actions alleged significant damage due to water penetration of the buildings' envelopes. Progressive sought to rely on commercial or comprehensive general liability insurance policies issued by Lombard. Lombard alleged that it was under no duty to defend because the claims in the actions were not covered under the insurance contracts. Progressive applied for an order declaring that Lombard had a duty to defend it in the actions.

The British Columbia Supreme Court, in a decision reported at [2007] B.C.T.C. Uned. C26, dismissed the application. Progressive appealed.

The British Columbia Court of Appeal, Huddart, J.A., dissenting, in a decision reported at 268 B.C.A.C. 235; 452 W.A.C. 235, dismissed the appeal. Progressive appealed.

The Supreme Court of Canada allowed the appeal. Lombard owed a duty to defend Progressive in the four actions initiated.

Insurance - Topic 725

Insurers - Duties - Duty to defend - The Supreme Court of Canada stated that an insurer was required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim - It was irrelevant whether the allegations in the pleadings could be proven in evidence - The duty to defend was not dependent on the insured actually being liable and the insurer actually being required to indemnify - What was required was the mere possibility that a claim fell within the insurance policy - Where it was clear that the claim fell outside the policy, either because it did not come within the initial grant of coverage or was excluded by an exclusion clause, there would be no duty to defend - In examining the pleadings to determine whether the claims fell within the scope of coverage, the parties to the insurance contract were not bound by the labels selected by the plaintiff - The use or absence of a particular term would not determine whether the duty to defend arose - What was determinative was the true nature or the substance of the claim - See paragraphs 19 and 20.

Insurance - Topic 725

Insurers - Duties - Duty to defend - Four actions were brought against a general contractor (Progressive), who built four condominium projects, alleging significant damage due to water penetration of the buildings' envelopes - Progressive used subcontractors for most of the work - Progressive sought to rely on commercial or comprehensive general liability insurance (CGL) policies issued by Lombard - The successive policies required Lombard to defend and indemnify Progressive when Progressive was legally obligated to pay damages because of property damage caused by an occurrence or accident - Progressive alleged that it sustained losses when defects in one part of a condominium built by Progressive's subcontractors caused damage to other parts of the building (i.e., rot and deterioration) - There were three versions of the "work performed" exclusion in Progressive's successive policies - Lombard argued the "work performed" exclusion excluded coverage for damage to the work performed by Progressive (the four housing units) in their entirety - The Supreme Court of Canada held that Lombard had not discharged its burden of showing that the "work performed" exclusion clearly and unambiguously applied to all of the claims made against Progressive - There was a possibility of coverage under each version of the policy - Under the first version, there was a possibility of coverage for damage to work completed by a subcontractor and for damage resulting from work performed by a subcontractor - Under the second version, there was a possibility of coverage for damage resulting from the particular part of the insured's work that was defective - Under the third version of the policy, there was a possibility of coverage both for resulting damage and for any damage to work completed by a subcontractor - Therefore, the duty to defend was triggered - See paragraphs 52 to 70 and 72.

Insurance - Topic 6861

Liability insurance - Business - Comprehensive policy - General - The Supreme Court of Canada stated that commercial general liability (CGL) policies typically consisted of several sections - The policy set out the types of coverage contained in the agreement, for example, property damage caused by an accident - This was typically followed by specific exclusions to coverage - Exclusions did not create coverage - They precluded coverage when the claim otherwise fell within the initial grant of coverage - Exclusions, should, however, be read in light of the initial grant of coverage - A CGL policy could also contain exceptions to exclusions - Exceptions also did not create coverage - They brought an otherwise excluded claim back within coverage, where the claim fell within the initial grant of coverage in the first place - Because of this alternating structure of the CGL policy, it was generally advisable to interpret the policy in the order described above: coverage, exclusions and then exceptions - See paragraphs 26 to 28.

Insurance - Topic 6864

Liability insurance - Business - Comprehensive policy - Damage to property - What constitutes - Four actions were brought against a general contractor (Progressive), who built four condominium projects, alleging significant damage due to water penetration of the buildings' envelopes - Progressive used subcontractors for most of the work - Progressive sought to rely on commercial or comprehensive general liability insurance policies issued by Lombard - The policies required Lombard to defend and indemnify Progressive when Progressive was legally obligated to pay damages because of property damage caused by an occurrence or accident - Progressive alleged that it sustained losses when defects in one part of a condominium built by Progressive's subcontractors caused damage to other parts of the building (i.e., rot and deterioration) - Lombard argued that "property damage" in the policies could not mean damage caused by other parts of the same building - Property damage was limited to third-party property damage and did not include damage to the insured's own work - The Supreme Court of Canada rejected Lombard's argument - The plain and ordinary meaning of "property damage" in the policies included damage to any tangible property - Damage was not limited to third-party property - See paragraphs 29 to 41.

Insurance - Topic 6871

Liability insurance - Business - Comprehensive policy - "By accident" - Meaning of - Four actions were brought against a general contractor (Progressive), who built four condominium projects, alleging significant damage due to water penetration of the buildings' envelopes - Progressive used subcontractors for most of the work - Progressive sought to rely on commercial or comprehensive general liability insurance policies issued by Lombard - The policies required Lombard to defend and indemnify Progressive when Progressive was legally obligated to pay damages because of property damage caused by an occurrence or accident - Progressive alleged that it sustained losses when defects in one part of a condominium built by Progressive's subcontractors caused damage to other parts of the building (i.e., rot and deterioration) - It argued that "accident" included the negligent act that caused damage that was neither expected nor intended by Progressive - Lombard argued that faulty workmanship was not an accident and that interpreting accident to include defective workmanship would convert the policies into performance bonds - The Supreme Court of Canada rejected Lombard's argument - Whether defective workmanship was an accident was necessarily a case-specific determination - "Accident" should be given the plain meaning prescribed to it in the policies and should apply when an event caused property damage neither expected nor intended by the insured - According to the definition, the accident need not be a sudden event - An accident could result from continuous or repeated exposure to conditions - The pleadings sufficiently alleged an "accident" - See paragraphs 42 to 50.

Insurance - Topic 6877

Liability insurance - Business - Comprehensive policy - Construction contracts - Extent of coverage - [See second Insurance - Topic 725 ].

Insurance - Topic 6878

Liability insurance - Business - Comprehensive policy - Duty to defend - [See both Insurance - Topic 725 ].

Insurance - Topic 6909

Liability insurance - Business - Comprehensive policy - Exclusions - Property worked on by insured - [See second Insurance - Topic 725 ].

Words and Phrases

Accident - The Supreme Court of Canada discussed the meaning of this word as defined in several commercial general liability insurance policies - See paragraphs 30 to 41.

Words and Phrases

Property damage - The Supreme Court of Canada discussed the meaning of these words as defined in several commercial general liability insurance policies - See paragraphs 42 to 50.

Cases Noticed:

Swagger Construction Ltd. v. ING Insurance Co. of Canada et al., [2005] B.C.T.C. 1269; 47 B.C.L.R.(4th) 75; 2005 BCSC 1269, refd to. [para. 4].

Nichols v. American Home Assurance Co. et al., [1990] 1 S.C.R. 801; 107 N.R. 321; 39 O.A.C. 63, refd to. [para. 19].

Monenco Ltd. et al. v. Commonwealth Insurance Co. et al., [2001] 2 S.C.R. 699; 274 N.R. 84; 155 B.C.A.C. 161; 254 W.A.C. 161; 2001 SCC 49, refd to. [para. 19].

Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada et al., [2006] 1 S.C.R. 744; 348 N.R. 307; 211 O.A.C. 363; 2006 SCC 21, refd to. [para. 19].

Non-Marine Underwriters, Lloyd's of London v. Scalera - see Scalera v. Lloyd's of London.

Scalera v. Lloyd's of London, [2000] 1 S.C.R. 551; 253 N.R. 1; 135 B.C.A.C. 161; 221 W.A.C. 161; 2000 SCC 24, refd to. [para. 20].

Gibbens v. Co-operators Life Insurance Co., [2009] 3 S.C.R. 605; 396 N.R. 165; 278 B.C.A.C. 283; 471 W.A.C. 283; 2009 SCC 59, refd to. [para. 21].

Brissette v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; 142 N.R. 104; 58 O.A.C. 10, refd to. [para. 21].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 21].

Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. et al., [1995] 1 S.C.R. 85; 176 N.R. 321; 100 Man.R.(2d) 241; 91 W.A.C. 241, refd to. [para. 32].

Bird Construction Co. v. Allstate Insurance Co. of Canada, [1996] 7 W.W.R. 609; 110 Man.R.(2d) 305; 118 W.A.C. 305 (C.A.), refd to. [para. 33].

Alie et al. v. Bertrand & Frère Construction Co. et al. (2002), 167 O.A.C. 20; 222 D.L.R.(4th) 687 (C.A.), refd to. [para. 35].

Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Co. of Canada (2006), 211 O.A.C. 4; 266 D.L.R.(4th) 182 (C.A.), refd to. [para. 35].

Westridge Construction Ltd. v. Zurich Insurance Co. et al. (2005), 269 Sask.R. 1; 357 W.A.C. 1; 2005 SKCA 81, refd to. [para. 35].

Celestica Inc. v. ACE INA Insurance (2003), 174 O.A.C. 278; 229 D.L.R.(4th) 392 (C.A.), refd to. [para. 45].

Erie Concrete Products Ltd. v. Canadian General Insurance, [1969] 2 O.R. 372 (H.C.), refd to. [para. 45].

Harbour Machine Ltd. v. Guardian Insurance Co. of Canada (1985), 60 B.C.L.R. 360 (C.A.), refd to. [para. 45].

Supercrete Precast Ltd. v. Kansa General Insurance Co., [1990] B.C.T.C. Uned. 635; 45 C.C.L.I. 248 (S.C.), refd to. [para. 45].

Straits Towing Ltd. et al. v. Walkem Machinery & Equipment Ltd. and Canadian Indemnity Co., [1976] 1 S.C.R. 309; 3 N.R. 523, refd to. [para. 46].

Martin v. American International Assurance Life Co. et al., [2003] 1 S.C.R. 158; 301 N.R. 127; 178 B.C.A.C. 161; 292 W.A.C. 161; 2003 SCC 16, refd to. [para. 47].

Fenton v. Thorley & Co., [1903] A.C. 448 (H.L.), refd to. [para. 47].

American Family Mutual Insurance Co. v. American Girl Inc. (2004), 673 N.W.2d 65 (Wis.), refd to. [para. 57].

Authors and Works Noticed:

Audet, Maurice, Broad Form Completed Operations: An extension of  coverage or a

trap? (1984), 51:10 Canadian Underwriter 36, p. 38 [para. 57].

Couch on Insurance 3D (3rd Ed.) (2010 Looseleaf Update), vol. 11, p. 163-20 [para. 48].

Lichty, Mark G., and Snowden, Marcus B., Annotated Commercial General Liability Policy (1997) (2010 Looseleaf Update, Release 14), vol. 1, pp. 1-9 [para. 26]; 1-10 [para. 27]; 10-10 [para. 39]; vol. 2, pp. 22-1 [para. 48]; 22-4 [para. 52]; 22-11 [paras. 52, 57].

Wielinski, Patrick J., CGL Coverage for Defective Workmanship: Current (and Ongoing) Issues (2003), pp. lxi-iv, lxviii [para. 63].

Counsel:

Gordon Hilliker, Q.C., and Neo Tuytel, for the appellant;

Ward K. Branch, Michael Sobkin and Christopher Rhone, for the respondent.

Solicitors of Record:

Gordon Hilliker, Q.C., Belcarra, B.C., for the appellant;

Branch MacMaster, Vancouver, B.C., for the respondent.

This appeal was heard on April 20, 2010, by McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ., of the Supreme Court of Canada. Rothstein, J., delivered the following reasons for judgment of the court, in both official languages, on September 23, 2010.