For some time now, a lot has been written about wrap-up type insurance policies and the Insurers’ subrogation towards various additional and/or unnamed Insureds.
A new aspect of these policies was recently approached in the matter of Intact, Compagnie d’assurance v. Pétrifond Fondation Compagnie Ltée, Vince Luongo and Pasquin St-Jean & Associés Inc. (heard and decided in a common judgment with the related file, Intact, Compagnie d’assurance v. Inspec-Sol Inc. ) wherein the Superior Court, under the pen of Judge Geneviève Marcotte, recently rendered a judgment on three Motions to Dismiss thus bringing precisions as regards wrap-up type civil liability insurance policies and subrogation against certain unnamed and/or additional Insureds.
THE CONTEXT
In this matter, General Contractor EBC Inc. that was in charge of constructing a condominium complex in the Montreal region had subscribed to a civil liability insurance policy with a wrap-up type extended warranty with Intact, Compagnie d’assurance, the Plaintiff in both files. According to the contractual documents that were governing the project’s construction, the said policy was issued to protect all subcontractors as well as the professionals for the construction project of the condominiums.
During the construction and notably during the pile driving and support works, the building next to the condominium complex, that was owned by Montreal Racket Club, sustained damages, notably cracks to its foundation. Further to these cracks, Insurer Intact paid for the damages to the adjoining building while acknowledging General Contractor EBC’s liability. It is also interesting to note here that Intact was the all risks Insurer of the neighbour Racket Club’s property.
Further to indemnifying the neighbour, Intact instituted proceedings against Subcontractor Pétrifond Fondation Compagnie Ltée as well as all the professionals in the project, namely the engineering firm Pasquin St-Jean & Associés Ltée and Inspec-Sol (in a second recourse), considering it had a legal subrogation under the extended wrap-up type civil liability insurance policy for the Contractor. Essentially, Intact was reproaching Pétrifond and its Engineer Luongo of having chosen and installed an inadequate support system considering the soils in place. Therefore Intact claimed that Pétrifond’s calculations did not take into account certain factors as well as the warnings contained in the geotechnical study report of Inspec-Sol and its comments.
Moreover Intact also reproached Engineering Consultants Pasquin, St-Jean their failure to mention the calculation errors of Pétrifond’s Engineer as well as the differences between Inspec-Sol’s recommendations and the construction and conception methods set forth by Pétrifond whereas Pasquin, St-Jean’s Engineers had the duty to supervise their work.
Finally, Intact was holding Inspec-Sol liable for failing to notice and mention the failures in the conception method of Pétrifond in keeping with the information mentioned in its geotechnical study report.
THE MOTIONS TO DISMISS
Further to the institution of the proceedings, at a preliminary stage, the Defendants were thus requesting that both actions be dismissed, notably arguing that the extended wrap-up type civil liability insurance policy issued in favour of the General Contractor and under which the Defendants were additional Insureds, was protecting them from any legal proceedings and therefore preventing Insurer Intact from establishing subrogation. In other words, the Insurer would have had no right of action against its own Insureds.
The second means raised by the Defendants to argue that the action be dismissed is to the effect that the indemnity payment to the neighbour Racket Club was made according to the all risks insurance policy for property of Racket Club that was also insured by Intact, as opposed to an indemnity paid according to the extended wrap-up type liability insurance policy of General Contractor EBC.
Finally, the Defendants’ third means to request that the action be dismissed was to the effect that if Intact had really indemnified Racket Club by applying the extended wrap-up type civil liability policy of EBC and this, while acknowledging EBC’s responsibility for the cracks, the Insurer had thus indemnified for professional liability (which was what the Defendants were reproached with) whereas the policy contained an exclusion for said professional liability.
ABSENCE OF SUBROGATION
Following the first dismissal argument raised by the Defendants, the Insurer argued that according to the Contractor’s obligations contained in the contracts relating to the construction of the condominium complex, the General Contractor’s claim following Racket Club’s damages was made under a civil liability insurance policy with an extended wrap-up type warranty of the Contractor that contained no coverage as regards professional liability.
Further to reviewing the contractual clauses between the Contractor, the subcontractors and the professionals, Judge Marcotte came to the conclusion that effectively the Contractor had waived its right to sue its contracting partners under the general civil liability. However, it is interesting to note that, according to Judge Marcotte, this first waiver did not contain the Contractor’s (and therefore the Insurer’s) waiver to sue its contracting partners for faults that would come under the professional liability of contracting partners.
Therefore general civil liability was completely dissociated from professional liability.
Judge Marcotte thus based her judgment on the existence of general civil liability insurance policies in construction matters that exclude liability for professional liability. Moreover this exclusion for professional liability was contained in the Intact wrap-up policy. According to Judge Marcotte, the Insurer thus had a valid subrogation since the faults reproached to the Defendants were excluded from the civil liability policy with a wrap-up type extension.
In other words, should a named, unnamed or additional Insured be aimed by an exclusion contained in the insurance policy, from then on the Insurer would have a valid subrogatory recourse against the latter.
RACKET CLUB’S ALL RISKS PROPERTY INSURANCE POLICY
The Motion to Institute Proceedings alleges that the indemnity had been paid in virtue of the wrap-up type civil liability insurance policy and not in virtue of the all risks property insurance policy of the neighbour Racket Club. However Racket Club was directly indemnified by Intact under the property policy and part of the indemnity was assigned to the civil liability policy with a wrap-up extension of the Contractor, notwithstanding the Contractor’s admission of liability. Therefore, considering that payment had been made without legal subrogation and in the absence of a conventional subrogation provided for in a specific agreement, the Defendants were considering that the Insurer’s action was ill-founded.
After analysing the indemnity amounts assigned to each insurance policy, Judge Marcotte concluded that the path taken by the Insurer that decided to acknowledge the General Contractor’s liability was not the easiest one but it did not mean that it was fatal to the Insurer. Furthermore, since the Insurer was alleging the acknowledgement of the Contractor’s liability considering a fault in its obligation of safety and that the said obligation of safety fell under the general civil liability covered by the Contractor’s civil liability insurance policy, and considering Article 1656, Paragraph 3 of the Civil Cote of Quebec, Judge Marcotte concluded that it was not essential for the Insurer to obtain a conventional subrogation and therefore its absence was not fatal to the recourse.
THE ABSENCE OF COVERAGE FOR PROFESSIONAL LIABILITY
Finally, Defendants Pasquin, St-Jean argued that since the Insurer had indemnified damages that were excluded, referring to the professional liability exclusion, the action was once again ill-founded. Once again the Insurer mentioned that the Contractor’s liability was admitted since it had an obligation of safety towards the neighbour and not because of professional liability although professional errors were reproached to Defendants.
Thus Judge Marcotte drew an analogy with a warranty recourse that could have been instituted against the actual Defendants if the Contractor had been sued by Racket Club in the first place. Judge Marcotte therefore concluded that at this stage of the proceedings, she could not anticipate the complete proof that would be presented during an eventual trial and completely denied the various Motions to Dismiss.
Therefore, assuming that the Racket Club’s all risks property Insurer had been a different Insurer from the Contractor’s, the odds are that the Contractor’s Insurer would not have admitted liability right away and would have waited to be sued by Racket Club for the damages sustained. The actual Defendants most probably would have then been sued in warranty in order to allow for a complete solution of the litigation. It is therefore probable that it was from this viewpoint that Judge Marcotte approached this file that notably gives another perspective as regards civil liability insurance policies with wrap-up type extension and possible subrogation.
However, besides the subrogation rights of the Insurers and the exact determination of the nature of the faults of each parties, a question remains: What safe approach has to be taken by specialized subcontractors that both supply conception services and carry out works as regards the type of insurance coverage they should get? Should they absolutely obtain an independent error and omission type coverage that would cover professional liability, plus coverage under wrap-up type policies?
This judgment seems to tip the scale towards an affirmative answer...
