COURT FILE NO.: CV-20-646936 COURT FILE NO.: CV- 20-647963 DATE: 20210323 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GFL INFRASTRUCTURE GROUP INC. Applicant

• and - TEMPLE INSURANCE COMPANY aka LA COMPAGNIE D’ASSURANCE TEMPLE and AVIVA INSURANCE COMPANY OF CANADA aka AVIVA COMPAGNIE D’ASSURANCE DU CANADA Respondents

Jonathan D. Meadows and Kora Paciorek for the Applicant Jamie Spotswood and Max Ebrahim for the Respondents

AND BETWEEN:

ASHLAND CONSTRUCTION GROUP LTD. Applicant

• and - TEMPLE INSURANCE COMPANY aka LA COMPAGNIE D’ASSURANCE TEMPLE and AVIVA INSURANCE COMPANY OF CANADA aka AVIVA COMPAGNIE D’ASSURANCE DU CANADA Respondents

Jonathan D. Meadows and Kora Paciorek for the Applicant Jamie Spotswood and Max Ebrahim for the Respondents

HEARD: February 18-19, 2021

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] Justice Myers ordered that four Applications be heard together. These are my Reasons for Decision in the third and fourth of the Applications. My Reasons for Decision in the other two Applications are being released simultaneously. [1]

[2] The Respondents in all four Applications are Temple Insurance Company and Aviva Insurance Company of Canada, whom I shall refer to as the “Insurer.”

[3] In the first Application, the Applicants are Distillery S.E. Development Corp., Cityscape Development Corporation, and Dream Asset Management Corporation, whom I shall refer to as the “Distillery Parties.”

[4] In the first Application, the Distillery Parties sue the Insurer for a declaration that the Insurer has a duty to defend the Distillery Parties under a Specific Project Wrap-Up Liability Insurance Policy.

[5] In the second Application, the Applicant is Rite-Air Mechanical Co. Ltd. In the second Application, Rite-Air sues the Insurer for a declaration that the Insurer has a duty to defend Rite-Air under the same Specific Project Wrap-Up Liability Insurance Policy.

[6] In the third Application, the Applicant is GFL Infrastructure Group Inc. In the third Application GFL sues the Insurer for a declaration that the Insurer has a duty to defend GFL under the same Specific Project Wrap-Up Liability Insurance Policy.

[7] In the fourth Application, the Applicant is Ashland Construction Group Ltd. In the fourth Application, Ashland sues the Insurer for a declaration that the Insurer has a duty to defend Ashland under the same Specific Project Wrap-Up Liability Insurance Policy.

[8] For the reasons that follow, the third and the fourth Applications are granted.

[9] In granting the Applications, the grant is only with respect to the Insurer’s duty to defend. The Applicants also sought orders to indemnify, but it is premature to make any orders in that regard.

B. Overview and Methodology

[10] In the early 2010s, the Distillery Parties built a residential condominium tower that came to be owned by Toronto Standard Condominium Corporation No. 2299 (“TSCC 2299”).

[11] The Distillery Parties hired GFL to complete temporary shoring work during the construction of the condominium building.

[12] The Distillery Parties hired Ashland to supply and install asphalt for the floor surface of the parking garage for the condominium project.

[13] The Distillery Parties are named insureds, and GFL and Ashland are insureds under a Specific Project Wrap-Up Liability Insurance Policy issued by the Insurer.

[14] In 2015, TSCC 2299 sued the Distillery Parties for Property Damages for negligence and defects in the construction of the building. There were five iterations of the Statement of Claim, and TSCC 2299 eventually particularized a claim for damages of $9,913,169.25.

[15] In 2017, the Distillery Parties commenced an action seeking contribution and indemnity from 38 contractors, including GFL and Ashland with respect to any liability the Distillery Parties may have to TSCC 2299 in respect of the allegations made in the TSCC 2299 Action. The TSCC 2299 pleadings were incorporated by reference in the Distillery Parties’ Statement of Claim.

[16] Based on the Statement of Claim in TSCC 2299’s action, it is arguable that a large part of TSCC 2299’s claim for which the Distillery Parties seek contribution and indemnity is outside the insurance coverage.

[17] In so far as GFL is concerned, the Insurer says that based on the pleaded claims, there is no duty to defend under the Specific Project Wrap-Up Liability Insurance Policy.

[18] In so far as Ashland is concerned, the Insurer says that based on the pleaded claims, there is no duty to defend the Specific Project Wrap-Up Liability Insurance Policy.

[19] As foreshadowed in the introduction, I grant GFL’s and Ashland’s Applications. To explain my decision, by way of methodology, after the Introduction and this Overview, my judgment shall have five parts:

a. First, I shall set out the relevant terms of the Specific Project Wrap-Up Liability Insurance Policy. b. Second, I shall describe the procedural background and the evidentiary record for the third and fourth Applications. c. Third, I shall set out the facts necessary to address the duty to defend issue. d. Fourth, I shall set out the principles of interpretation for insurance contracts and for the duty to defend. e. Fifth, I shall explain why in the immediate case, there is a duty to defend.

C. Specific Project Wrap-Up Liability Insurance Policy No. WUT364202

[20] This Application involves the interpretation and application of Specific Project Wrap-Up Liability Insurance Policy No. WUT364202 issued by Temple Insurance and Aviva Insurance. The policy period was extended by an endorsement to February 28, 2014 and was further extended to April 28, 2014.

[21] For present purposes the following provisions of the policy are relevant:

DECLARATIONS

1. Named Insured: DISTILLERY S.E. DEVELOPMENT CORP.

2. Additional Insured: All contractors, subcontractors, engineering and architectural consultants.

3. Insured Project: CONSTRUCTION OF THE CLEAR SPIRIT CONDOMINIUM IN TORONTO, ON.

4. Policy Period: 21 October 2009 to 29 October 2012 […] Completed Operations: As respects the Completed Operations Hazard, the policy shall nevertheless continue to apply for a period of 12 months following such date of termination.

5. Limit of Liability: $20,000,000 (as per Limit of Liability, page 1, Section III).

6. Property Damage Deductible: $10,000 (subject to definition contained herein).

7. Estimated Project Cost: $70,000,000

8. Deposit Premium: $98,000

9. Insurers: Subscribing Insurer(s) Percentage First $5,000,000 Temple Insurance Company 100% Excess of $5,000,000 Temple Insurance Company 80.00% Aviva Insurance Company of Canada 20.00% It is agreed that the above INSURERS are binding themselves, severally and not jointly, up to the extent of their above proportion only.

PART I – INSURING AGREEMENTS To pay on behalf of the Insured all sums which the Insured shall become legally obliged to pay, or for any liability assumed by the Insured under Contract (as defined herein), for damages arising out of the Insured’s Work in connection with the Insured Project, because of:

2. Coverage B – Property Damage (as defined herein).

PART II – ADDITIONAL INSURING AGREEMENTS Under coverages, A, B, C, E, and F of Part I, the Insurer further agrees to: (a) defend in the name and on behalf of the Insured and at the costs of the Insurer, any civil action brought against the Insured on account of such Bodily Injury, Property Damages or Personal Injury, but the Insurer shall have the right to make such investigation, negotiation and settlement of any claim as may be deemed expedient by the Insurer; (c) pay all costs taxed against the Insured in any civil action defended by the Insurer and any interest accruing after entry of judgment.

PART III – LIMIT OF LIABILITY The Limit of Liability in the Declarations forming part of this policy applicable to each accident or Occurrence is the total limit of the Insurer’s liability for coverages A – Bodily Injury, B- Property Damage … from one Occurrence, accident or series of accidents arising from one event when such Occurrence, accident or series of accidents occur during the policy period.

PART IV – DEDUCTIBLE The sum shown in Item 7 of the Declarations shall be deducted from each Property Damage claim or series of Property Damage claims arising from an accident or Occurrence. Such amount to be paid by the Insured. The Deductible referred to herein will not reduce the limit of the Insurer’s liability. The terms of this policy apply irrespective of the application of the deductible amount.

PART V – POLICY PERIOD This insurance applies during the policy period indicated in Item 5 of the Declarations of this policy. As respects the Products Hazard and Completed Operations Hazard, this policy shall continue to apply for the period so indicated, subject to the definition of Products Hazard and Completed Operations Hazard contained herein.

PART VII – EXCLUSIONS This policy does not apply to any liability:

2. Under Coverage B for: Injury to, or destruction of, or loss of use of: (b) except with respect to liability under sidetrack agreement that is covered by this policy, or the use of elevators or escalators at premises owned, rented or controlled by or on behalf of the Insured: (iv) that particular part of any property, not on premises owned by or rented to the Insured: (a) performed at the time of the injury thereto or destruction thereof, arising out of the Insured’s Work; or (b) out of which any injury or destruction arises; or (c) the restoration, repair or replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the Insured; (c) […] (ii) the Insured’s Work out of which such injury, destruction or loss of use arises, but this exclusion will only apply to that particular portion of such product or work out of which such injury, destruction or loss of use arises; (e) the Insured’s Work, or any property of which the Insured’s Work forms a part, if such work is deemed unsafe, inadequate, fault or unsatisfactory because of any known or suspected defect or deficiency therein. Any expense incurred by the Insured for the inspection, withdrawal, repair or replacement of such work, or loss of use of such work or of any property of which such work forms a part is not reimbursable by this policy and is not a subject of cover hereunder. (f) any property [sic] resulting from: (i) a delay in, or lack of performance by or on behalf of the Insured with respect to any Contract or agreement or (ii) the failure of the Insured’s Products or the Insured’s Work to meet the level of performance, quality, fitness or durability warranted or represented by the Insured, but this exclusion does not apply to loss of use of tangible property resulting from sudden and accidental physical injury to or destruction of, the Insured’s Products or the Insured’s Work performed after such products or work have been used in the manner for which it was intended by any person(s) or organization(s).

PART VIII - DEFINITIONS

3. Completed Operations Hazard As used in this policy means liability arising out of the Insured’s Work in connection with the Insured Project because of Bodily Injury or Property Damage, but only if such Bodily Injury or Property Damage results from an Occurrence after the Insured’s Work has been completed or abandoned. The Insured’s Work shall be deemed completed at the earliest of the following times: (a) when all of the Insured’s Work to be performed under the Insured’s Contract is completed; (b) when all of the Insured’s Work to be performed for the Insured’s Work to be performed for the Insured Project is completed; (c) when that portion of the Insured’s Work out of which the Bodily Injury or Property Damage arises has been put to its intended use by other than another Contractor or Subcontractor engaged in performing operations for the Named Insured as part of the same Inured Project; (d) when the Insured’s Work has been accepted by or on behalf of the owner.

4. Insured’s Work: (a) Means: (i) work or operations performed by the Insured or on the Insured’s behalf; (ii) materials, parts or equipment furnished in connection with such work or operations.

5. Occurrence The word Occurrence means an accident, including continuous or repeated exposure to conditions, which result in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured and includes:

6. Property Damage Means (a) Physical injury to or destruction of tangible property caused by an Occurrence (as defined herein) during the policy period, including the loss of use thereof resulting therefrom; or (b) Loss of use of tangible property which has not been physically injured or destroyed providing such loss of use is caused by an Occurrence during the policy period.

D. Procedural Background and Evidentiary Record

[22] For reasons that will become apparent later in these Reasons for Decision, it shall be important to note that the evidentiary record for GFL’s and Ashland’s Applications was extensive. It was made larger still by the circumstance, as noted above, that four Applications were argued together. The combined evidentiary record was thousands of pages. The argument of the Applications extended over two days.

[23] The evidentiary record became enormous because, although TSCC 2299’s Statement of Claim was a 34-page, 63-paragraph pleading, with its incorporations by reference it became a pleading of hundreds of pages.

1. GFL’s Application

[24] On September 9, 2020, GFL commenced its Application.

[25] GFL’s Application was supported by affidavits dated July 16, 2020 and November 6, 2020 from Mauro Angelo Scanga. Mr. Scanga is the former President of Deep Foundations Inc. and the current Vice-President, Business Development of GFL Infrastructure Group (“GFL”).

[26] In opposition to GFL’s Application, the Insurer delivered a 976-page Responding Record including an affidavit dated October 30, 2020 from Mark Mandelker. Mr. Mandelker is an associate lawyer with Clyde & Co. Canada LLP, lawyers for the Insurer.

2. Ashland’s Application

[27] On September 14, 2020, Ashland commenced its Application.

[28] Ashland’s Application was supported by an affidavit dated August 25, 2020 from Frank Tarquini. Mr. Tarquini is the former President of Ashland Paving Ltd. and the current President of Ashland Construction Group Ltd.

[29] Ashland’s Application was also supported by an affidavit dated January 22, 2021 from Kora Paciorek. Ms. Paciorek is an associate lawyer with Harper Grey LLP, lawyers for Ashland.

[30] In opposition to Ashland’s Application, the Insurer delivered a 976-page Responding Record including an affidavit dated October 30, 2020 from Mark Mandelker.

E. Facts

[31] The Distillery Parties developed a condominium project comprised of a 43-story high-rise tower containing 350 condominium units and four levels of underground parking, known as the Clear Spirit Condominium project at 70 Distillery Lane in Toronto.

[32] GFL is an amalgamated Ontario corporation and is the continuation of Deep Foundations Inc.

[33] In 2009, GFL (then Deep Foundations,) was engaged by Tucker Hi-Rise Construction Inc. to complete temporary shoring work during the construction of the condominium building. Deep Foundations’ work included supplying and installing caisson wall shoring, including excavation, supplying and placing soldier piles, lagging, struts, walers, and soil and rock anchors, including shoring concrete.

[34] Ashland is the continuation by amalgamation of Ashland Paving Ltd., a paving company that provides services to civil infrastructure and commercial projects in Toronto and the Greater Toronto area.

[35] On April 2, 2012, Ashland Paving provided KC Structural Ltd., a foundation and waterproofing company, a quote for the supply and installation of asphalt for the floor surface of the parking garage for the condominium project. The quote was for the supply and installation of 50 mm of HL3 HS Asphalt for the parking garage.

[36] Subsequently Ashland Paving entered into an oral agreement with KC Structural Ltd. for the quoted work. Ashland Paving installed an asphalt topping layer on top of the waterproofing layer of the garage floor. Ashland Paving’s scope of work did not include the installation of the waterproofing system below the asphalt.

[37] The Distillery Parties were named insureds in a Specific Project Wrap-Up Liability Insurance Policy bearing policy number WUT364202 issued by the Insurer. As sub-contractors, GFL and Ashland were insured under the policy.

[38] The condominium was constructed, and TSCC 2299 became the owner of the condominium.

[39] The construction was completed in November 2013. The Completed Operations extension of the insurance policy ended in November 2015.

[40] In accordance with s. 44 of the Condominium Act, 1998, [2] TSCC 2299 retained Belanger Engineering to determine whether the common elements of the building suffered from any deficiencies that could give rise to a guarantee claim under s. 14 of the Ontario New Home Warranties Plan Act. [3]

[41] Belanger Engineering conducted a performance audit and supported by several expert reports, the audit revealed deficiencies in the construction of the condominium building.

[42] TSCC 2299 retained additional experts and a second performance audit was conducted and more deficiencies were identified.

[43] TSCC 2299 brought the deficiencies to the attention of the Distillery Parties. TSCC 2299 alleges that the Distillery Parties did nothing to fix the problems.

[44] On March 13, 2015, TSCC 2299 sued the Distillery Parties for Property Damages arising from alleged design and defects in the construction of the building (File No. CV-15-523947 - the “TSCC 2299 Action”). TSCC 2299 alleges that the building was constructed negligently.

[45] TSCC 2299 alleges that the Distillery Parties were liable for breaches of contract, including implied warranties and representations, negligence, breaches of fiduciary duty, and breaches of statutory warranties and representations. TSCC 2299 claims damages of $9,913,169.25.

[46] TSCC 2299 alleges that: (a) there was deficient workmanship and material; (b) there were deviations from plans and specifications, building requirements and industry standards; and (c) there were design and construction deficiencies in the common elements, condominium units, shared facilities, and assets of the condominium corporation.

[47] TSCC 2299 alleges that the negligence of the Distillery Parties caused damage to numerous elements of the Condominium, including the underground parking garage, balconies, and elevators, as well as interior damage to walls and ceilings in units and common areas.

[48] In its action, TSCC 2299 pleads that the Distillery Parties are vendors and pursuant to s.31.1 of the Ontario New Home Warranties Plan Act, vendors of new homes guarantee that the home is constructed in a workmanlike manner, free from defects in materials, in accordance with the Ontario Building Code [4] regulations [5] and fit for habitation. In its Statement of Claim, TSCC 2299 refers to the first and second performance audits that identified the defects in the building.

[49] In particular, TSCC 2299 alleges construction and design defects and deficiencies including, a systematic failure of the drainage system for the exterior walls of the four-story underground parking garage, which is below the level of nearby Lake Ontario. TSCC 2299 alleges that water pressure has caused, and will continue to cause, cracks throughout the exterior parking garage walls. TSCC 2299 alleges that the drainage pipe system is wholly inadequate, and water remains up against the membrane, which is failing.

[50] TSCC 2299 seeks damages with respect to, among other things: (a) the cost to repair and remedy the defects and deficiencies; (b) consultant costs and other related damages arising from the defects and deficiencies.

[51] In particular, TSCC 2299 seeks damages related to increased maintenance costs with respect to the four-story underground parking garage, including, but not limited to failure of the garage to provide watertight conditions and premature failure of the water drainage system. It claims $810,000 to repair or replace the exterior wall drainage system in the parking garage.

[52] TSCC 2299 alleges that the traffic topping and garage waterproofing was unsuitable and deficient because it could not be laid down at the right temperature due to the design of access to the parking garage. It alleged that the traffic topping and garage waterproofing need to be replaced entirely. It claims $2 million to repair the garage slab, water drainage system, waterproofing, and topping.

[53] The TSCC 2299 Statement of Claim pleads and relies upon the contents of various reports, including an engineering report by GRG Building Consultants dated August 20, 2015. The report refers to the excavation shoring and the caisson walls.

[54] GRG Building Consultants opined that the parking garage wall drainage system is likely to experience early and progressive failure to adequately drain the garage walls due to the lack of sand pits to allow cleanout of the alley drains leading from the perimeter dimple mat drainage system to the interior weeping system leading to the sump pumps. The report indicates that failure of the wall drainage and waterproofing system has already started as exhibited by leaking through the slab to wall joints and other cracks and construction joints in the below-ground garage walls. There were 45 locations of water leaking through the exterior walls.

[55] GRG Building Consultants opined that the failure of the asphalt traffic topping compromised the integrity of the waterproofing system and causes damage to the waterproofing system. GRG Building Consultants opined that the damage to the waterproofing system caused water damage to the building. GRG Building Consultants opined that there was water staining and active leaking in the garage.

[56] In the Performance Audit Report prepared by Belanger Engineering dated February 13, 2014, Belanger reported cracks in the exterior walls of the P4 level with evidence of active water penetration and black staining.

[57] In a report by Belanger Engineering dated February 26, 2014, Belanger Engineering reported that there was active water penetration through the south, east, and west foundation walls.

[58] In the Elevator Pit Water Leakage Review prepared by GRG Building Consultants Inc. dated January 13, 2015, GRG Building Consultants reported that there was moisture coming from the concrete floor, wall leakage, ponding, and stagnant water. The report stated that all steel in contact with the concrete slab in the pit was corroded, including elevator machinery, elevator steel, and accessories.

[59] In a supplemental report dated October 13, 2016, GRG Building Consultants reported that the traffic topping continues to fail and that the failure was widespread and occurring both at new areas and past repairs areas. It opined that ingress of salt-laden moisture into the unprotected concrete of the garage will result in structural damage that will result in costly and ongoing repairs.

[60] On September 17, 2017, the Distillery Parties commenced an action (Court File No. CV-17-582357) (the “Distillery Action”) seeking contribution and indemnity from 38 contractors, trades, suppliers, consultants, and professionals, with respect to any liability the Distillery Parties may have to TSCC 2299 in respect of the allegations made in the TSCC 2299 Action. The TSCC 2299 pleadings were incorporated by reference in the Distillery Parties’ Statement of Claim.

[61] GFL and Ashland were defendants in the Distillery Parties’ Action.

[62] The Court has ordered that the TSCC 2299 Action and the Distillery Action be tried together one right after the other, with joint production and discoveries.

[63] On May 8, 2019, GFL provided notice to the Insurer and sought confirmation that the Insurer would defend and indemnify it in respect of the Distillery Action, under the Specific Project Wrap-Up Liability Insurance Policy.

[64] By letter dated July 8, 2019 the Insurer denied GFL coverage, on the basis that the claims against it do not constitute “Property Damage”, alternatively are excluded from coverage through the faulty workmanship exclusions. The Insurer stated that the claim against GFL was with respect to the cost of repairing or remediating construction defects and this type of claim does not constitute “Property Damage”. Further, the Insurer stated that the “own work” exclusion would withdraw coverage for the cracks in the exterior walls of the parking garage and the associated remedial cost to repair the cracks.

[65] On February 11, 2019, Ashland provided notice to the Insurer and sought confirmation that the Insurer would defend and indemnify it in respect of the Distillery Action, under Specific Project Wrap-Up Liability Insurance Policy No. WUT364202.

[66] On July 5, 2019, the Insurer denied coverage to Ashland and refused to provide Ashland with a defence in the Distillery Action. The Insurer’s position is that: (a) the Distillery Parties’ claim against Ashland does not constitute “Property Damage”; and (b) the “own work” exclusion withdraws coverage for the defective traffic topping and waterproofing membranes and the associated remedial cost to replace them.

F. Principles of Interpretation for Insurance Contracts and for the Duty to Defend

[67] The legal principles that govern a contract interpretation dispute about whether an insurer has a duty to defend and about the interpretation of insurance contracts are as follows.

a. Contractual interpretation is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix. [6] b. The goal of contractual interpretation is to determine the intent of the parties and the scope of their understanding giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. [7] c. The factual nexus is objective evidence of the background facts at the time of the execution of the contract; i.e., knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting including anything that would have affected the way in which the language of the document would have been understood by a reasonable person. [8] d. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing, but in interpreting a commercial contract, the court may have regard to the surrounding circumstances; that is, the factual background and the commercial purpose of the contract. e. While a proper understanding of the factual matrix is crucial to the interpretation of many contracts, it is less relevant to standard form contracts where there is no meaningful factual matrix specific to the parties to assist the interpretation process and where the standard form is essentially a take-it-or-leave-it proposition for one of the contracting parties. [9] f. Provisions should not be read in isolation but in harmony with the agreement as a whole. [10] g. Generally, words should be given their ordinary and literal meaning. However, if there are alternatives, the court should reject an interpretation or a literal meaning that would make the provision or the agreement ineffective, superfluous, absurd, unjust, commercially unreasonable, or destructive of the commercial objective of the agreement. [11] h. Since insurance contracts are essentially a contract of adhesion, the standard principle is to construe ambiguities against the insurer with the corollary principle that coverage provisions should be construed broadly and exclusion clauses construed narrowly. [12] i. Where an insurance policy is ambiguous, a court should consider the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy. [13] j. The rules of construction are applied to resolve ambiguity; they do not operate to create ambiguity where there is none in the first place. [14] Ambiguity does not exist whenever a policy contains wording that could be open to two or more reasonable interpretations and an effort should be made to interpret the policy in a commercially reasonable fashion and in a way that gives effect to the reasonable expectations of the parties. [15] k. When there is an ambiguity or contradiction in an agreement that cannot be resolved by the other rules of construction, resort then may be had to the contra proferentem rule, that the language of the contract will be construed against the party that inserted the provision to the other with no opportunity to modify its meaning. [16] l. The insurer has a duty to defend if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured. [17] m. The court must determine whether the factual allegations in the pleading, if true, could possibly support the plaintiff’s legal claims. [18] n. The pleadings govern the duty to defend, not the insurer's view of the validity or nature of the claim nor by the possible outcome of the litigation. [19] o. In a duty to defend application, the court must determine the substance and true nature of the claims based on the allegations in the pleadings taking the entire pleading into account and without engaging in a fanciful reading of the statement of claim for the purpose of requiring the insurer to defend. [20] p. The court must look beyond the labels used by the plaintiff to ascertain the substance and true nature of the claims. [21] q. If there is any possibility that the claim falls within the liability coverage, the insurer must defend. [22] r. If the pleadings are not sufficiently precise to determine whether the claims would be covered by the policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred. [23] s. If it is clear from the pleadings that suit falls outside the coverage of the policy by reason of an exclusion clause, the duty to defend is not triggered. [24] t. If there is a claim that is outside or excluded from insurance coverage and a claim within insurance coverage, but the covered claim is entirely derivative of the uncovered claim, which is to say that the claims arise from the same actions and cause the same harm, then the derivative claim will not trigger a duty to defend. [25] u. In determining whether the policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely: (a) the contra proferentem rule; (b) the principle that coverage clauses should be construed broadly and exclusion clauses narrowly; and (c) where the policy is ambiguous, effect should be given to the reasonable expectations of the parties. [26] v. Extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations. [27]

[68] In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [28] the Supreme Court of Canada summarized the law about when the duty to defend is triggered as follows:

19. An insurer is 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 is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend.

G. Has the Duty to Defend Been Triggered?

[69] In both the GFL Application and the Ashland Application, the Insurer relies on the circumstance that the pleadings in the TSCC 2299 Action have been particularized and expanded by hundreds of pages of expert reports.

[70] The Insurer’s essential argument is that supplemented by the expert reports, it can confidently be concluded that all the Property Damage claims are not genuinely covered Property Damage claims or if they are genuinely covered Property Damage claims then it can confidently be concluded that they are excluded by one of the coverage exclusions in the Specific Project Wrap-Up Liability Insurance Policy.

[71] The Insurer also makes a causation argument based on its reading of the Statement of Claim and the extrinsic evidence that GFL’s and Ashland’s work had anything to do with the alleged Property Damages or that there was any negligence pleaded, that would connect their work to the alleged Property Damages.

[72] It is true that Commercial General Liability ("CGL") Policies, of which the Specific Project Wrap-Up Liability Insurance Policy is an example, do not generally cover the cost of repairing the insured’s own defective or faulty work product. [29] And, in the immediate case, it may ultimately be determined that none of the alleged Property Damage claims advanced against GFL and Ashland are proven. However, that is not the test for the duty to defend. As noted by the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [30] the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify the insured.

[73] I agree with GFL’s and Ashland’s arguments that reading the pleadings, including the extensive incorporations by reference, reveal that there is the possibility of claims made against GFL and Ashland respectively for Property Damage and it has not been established that these claims are uncovered claims because of policy exclusions. All that is required to trigger the duty to defend is the mere possibility that a claim falls within the insurance policy. [31] The pleaded claims against GFL and Ashland were well past that mere possibility threshold.

[74] In my opinion, in the immediate case, both parties engaged in a forensic analysis of the expert reports that was not appropriate for an application to determine whether there is a duty to defend. Determining the merits of the parties’ arguments would require the court to make findings of fact and to decide matters that ultimately will have to be decided at a trial where one does not assume facts, including hearsay facts, are true.

[75] I am satisfied that on a fair reading of TSCC 2299’s Statement of Claim the duty to defend has been triggered with respect to both GFL and Ashland.

H. Conclusion

[76] For the above reasons, GFL’s and Ashland’s Applications for a declaration that there is a duty to defend in the immediate case are granted.

[77] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with GFL’s and Ashland’s submissions within twenty days of the release of these Reasons for Decision followed by the Insurer’s submissions within a further twenty days.

Perell, J. Released: March 23, 2021

[1] See Distillery S.E. Development Corp. v. Temple Insurance Company, 2021 ONSC 1908. [2] S.O. 1998, c. 19. [3] R.S.O. 1990, c. O. 31. [4] Building Code Act, 1992, S.O. 1992. [5] O. Reg. 332/12. [6] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 50 [7] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 47; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 at paras. 64-65; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 at para. 27; Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 64; Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., [1980] 1 S.C.R. 888. [8] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 58. [9] Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37. [10] Scanlon v. Castlepoint Dev. Corp. (1993), 11 O.R. (3d) 744 (C.A.); Hillis Oil and Sales Limited v. Wynn's Canada, [1986] 1 S.C.R. 57; McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6. [11] Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 at para. 24; Scanlon v. Castlepoint Dev. Corp. (1993), 11 O.R. (3d) 744 (C.A.); Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., [1980] 1 S.C.R. 888; Aita v. Silverstone Towers Ltd. (1978), 19 O.R. (2d) 681 (C.A.); Indian Molybdenum Ltd. v. The King, [1951] 3 D.L.R. 497 (S.C.C.); [12] Sommersal v. Friedman, 2002 SCC 59 at para. 47; Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at para. 70; Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87 at p. 92; Indemnity Insurance Co. of North America v. Excel Cleaning Service, [1954] S.C.R. 169, at pp. 179-80. [13] Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 23; Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252 at para. 39; Wigle v. Allstate Insurance Co. of Canada (1984), 49 O.R. (2d) 101 (C.A.), leave to appeal to S.C.C. refused, [1985] 1 S.C.R. v. [14] Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 23. [15] Solway v. Lloyd’s Underwriters (Attorney in Fact in Canada) (2006), 80 O.R. (3d) 401 at para. 43 (C.A.). [16] Arthur Andersen Inc. v. Toronto-Dominion Bank, (1994), 17 O.R. (3d) 363 (C.A.); Scanlon v. Castelpoint Dev. Corp. (1992), 11 O.R. (3d) 744 (C.A.); Hillis Oil and Sales Limited v. Wynn's Canada, [1986] 1 S.C.R. 57 McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6; Reliance Petroleum Limited v. Stevenson, [1956] S.C.R. 936. [17] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 19; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 28. [18] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at paras. 34-35; Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24 at para. 79. [19] Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 28; Bacon v. McBride, [1984] B.C.J. No. 2813 (S.C.). [20] Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49. [21] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 20. [22] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at para. 74; Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 at p. 810 para. 17. [23] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at paras. 34-35. [24] Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 19; Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 at para. 20. [25] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24. [26] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 31; Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24 at paras. 70-71. [27] Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429 at para. 14; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 36; 540039 Ontario Ltd. v. Farmers' Mutual Insurance Co. (Lindsay), 2012 ONCA 210. [28] 2010 SCC 33 at para. 19. [29] G.&P Procleaners and General Contractors Inc. v Gored Mutual Insurance Company, 2017 ONCA 298 at para 24; Parkhill Excavating Limited v. Royal & Sunalliance Insurance Company of Canada, 2016 ONCA 832 at para 25; Swagge Construction Ltd. v. ING Insurance Company of Canada, 2005 BCSC 1269 at para 4; Alie v. Bertrand & Frere Construction Co., [2002] O.J. No. 4697 at para 27 (C.A.). [30] 2010 SCC 33 at para. 19. [31] Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 19