Court of Appeal for Ontario

Date: 2017-04-10 Docket: C62659

Judges: Feldman, Brown and Roberts JJ.A.

Between

Mason Homes Limited Plaintiff (Appellant)

and

Lombard General Insurance Co. of Canada Defendant (Respondent in Appeal)

Counsel

Paul Gemmink, for the appellant

Fatima M. Vieira, for the respondent

Heard: March 29, 2017

Appeal Information

On appeal from the order of Justice Carole J. Brown of the Superior Court of Justice, dated August 9, 2016, with reasons reported at 2016 ONSC 4846.

Endorsement

Background

[1] The appellant homebuilder appeals the dismissal of its action against the respondent insurer. The appellant submits that the motion judge erred in determining that the respondent had no duty to defend or indemnify the appellant under its Commercial General Liability ("CGL") insurance policy in relation to a claim arising out of the appellant's sale of a lot and a home to be constructed on the lot.

[2] The appellant is a property development company. In order to build a home on a lot with a very steep slope that exceeded the maximum municipal standards, the appellant was required to seek approval from the Town of Uxbridge. The Town and the appellant entered into an additional Subdivision Agreement which acknowledged that the grades in the rear yard of the property exceeded the maximum standards. Importantly, the additional Subdivision Agreement required the appellant to include a warning in the agreement of purchase and sale of the property with the homeowners. The appellant failed to do so.

[3] The homeowners sued the appellant for breach of the agreement of purchase and sale, which included a rendering showing a level lot. The claim stated that the lot was improperly graded, was not safe, and could not be used as a residential property. In particular, the homeowners asserted that the appellant had deliberately failed to include the warning about the property grading in the agreement of purchase and sale and that the appellant was grossly negligent in having submitted to the Town plans providing for the overly steep property grading.

[4] The appellant paid the homeowners an amount to settle their action, and pursued its claim against its insurer, the respondent, for a declaration that the respondent had a duty to defend the homeowners' action before trial and to indemnify the appellant for costs and damages.

Motion Judge's Decision

[5] The motion judge dismissed the appellant's action on the basis that there was no coverage for the homeowners' claims under the CGL policy with the respondent on two bases: first, the substance of the homeowners' claims as pleaded was based on intentional conduct, not an accident, so that there was no coverage. Second, even if the homeowners' claims could be read as including a claim for negligent, non-intentional conduct that could be an accidental occurrence, the exclusions under Part III of the CGL policy in paragraphs 2 a., 2 h. (5) and (6), and 2 k. expressly precluded coverage.

Appellant's Arguments

[6] The appellant submits that its failure to disclose amounts to a negligent misrepresentation, which the respondent concedes would be covered under the Insuring Agreement of the CGL policy if not otherwise excluded.

[7] The appellant argues that the motion judge erred in not looking beyond the homeowners' choice of labels in their statement of claim, and thus not appreciating that it was or could have been negligence, rather than deliberate conduct on the part of the appellant in failing to disclose the warning as required by the Town, and that any such negligence was not derivative of the deliberate conduct that was pleaded.

Court's Analysis and Decision

[8] We disagree with the appellant's submissions. As the motion judge correctly found, even if the homeowners' underlying claim could be read to include a negligent, accidental act of not warning the homeowners about the steep grading that was not a derivative claim, such a claim was clearly excluded under Part III of the CGL policy, as follows:

i. Paragraph 2 a. – Expected or Intended Property Damage

Paragraph 2 a. excludes from coverage property damage "expected or intended from the standpoint of the insured". "Property damage" includes "loss of use of tangible property that is not physically injured". There is no dispute that the appellant intended to create the steep grading of the property, which resulted in the homeowners' loss of their use of the property.

ii. Paragraph 2 h. (5) and (6) – Property Damage to Work Performed

Paragraph 2 h. (5) excludes property damage to the property where the appellant carried out its work or operations and (6) excludes property damage to property that must be restored, repaired or replaced because the appellant's work was incorrectly performed on it. The appellant's "work" is defined under paragraph 26 of the CGL policy to mean "work or operations performed" by the appellant or on its behalf, and includes "[t]he providing of or failure to provide warnings or instructions". The exclusions under paragraph 2 h. (5) and (6) cover the steep grading of the property performed by the appellant, as well as the appellant's failure to include a warning about the grading in the agreement of purchase and sale.

iii. Paragraph 2 k. – Damage to Impaired Property

Paragraph 2 k. provides for the exclusion from coverage of the appellant's steep grading of the property and its failure to include the requisite warning in the agreement of purchase and sale:

Damage To Impaired Property or Property Not Physically Injured

"property damage" to "impaired property" or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work", or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

[9] The appellant admits that it intentionally graded the steepness of the property beyond the maximum municipal standards and that it failed to provide the requisite warning to the homeowners. As the motion judge found, these acts are clearly excluded under the CGL policy. We therefore see no error in the dismissal of the appellant's action. Accordingly the appeal is dismissed.

Costs

[10] The appellant shall pay $9,500 to the respondent for partial indemnity costs of the appeal, inclusive of disbursements and taxes.

K. Feldman J.A.

David Brown J.A.

L.B. Roberts J.A.