ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-12-467624

DATE: 2014/07/08

BETWEEN:

Jennifer Sweet carrying on business as Lion’s Bridge Stable

Plaintiff

– and –

H. Hennink Construction Ltd. and Advanced Framing Corp.

Defendants

Joshua J.A. Henderson, for the Plaintiff

Clarence Lui, for the Defendant Advanced Framing Corp.

HEARD: May 22, 2014

A.J. O’MARRA J.:

[1] The defendant, Advanced Framing Corp. (Advanced Framing) has brought a motion pursuant to Rule 20.04 for summary judgment on the basis there is no genuine issue requiring a trial of the plaintiff’s claim to recover losses against it for the negligent construction of the plaintiff’s riding arena. The plaintiff’s insurer has brought a subrogated action to recover the losses incurred.

[2] The defendant, Advanced Framing was a subcontractor retained by the general contractor, H. Hennink Construction Ltd. to provide labour for framing the plaintiff’s riding arena. The partially completed arena collapsed. Advanced Framing asserts that it is an unnamed insured under the plaintiff’s builder’s risk policy and is covered by the subrogation waiver contained therein as a bar to the claim advanced against it.

[3] The plaintiff claims against the defendants for at least three separate losses: 1) business interruption, 2) the cost of labour, and 3) the cost of the damage due to the collapse.

[4] The plaintiff contends that Advanced Framing has not provided the court with a full factual matrix to determine whether it is an unnamed insured under the builder’s risk policy for the purposes of damage to the property. In the alternative, if the defendant is an insured under the builder’s risk policy, it is not covered for the plaintiff’s loss of use or occupancy or its own faulty workmanship.

FACTUAL OVERVIEW

[5] In August 2011, Jennifer Sweet hired H. Hennink Construction Ltd. (Hennink) to build a riding arena on her farm property in Ayr, Ontario. Hennink provided a quote in the total amount of $516,671.61. A term of the quote indicated that liability insurance was to be determined with the owner. No consideration was included in the quotation.

[6] Jennifer Sweet in her affidavit of May 12, 2014 indicated that she took out insurance through North Waterloo Farmers Mutual Insurance Company, which contained a number of riders, endorsements and provisions including:

(i) All Risk Policies, with a premium of $3,553.00 per year

(ii) Comprehensive Farm Barn Policy for $1,152.00 structure, with a premium of $140 per year

(iii) Comprehensive Farm Barn Policy for $13,328 structure, with a premium of $1,394 per year

(iv) Actual Cash Value Named Peril Rider for the Farms, with a premium of $349 per year

(v) Builder’s Risk – Replace Cost Policy for the riding arena, with a premium of $1,110 per year

(vi) $15,000 Farm Equipment Policy, with a premium of $47 per year

(vii) Farm Produce Floater, with a premium of $25,000 per year

(viii) Farmer’s Comprehensive Liability, with a premium of $205 per year

(ix) Farmer’s Pollution Liability, with a premium of $50 per year.

[7] The total premium for the policies was $6,936. Ms. Sweet specifically stipulated that the insurance was to apply to two other persons, mortgagees with additional interests. She declined the option of placing the general contractor, Hennink or any subcontractors on the insurance policy. She chose not to add the general contractor or subcontractors as “additional interests” because she did not want to pay extra money to have the policy apply to anyone else besides herself and the named “additional interests”. Ms. Sweet indicated she did not receive any reduced price or rebate from Hennink in exchange for paying for insurance to protect the interests of the general contractor or any subcontractors. She stated: “As far as I knew Hennink and Advanced Framing were both insured for their work”.

[8] Hennink contracted with Advanced Framing to build the frame of the riding arena structure. Prior to the completion of the framing the structure collapsed on November 2, 2011.

[9] On November 4, 2011, the Ministry of Labour investigated the collapse and found that both Advanced Framing and Hennink Construction failed to live up to the Ontario Building Code which states:

(3) All permanent and temporary structural members, including formwork and falsework of a building, shall be protected against loads exceeding the specified loads during the construction…

[10] Specifically with respect to Advanced Framing the Ministry found:

Every part of a project, including a temporary structure, (b) shall be adequately braced to prevent any movement that may affect the stability or cause its failure or collapse. The structure at the project was not adequately braced to prevent its collapse.

[11] A construction engineer, Jeff Udall, P.Eng. who reviewed the circumstances of the collapse concluded that Advanced Framing had installed the framing without:

i) large diagonal braces connecting the bottom chords of the trusses;

ii) wind braces on the north and east walls;

iii) nail connections to any of the studs along the bracing lengths; and

iv) Simpson Strong ties.

[12] Advanced cleared up the collapsed structure and reframed the arena in compliance with the building code. Advanced invoiced Hennink a total amount of $38,318.30 for its labour, equipment and crane rental for the original framing and re-framing due to the collapse. Advanced Framing did not own any property that was damaged in the collapse.

[13] Kenneth Sommer, vice president and secretary of Advanced Framing, in his affidavit of February 25, 2014 states at para. 6 and 7:

6. Following the collapse of the riding arena, Advanced Framing completed the cleanup and re-framing work and invoiced Hennink for the work.

7. As far as I am aware, the plaintiff’s loss was covered by the Builder’s Risk Comprehensive Policy (“the Builder’s Risk Policy”) that was issued by her insurer, North Waterloo Farmers Mutual Insurance Company (“North Waterloo”). By letter to my company dated December 1, 2011, North Waterloo advised that it had issued payments to the plaintiff in the amount of $6,047.00 for cleanup and $40,195.00 for repairs that attached a budget for rebuilding the barn and invoices from Hennink.

TERMS OF THE POLICY

[14] The relevant provisions of the “Builder’s Risk Comprehensive Form” are as follows:

PROPERTY INSURED

1. This Policy, except as herein provided, insures

(a) Property in course of construction, installation, reconstruction or repair

(i) owned by the Insured

(ii) owned by others, provided that the value of such property included in the amount insured;

all to enter into and form part of the completed project including expendable materials and supplies not otherwise excluded, necessary to complete the project described on the Declarations Page…

PERILS INSURED

4. This Policy, except as herein provided, insures against all risks of direct physical loss of or damage to the property insured.

PERILS EXCLUDED

9. This policy does not insure

(a) the cost of making good

(i) faulty or improper material;

(ii) faulty or improper workmanship;

(iii) faulty or improper design

provided, however, to the extent otherwise insured and not otherwise excluded under this Policy resultant damage to the property shall be insured….

(j) any loss of use or occupancy however caused;

SUBROGATION

15. The Insurer (s), upon making any payment or assuming liability therefore under this Policy, shall be subrogated to all right of recovery of the Insured against others and may bring action in the name of the Insured to enforce such rights, except that…

(b) notwithstanding the provisions of paragraph (a) hereof all rights of subrogation are hereby waived against any corporation, firm, individual, or other interest with respect to which insurance is provided by this Policy.

[15] The defendant, Advanced Framing contends the plaintiff’s builder’s risk policy insured it as an “unnamed insured by necessary implication”, relying on cases such as Madison Developments Ltd. v. Plan Electric Co., 1997 1277 (ON CA), [1997] O.J. No. 4249 (CA) leave to SCC refused [1997] SCCA No. 659; Commonwealth Construction Co. v. Imperial Oil Ltd. et al, 1976 138 (SCC), [1978] 1 S.C.R. 317 and Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd., [1994] BCJ No. 468 (CA).

[16] In Madison, the subcontractor’s employee through his negligence caused a fire which had led to a substantial loss. The general contractor was insured with several insurers under a builder’s risk policy, which contained the same terms with respect to the property insured and subrogation clause as in the instant case. In that matter the insurance named only the owner and contractor. However, the subcontractor contended that a contract between it and the general contractor, which obliged the contractor to obtain fire insurance covering the whole project, protected the subcontractor from the subrogated claim against it as a tortfeasor. The court accepted the reasoning of de Grandpré J. in Commonwealth that the builder’s risk policy is a unique species of insurance contract and its purpose in the business context can only be served if subcontractors are taken to be unnamed insureds by necessary implication. The court noted at para. 23:

Viewing the circumstances comprehensively, the contractor assumed separate obligations to the owner and to the subcontractor to obtain comprehensive fire insurance. Moreover, the policy insures property owned by others, suggesting that others than those named in the policy are insured. The contractor obtained that insurance, a loss occurred, and payment was made under the policy. The insurer must be taken to be aware of the contractor’s contracts with subcontractors or to have some control over them if not yet entered, because the insurer’s subrogation rights can be eliminated by such a contract. Further, if $30,000,000 was the appropriate coverage for loss by fire of the whole project, one would expect a covenant that the subcontractor maintained liability to that level if there was thought of pursuing that subcontractor for loss caused by its negligence. My conclusion based on these particulars and the general thesis expressed by de Grandpré J., supra, is that the subcontractor is an unnamed insured by necessary implication.

[17] The plaintiff, on the other hand, relies on the decision of Belobaba J. in Brookfield Homes (Ontario) Ltd. v. Nova Plumbing and Heating Ltd., [2010] O.J. No. 1859 in which the negligence of the subcontractor Nova Plumbing caused fire damage to several homes under construction by Brookfield, the plaintiff. The subcontractor’s cross motion for summary judgment as an unnamed insured under the home builder’s policy was dismissed.

[18] In that instance, the plumbing subcontractor relied on the same cases as relied on by the moving party in this motion. Belobaba J. found that the cases were all distinguishable and stated as follows:

12 … In each case, subrogation was denied because the court found sufficient indication in the policy that the contractor whose negligence caused the loss was an intended insured. In each case, however, the court’s focus was on the language used in the property policy in question. Did the policy extend coverage to contractors and subcontractors? Did the “property insured” provision cover “property owned by others”? Was there a trustee clause or some other indication that coverage was intended and subrogation should be denied?

13 Consider the following:

• Commonwealth Construction v. Imperial Oil, 1976 138 (SCC), [1978] 1 S.C.R. 317, the insurance policy explicitly named “contractors and subcontractors” as additional insureds. A “trustee clause” provided that the insurance was being obtained for the insured and all contractors who entered into a contract with the property owner. The underlying construction agreement was silent about insurance. The Supreme Court had no difficulty concluding that the owner’s insurance was therefore intended to cover all parties working at the site. Subrogation was denied.

• Madison Developments v. Plan Electric – The contractor agreed with both the owner and the subcontractor that it would obtain fire insurance. The policy insured property owned by others. The court found that the subcontractor was an unnamed insured “by necessary implication.” A subrogation action against the subcontractor for fire-damage was not permitted.

• Sylvan Industries v. Fairview Sheet Metal Works – the court found that the subcontractor’s status as an unnamed insured could be implied from the broad language of the “property insured” clause, which extended coverage to property owned by others. Subrogation was denied.

14 In our case, as already noted, the BH (Brookfield) property policy did not extend general coverage to “contractors and subcontractors.” There was no trustee provision. The property insured clause did not extend coverage to property owned by others. On the contrary, the BH property policy (which was an omnibus policy covering Brookfield’s property in various locations in North America) specifically provided that the interest of contractors and subcontractors would be insured only “to the extent of the insured’s legal liability for insured physical loss or damage to such property”: recall discussion above in para. 9. Finally, the underlying construction agreement between BH and NP (Nora Plumbing) was clear about the allocation of risks between the two parties.

[19] In this instance, the policy does not name or reference coverage for contractors or subcontractors, as in Commonwealth Construction. Further, there is no contractual agreement of contractor with the owner or subcontractor to provide coverage, as in Madison Developments.

[20] However, it is arguable that the policy at issue includes unnamed insureds by implication as a result of sub-clause 1(a) which refers to property being “owned by others” that “form part of the completed project including expendable materials and supplies not otherwise included”, as in Sylvan Industries. On the other hand, there is no evidence that the moving party had any property damaged in the collapse. Its only involvement in the project as subcontractor was to provide labour and the necessary equipment rental for the work performed, none of which was lost or damaged in the collapse.

[21] The fact that there was no consideration given by Hennink for the purchase of insurance by the owner that covered it or any subcontractors must be taken into consideration, as well as the owner had the option of adding interests under the policy, but specifically chose not to other than the mortgagees.

[22] Further, unlike the cases relied on where waiver of subrogation was found to apply, here consideration must be given to the exclusion under sub-clause 9(a)(ii) which specifically states:

This policy does not insure the costs of making good, faulty or improper workmanship.

[23] I am satisfied that there is a genuine triable issue as to whether Advanced Framing is an unnamed insured under the builder’s risk policy. However, this is not a situation in my view that lends itself to the direction as given in Hryniak v. Mauldin, [2014] SCC 7 where all the evidence has been presented to the court which would permit it to fairly and justly adjudicate the issue in a timely, affordable and proportionate process. As noted by Denis Boivin in Insurance Law, Irwin Law Inc., Toronto 2004 to determine whether the builder’s risk of policy applies to a subcontractor in any given situation the court must consider the contractual matrix as a whole to assess whether it is fair to allow the insured to exercise subrogation rights. He writes at page 103:

This matrix is composed not only of the insurance agreement, but also any agreements between the insured and the third party against whom the insurer is exercising subrogation. Does subrogation frustrate the contractual expectations of the parties within this matrix?

[24] In reviewing various cases which have considered the waiver of subrogation as it applies to subcontractors such as the leading case Commonwealth Construction Co. v. Imperial Oil Ltd. supra, he notes:

In each case, the parties were contractually connected: the insureds had a pre-existing relationship with the people against whom they sought to exercise a right of recovery. In each case, the parties had voluntarily allocated risks during their contract negotiations, and insurance had been purchased or not on the basis of those allocations of risk. The insurers were attempting to bypass the ex ante allocations in order to recover sums of money they had promised to pay and for which they had received premiums. In each case, allowing subrogation would have had the effect of frustrating the contractual expectations of the parties.

[25] In this instance, Advanced Framing tendered no evidence of its contractual expectations as between it and Hennink or that the claim by the plaintiff is an attempt to bypass ex ante allocations in the contracts. In addition to any evidence as to the negotiations and understanding as to coverage allocations as between the defendants, the full insurance policies of Advanced and Hennink applicable to this project have not been produced for consideration on this motion.

[26] In the result, Advanced Framing’s motion for summary judgment is dismissed and the matter shall proceed to trial. The subrogation action and plaintiff’s claim for loss of use and damages excluded from coverage by s. 9 (j) of the plaintiff’s insurance policy against Advanced Framing may proceed.

[27] Costs are awarded to the plaintiff in the result. If the parties are unable to agree as to costs between themselves, costs submissions no more than four pages in length together with the bill of costs may be submitted within 15 days of the release of this decision and responding submissions no later than 15 days thereafter.

A.J. O’Marra

Released: July 8, 2014

COURT FILE NO.: CV-12-467624

DATE: 2014/07/08

ONTARIO

SUPERIOR COURT OF JUSTICE

Jennifer Sweet carrying on business as Lion’s Bridge Stable

Plaintiff

– and –

H. Hennink Construction Ltd. and Advanced Framing Corp.

Defendants

REASONS FOR JUDGMENT

A.J. O’Marra J.

Released: July 8, 2014