ONTARIO
SUPERIOR COURT OF JUSTICE
PETERBOROUGH COURT FILE NO.: CV-14-121
DATE: 20151013
BETWEEN:
PARKHILL EXCAVATING LIMITED
Plaintiff
– and –
ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA
Defendant
Robert W. Becker, for the Plaintiff
Mark W. Barrett, for the Defendant
HEARD: August 26, 2015
PETERBOROUGH COURT FILE NO.: CV-14-126
AND BETWEEN:
PARKHILL EXCAVATING LIMITED, ARTHUR THOMAS BARKER and RANDY ARTHUR BARKER
Plaintiffs
– and –
ECONOMICAL MUTUAL INSURANCE COMPANY
Defendant
Robert W. Becker, for the Plaintiff
Marcus B. Snowden, for the Defendant
NEWMARKET COURT FILE NO.: CV-12-109305-A1
AND BETWEEN:
BGS HOMES INC. and B.G. SCUGOG INC.
Plaintiff
– and –
BOARD OF HEALTH FOR THE HALIBURTON KAWARTHA, PINERIDGE DISTRICT HEALTH UNIT, THE CORPORATION OF THE CITY OF KAWARTHA LAKES, PARKHILL EXCAVATING LIMITED, ARTHUR THOMAS BARKER and RANDY ARTHUS BARKER
Defendants
– and –
NORTHBRIDGE GENERAL INSURANCE CORPORATION
Third Party
Conrad Schickendanz, for the Plaintiff
Robert W. Becker, for the Defendants Parkhill Excavating Limited, Arthur Thomas Barker and Randy Arthur Barker
Emily Stock, for the Third Party
HEALEY J.
Nature of the Motions
[1] The moving parties, Parkhill Excavating Limited (“Parkhill”), Arthur Thomas Barker and Randy Arthur Barker, have been named as defendants in an action commenced by BGS Homes Inc. and B.G. Scugog Inc. In that action the plaintiffs seek damages for the alleged defective design, installation, supervision and review/inspection of such design and installation work, including costs of rectification of deficiencies and related expenses relating to 36 residential septic systems (“the underlying action”).
[2] The moving parties herein seek an order, or alternatively a declaration, compelling three Commercial General Liability (“CGL”) insurers to provide a defence to the underlying action, including reimbursement of defence costs paid to date and assumption of defence costs moving forward.
[3] The three insurers in question are Economical Mutual Insurance Company, formerly Federation Insurance Company of Canada (collectively “The Economical”), Royal & Sunalliance Insurance Company of Canada (“RSA”) and Northbridge General Insurance Corporation, formerly Lombard General Insurance Company of Canada (“Northbridge”), each of whom issued CGL policies during the time that the work was undertaken, spanning approximately six years.
[4] The outcome of this motion depends on this court’s interpretation of the policies issued by each insurer, which are substantially the same, to determine their bearing on the possibility of coverage, based on the allegations pleaded against the moving parties in the underlying action.
[5] Only the issue of entitlement to a defence is before the court on this motion, which requires that there only be a mere possibility of coverage based on the allegations pleaded against the moving parties in the underlying action. The issue of the insurers’ obligation to indemnify will ultimately turn on the findings at trial that impose liability on the moving parties, if any, and thus cannot be determined at this time.
Issues
[6] Each of the insurers takes the position that the pleading in the underlying action does not disclose a potentially covered event that triggers a duty to defend. One insurer, The Economical, also takes an off-coverage position on the basis that its time on risk preceded any potential “property damage” risks.
[7] Each insurer also contends that if the type of loss in question is covered, then certain policy exclusions, being the “your work” exclusion and the “professional services” exclusion, provide an exception from coverage. With respect to the “your work” exclusion, the moving parties argue that an exception referencing a subcontractor’s work applies to bring the loss back within the coverage provisions.
[8] Accordingly, the issues to be decided on this motion are:
Are the claims alleged in the underlying action claims for “property damage” caused by an “occurrence” within the meaning of the policy?
With respect to The Economical only, if question 1 is answered affirmatively, did such claim arise after The Economical’s time on risk?
If question 1 is answered affirmatively, does the “your work” exclusion apply?
If yes, does the “subcontractor exception” apply to render the exclusion inoperative?
If question 1 is answered affirmatively, does the “professional services” exclusion apply?
Allegations in the Statement of Claim
[9] The plaintiffs in the underlying action are, respectively, the land owner and the builder/general contractor with respect to the construction of a subdivision in the City of Kawartha Lakes. In the fall of 2004, BGS Homes retained Parkhill and eventually paid $555,487.53 for the design, supply and supervision of construction and installation of septic systems for the subdivision. Following construction the land was transferred to the purchasers. BGS Homes completed construction of the subdivision homes in 2010.
[10] In May 2010, the Kawartha Pineridge District Health Unit wrote to 25 homeowners warning of potential problems with some of the subdivision sewage septic systems. Between May and August 2011, that health unit issued Orders to Comply under the Building Code Act, 1992, S.O. 1992, c. 23 to 36 homeowners, alleging the following contraventions:
i) Non-compliant filter medium;
ii) Inadequate area of sand fill;
iii) Improper grading in the vicinity of the sewage system;
iv) Deficient pump chambers; and
v) Inadequate tank sizes.
[11] In August 2011, the developers and Tarion Warranty Corporation performed remedial work consisting of the replacement of each of the 36 septic systems in order to mitigate the loss.
[12] BGS Homes alleges in the claim that for each of the 36 houses “the filter medium supplied and installed in the septic systems by Parkhill under the supervision of Randy Barker was not the correct material”. Further, in 11 of the houses the calculations and designs of Parkhill used to obtain the sewage system permits did not conform to the features of the house as built.
[13] The moving parties took third party proceedings against Robert E. Young Construction Ltd. as supplier of the allegedly deficient filter sand used in the septic systems.
[14] Throughout the period of work by Parkhill, from roughly the fall of 2004 to late spring of 2010, Parkhill carried CGL insurance policies. These were renewed on October 10 of each year. The policies issued by The Economical covered the period October 10, 2003 to October 10, 2006. The polices issued by RSA covered the period October 10, 2006 to October 10, 2007. The policies issued by Northbridge covered the period October 10, 2007 to October 10, 2010.
Policy Provisions
[15] The policy provisions for all three insurer are very similar, with minor variations. The relevant provisions are set out below.
Insuring agreement
[16] The Economical’s policy provides:
a. We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of … “property damage” to which this insurance applies…. This insurance applies only to … “property damage” which occurs during the form period. The … “property damage” must be caused by an “occurrence”…. We will have the right to defend to any “action” seeking those compensatory damages….
c. “Property damage” that is loss of use of tangible property that is not physically injured shall be deemed to occur at the time of the “occurrence” that caused it.
[17] RSA’s policy provides:
a. We will pay those sums that the insured becomes legally obligated to pay as “compensatory damages” because of … “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “action” seeking those “compensatory damages”. However, we will have no duty to defend the insured against any “action” seeking “compensatory damages” for … “property damage” to which this insurance does not apply….
b. This insurance applies to … “property damage” only if:
(i) The ... “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;
(ii) The … “property damage” occurs during the policy period….
[18] Northbridge’s policy provides wording identical to the RSA policy.
Definitions
[19] The following terms are defined in each of the policies:
“Occurrence” has the exact meaning in both The Economical and RSA’s policy, defined to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”. The term “occurrence” is not defined in the Northbridge policy.
“Property damage” is defined in The Economical policy as meaning:
a. Physical injury to tangible property, including all resulting loss of use of that property;
b. Loss of use of tangible property that is not physically injured.
Under the RSA and Northbridge polices, the definition of “property damage” is identical, and defined as:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the “occurrence” that caused it.
“Your work” is defined in each of the three policies, in generally the identical terms for the purpose of this motion, as meaning:
a. Work or operations performed by you or on your behalf; and
b. Materials, parts or equipment furnished in connection with such work or operations.
“Your work” includes warranties or representations made at any time with respect to the fitness, quality, durability or performance or use of [“your work”]….
“Professional services” is also defined similarly in each of the polices as including, but not limited to…
g. The preparation or approval of maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications;
h. Supervisory, inspection, architectural, design or engineering services.
“Products-completed operations hazard” is defined similarly in each of the policies as including:
a. [A]ll bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work except:
Products that are still in your physical possession; or
Work that has not yet been completed or abandoned.
Your work will be deemed completed at the earliest of the following:
When all of the work called for in your contract has been completed;
When all of the work to be done at the site has been completed if your contract calls for work on more than one site;
When that part of work done at a job site has been put to its intended use by any person or organization other than another contract subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed….
Exclusions
[20] The Economical and RSA policies provide that the insurance does not apply to:
Property damage to your work arising out of it or any part of it and included in the “products, completed operations hazard”.[^1]
This exclusion does not apply if the damaged work out of which the damage arises was performed on your behalf by a subcontractor.
[21] Northbridge’s policy creates an exclusion for damage to property in the following terms:
(i) Property you own, rent, occupy, including any costs or expenses incurred by you, or any other person, organization or entity for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;
(ii) Premises you sell, give away or abandon if the “property damage” arises out of any part of those premises;
(iii) Property loaned to you;
(iv) Personal property in your care, custody or control;
(v) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or
(vi) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
Paragraph (ii) of this exclusion does not apply if the premises are “your work” and were never occupied, rented or held for rental by you.
Paragraph (vi) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.
[22] The risk of professional liability is specifically removed from coverage in each of the insurer’s policies. The provisions of the RSA and Northbridge polices are identical, excluding… “property damage” due to the rendering of or failure to render by you on your behalf, of any “professional services” for others, or any error or omission, malpractice or mistake in providing those services.
[23] Under The Economical’s policy, the exclusion states that:
[T]his insurance does not apply to ... “property damage” … due to the rendering of or failure to render any professional service which shall include but not be limited to…
(6) The preparation or approval of maps, drawings, plans, opinions, reports, surveys, change orders, designs or specifications,
(7) Supervisory, inspection, architectural or engineering services….
The Law
General principles applicable to determining whether there is a duty to defend
[24] The law in this area is well developed. In considering the question of whether a duty to defend arises, the motions judge must have regard to the wording of the policy and the pleadings, in particular the true nature or substance of the allegations in the statement of claim. In the leading case of Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 19‑20, the Supreme Court of Canada confirmed the following principles:
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 not necessary for the insured to prove that the insurer’s obligation to indemnify will be proven at trial in order for the duty to defend to be triggered;
The insured need only show a “mere possibility” that a pleaded claim, if proven at trial, will fall within coverage to trigger the defence obligation;
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; and
A court is to examine the pleadings to look for the true nature or substance of the claim, rather than to the labels used by the plaintiff, to determine whether the claim falls within the scope of coverage.
[25] In considering whether there is a “mere possibility” that the allegations pled against the insured in the statement of claim fall within coverage, McLachlin J. (as she then was) indicated in the case of Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, at p. 12, that “the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy.”
[26] The Court of Appeal for Ontario has recently confirmed in Keys v. Intact Insurance Company, 2015 ONCA 400, [2015] O.J. No. 2920, at para. 4, that not only the statement of claim, but all of “the pleadings may be considered, with the most weight placed on pleadings against [the] potential insured.”
Interpretation of a policy of insurance
[27] The Supreme Court of Canada in Progressive Homes, at paras. 22‑24, set out the applicable principles as follows:
The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole.
Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction. For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded. Courts should also strive to ensure that similar insurance policies are construed consistently. ….…
When the rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem — against the insurer. One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly. [Citations omitted.]
[28] A policy holder’s burden is to prove on a balance of probabilities that the claim as pleaded falls within the coverage, triggering the duty to defend. The onus then shifts to the insurer to show that an exclusion applies to preclude coverage when the claim otherwise falls within the initial grant of coverage. The onus returns to the policy holder to prove that any relevant exception to an exclusion brings an otherwise excluded claim back into coverage: Alie v. Bertrand & Frere Construction Co., (2002) 31835 (ON CA), 2002 31835 (ON CA), 62 O.R. (3d) 345, at para. 22, leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 48, 227 D.L.R. (4th) vii; York Region Condominium Corp. No. 772 v. Lombard Canada Ltd., 2007 3885 (ON SC), 85 O.R. (3d) 294, at para. 42, aff’d 2008 ONCA 272, 60 C.C.L.I. (4th) 35.
Analysis
Issue 1 – Whether the allegations in the claim fall within “property damage” caused by an “occurrence” so as to trigger the duty to defend
[29] In Alie, at para. 35, the court stated:
In our view, little would be gained in reviewing the submissions of counsel on the relevant case law. The principle that a CGL policy is not intended to cover the insured’s own defective product or work is well-established and not disputed in this case. It is its application that is in issue. The ultimate determination of whether the damage was to the insured’s own product, or to the property of a third party, is largely a question of fact.
This passage was cited with approval in the Court of Appeal for Ontario’s decision in York Region Condominium Corp., at para. 20.
[30] The respondents’ denial of coverage is based on their argument that Parkhill’s claim in the underlying action is a claim for defective work that was performed by Parkhill, rather than a claim for resulting damage to a third party from the work done.
[31] The respondents rely on the case of York Region Condominium Corp. In that case the general contractor was sued for defective workmanship, being a faulty watering system installed by a subcontractor at a condominium unit. The building owners did not sue for remediation costs, but rather, the region and township in which the condominium was located loaned the condominium corporation money to rectify the resulting damage. Judgment was obtained against the contractor and the plaintiffs sought to recover their damages from the contractor’s insurer, Lombard.
[32] York Region Condominium Corp. required the court to interpret the policy provisions to determine whether the plaintiffs had proved that their claim was covered under the policy as compensatory property damage caused by an occurrence. Coverage was determined to be established because the defective watering system caused property damage to third parties, being the voids and soil destabilization under the property caused by the washing away of soil and the repair of foundation which, though not initially defective, was harmed as a consequence of the defective dewatering system.
[33] At para. 80, the court noted that the plaintiffs were not seeking to recover the costs of rectifying the contractor’s faulty workmanship itself and, had this been the claim, it would not have been recoverable as a compensatory damage. The insurer was liable however, to indemnify the condominium owners for the damage caused to their building foundation, both structurally and with respect to the erosion of the natural foundation. That ruling was upheld on appeal.
[34] Similarly, the respondents also rely on Alie, where the costs of the concrete supplied by the contractor were not included in coverage; it was only the remediation of the structural damage caused by the defective concrete, including all of the other costs involved in remediating and replacing the damaged foundations, which was covered under the policy as a result of damaging the home of third party homeowners.
[35] These cases, however, were decided before Progressive Homes, which is binding authority. “Property damage” that may be covered by an insurance policy is not necessarily limited to third party property, according to Progressive Homes.
[36] As noted, the plaintiffs in the underlying actions seek damages in the amount of $2,000,000 with respect to “losses resulting from deficiencies arising from septic system design, installation work and supervision of installation work, and review and inspection of said design and installation work, including costs of rectification of deficiencies and related fees”. The responding parties assert that the true nature of the claim is that the plaintiffs are attempting to recover the costs they were forced to incur by Tarion in correcting deficiencies in the septic systems’ design and construction. The defendants argue that there is no allegation of any consequential property damage; based on the face of the statement of claim in the underlying action, the defects were the discovered after the septic systems were installed and put to use, and the dwellings in the subdivision were occupied.
[37] The damages sought in the underlying action are approximately four times what Parkhill was paid to install the septic systems. The plaintiffs in the underlying action claim losses arising from deficiencies in the septic system. At para. 44 of the claim, it is alleged that the “[b]uilder has incurred costs and continues to incur costs performing remedial work necessary to satisfy the orders to comply”. Paragraph 51 of the claim alleges that the plaintiffs “are expected to have to perform further remedial work at their own expense”. Paragraph 82 refers to the cost of remedial work “including the higher cost of remedying work once the homes had been sold”. Accordingly, in addition to the question of whether defective work can be an accident, which has been answered affirmatively by Progressive Homes at paras. 42‑50, it is not at all clear from the claim that the damages sought are restricted only to the replacement of the allegedly deficient systems due to the work performed by Parkhill.
[38] The moving parties submit that the loss of use of the sewage systems due to the need to remediate or replace them constitutes a loss of use of tangible property that is not physically injured, falling within s. 11(b) of the definition of “property damage”. Further, the operation of the septic systems which were alleged to have been built with defective materials or undersized components that were, generally, defectively constructed constitutes “continuous or repeated exposure to substantially the same general harmful conditions” within the meaning of “occurrence”.
[39] The moving parties rely on Progressive Homes and Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Co. of Canada, 2006 10205 (ON CA), 79 O.R. (3d) 494, leave to appeal to the S.C.C. refused, 2006 38332 (SCC), [2006] S.C.C.A. No. 204, 227 O.A.C. 400 (note), as cases that stand generally for the proposition that under insuring agreements, such as those that insured Parkhill, a claim, shoddy or deficient work or use of deficient materials is covered and constitutes “property damage caused by an occurrence”. This triggers coverage under the insuring agreement subject only to specific exclusions that may be proved.
[40] As a result of the analysis in Progressive Homes, which contained essentially the same coverage provisions as the case before this court, I find that I am bound by the principles of construction to conclude that the deficiencies that were eventually rectified by the plaintiffs in the underlying action constitute property damage in the sense of being physical injury to tangible property. Further, the property damage was caused by an occurrence, meaning an accident. One of the principles of interpretation of insurance policies is that similar policy wording should be given a similar interpretation.
[41] In Progressive Homes, the pleadings alleged that Progressive was negligent in the construction of the housing units, including defective workmanship and materials, resulting in significant water damage. The plaintiff sought damages that flowed from Progressive’s negligence and breach of contract, including the cost of temporary and permanent remedial work, inspection and professional advice concerning the defects, cost of relocation and alternative housing of tenants during the remedial work, among other heads of damage. Citing Bridgewood Building Corp. and Alie, Rothstein J.A. concluded at para. 35,
I see no limitation to third‑party property in the definition of “property damage”. Nor is the plain and ordinary meaning of the phrase “property damage” limited to damage to another person’s property.
Rothstein J.A. went on to conclude that he would construe the definition of “property damage” according to the plain language of the definition in order to include damage to tangible property in that definition. Rothstein J.A. also rejected the argument of Lombard that the definition of “property damage” must exclude defects. Although nothing turned on the definition of “property damage” in that particular case, Rothstein J.A. added, at para. 39, that “it is not obvious to me that defective property cannot also be ‘property damage’.” He went on to state that where a defect renders the property entirely useless, it may be arguable that defective property may be covered under “loss of use” in the second portion of the definition of “property damage”. He also noted that not barring defective property from the definition of “property damage” at the outset gives meaning to the “property damage” exclusion clauses.
[42] In considering the term “accident”, which in the case before this court is a requirement of establishing an “occurrence”, at para. 46 Rothstein J.A. stated that the Supreme Court’s “jurisprudence shows that there is no categorical bar to concluding in any particular case that defective workmanship is an accident”, and such a question is necessarily a case‑specific determination. It will depend both on the circumstances of the defective workmanship alleged in the pleadings and the way in which “accident” is defined in the policy. At para. 49 he concluded that:
“Accident” should be given the plain meaning prescribed to it in the policies and should apply when an event causes property damage neither expected or intended by the insured. According to the definition, the accident need not be a sudden event. An accident can result from continuous or repeated exposure to conditions.
Ultimately, the court in Progressive Homes, at paras. 47, 49, citing Co‑operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 22, accepted “accident” to mean “an unlooked‑for mishap or an untoward event which is not expected or designed” and held that faulty workmanship is an accident when it causes property damage neither expected nor intended by the insured. Similarly, in York Region Condominium Corp., at para. 98, the Court of Appeal for Ontario rejected the argument that an event caused by negligence cannot be an accident. It referred to the Supreme Court of Canada’s decision in Canadian Indemnity Co. v. Walkem Machinery & Equipment Ltd., 1975 141 (SCC), [1976] 1 S.C.R. 309, at pp. 315‑316 in which the court specifically rejected the notion that a negligent act could not be an accident or damage caused by negligence would not be compensable under a CGL policy.
[43] As previously stated, there is no reason to depart from the analysis of Rothstein J.A. in Progressive given the policy provisions and the allegations raised in this case. The allegations in this case are of defective or faulty workmanship or materials, and therefore may constitute “property damage caused by an occurrence”, thereby triggering coverage. I am satisfied that a possibility of coverage has been made out in this case.
Issue 2 – Whether the alleged “property damage” occurred after The Economical’s time on risk
[44] The Economical’s CGL policy only covers “property damage” that occurred during The Economical’s time on risk, which in this case, ran from October 10, 2003, to October 10, 2006. The underlying action seeks damages for costs incurred to remedy the defective septic systems installed. However, the alleged complaints giving rise to these remedial costs were first lodged in May 2010, well after The Economical was off the risk, and remediation work did not begin until August 2011. Accordingly, The Economical argues that the “property damage” could only first “occur” in May 2010, at the earliest, because coverage is triggered not by the timing of the negligent act, error or omission, but rather by the “property damage” event complained of. Stated another way, The Economical’s argument is that the manifestation of the property damage must have occurred during the policy period.
[45] There is no question that the design and installation of the septic systems occurred, in part, during the time of The Economical’s risk, as the installation began some time in 2004. The Economical’s time on risk ran from October 2003 to October 2006. Accordingly, based on the facts, the alleged defective material and undersized tanks and beds were installed during the policy periods covered by The Economical.
[46] Counsel for The Economical relies on the case of Rainu v. Wawanesa Mutual Insurance Co. (1993), [1994] I.L.R. 1‑3014, 4 W.D.C.P. (2d) 650 (Ont. C.J. Gen. Div.), for the proposition that the words “accident” or “occurrence” mean the negligent acts that occurred during the life of the policy, and not the consequences thereof. In that case, the occurrence was a fire that took place after the policy period had ended, and the negligent act alleged was the inadequate maintenance of a fireplace and chimney during the policy period. The respondents also rely on the case of Canadian Northern Shield Insurance Co. v. Intact Insurance Co., 2015 BCSC 767, [2015] I.L.R. I‑5736, in which a landslide occurred several months after the policy’s expiration. The court concluded that no resulting damage had occurred until the landslide, and any alleged acts or omissions that were said to lead to it were unascertainable until the resulting damage had taken place.
[47] These cases, however, run contrary to the ratio in Progressive Homes and Rothstein J.’s conclusion that an accident does not have to be a sudden event, but rather, that on a case‑by‑case basis, defective workmanship may itself constitute an “accident”. As faulty/defective workmanship is the occurrence that gave rise to this claim, it falls within the policy period. This court reached this same conclusion in California Kitchens & Bath Ltd. v. AXA Canada Inc., 2010 ONSC 6125, 97 C.L.R. (3d) 94, at para. 20.
Issue 3 - “Your Work” Exclusion and Subcontractor Exception
[48] There can be little doubt that the underlying action arises from work Parkhill performed on the project. There is also little doubt that the definition of “your work” in the policies applies to Parkhill’s work, and is captured within the definition of products‑completed operations hazard.
[49] Accordingly, the only real question to be determined is whether the damage arose out of work performed by a subcontractor on Parkhill’s behalf. The onus is on Parkhill to establish that the exception applies. The only alleged subcontractor in the pleadings that may be potentially liable is Robert E. Young Construction Ltd. (“Young”), the supplier of the sand.
[50] The term subcontractor, which creates the exception to the “your work” exclusion, is not defined in the policy. The moving party asserts that the case of AXA Insurance (Canada) v. Ani‑Wall Concrete Forming Inc., 2007 43896, 64 C.L.R. (3d) 290, aff’d 2008 ONCA 563, 91 O.R. (3d) 481, is authority for the conclusion that a supplier of filter medium is a subcontractor, just as the court concluded that the supplier of concrete in Ani‑Wall triggered the subcontractor exception to the “your work” exclusion. The supplier in Ani‑Wall was to prepare the concrete to specifications and deliver it to pre‑arranged job sites.
[51] The third party claim against Young alleges that:
i) Young carries on business as a wholesaler of sand and gravel products, including septic fill medium, also known as filter sand;
ii) Parkhill purchased the filter sand used in the project from Young;
iii) Young knew the purpose of the purchases, and accordingly knew that the filter sand had to be of a certain quality; and
iv) Parkhill is entitled to indemnity from Young for any damages for which they are held liable resulting from deficiencies as to the quality of materials.
[52] In its defence, Young alleges that Parkhill has always been responsible for transportation of the filter sand from Young’s place of business, and that Young had no knowledge of the purpose for which the product was being purchased, or of Parkhill’s business activities.
[53] Accordingly, there is no allegation that Young was anything other than the supplier of the medium, and no allegation that Young was ever on site to be involved in work done on the project.
[54] The Court of Appeal held in Ani‑Wall, at para. 7, that the word “subcontractor” should be construed broadly where it has not been defined in the policy. It further held that a contract for the supply of materials, in that case concrete, could trigger the subcontractor exception to the “your work” exclusion.
[55] Defence counsel argues that the three criteria set out in the American cases should apply to this court’s analysis. However, at para. 17 of Ani‑Wall, the Court of Appeal for Ontario rejected the imposition of such analysis in order that such criteria not be “carve[d] … in stone”. The court’s primary reason for its decision was made clear at para. 20, where Moldaver J.A. stated:
While I acknowledge that this case is close to the line, given my view that the word “subcontractor” should be construed broadly and that any ambiguity in its meaning must, as a matter of law, be resolved in favour of Ani‑Wall, I think it can reasonably be said that Ani‑Wall subcontracted to Dominion its contractual obligation to supply concrete to the builders. In doing so, it triggered the “subcontractor” exception to the “Your Work” exclusion. At the very least, AXA has not met its burden of showing otherwise. For that reason, it follows that the “Your Work” exclusion is ousted by the “subcontractor” exception.
[56] Yet it cannot be the case that all suppliers are contractors. Were that the case, Ani‑Wall would have stated as much. Instead, the remark was made that “this case is close to the line”. Such a remark infers that there can be a differentiation. And of course, common sense dictates the same; otherwise every entity supplying any part of the material used on a job site, no matter how far removed from the work covered by the prime contract, would be a subcontractor.
[57] The first step is to give the words their common and ordinary meaning. The Oxford English Dictionary defines “subcontractor” as a firm or person that carries out work for a company as part of a larger project (The Oxford English Dictionary, Nth ed., sub verbo “subcontractor”). “Supplier”, as the derivative noun of “supply”, and is defined as “[someone who] makes something needed available to someone” (The Oxford English Dictionary, Nth ed., sub verbo “supply”).
[58] Even these definitions suggest that there can be overlap; the performance of a specific part of the work for a company as part of a larger project could include the supply of something needed to fulfill the contractor’s obligations under a primary contract.
[59] In the case of Parkhill, it is alleged in the third party action that Parkhill contracted with those plaintiffs for certain goods and services, which included providing parts and materials required for each septic system. Filter sand is not explicitly listed in the claim in the third party action as being part of those materials, but the allegation that Parkhill used filter medium that did not comply with the Building Code is set out in the claim. It is not alleged in the third party action that Parkhill is in the business of providing aggregates. I agree with counsel for Northbridge that both the insurers and Parkhill would have reasonably expected that Parkhill would have to purchase aggregate from a supplier, and therefore would not have reasonably expected that the insurers would take on the risk of property damage caused by the supply of such material, unless part of the work performed under the contract between Parkhill and BGS was undertaken by a “subcontractor” to that primary contract.
[60] There is no allegation in the third party claim that Young prepared the filter medium according to certain specifications given to it by Parkhill, or that it modified, treated or tested the filter medium to conform to any specifications in the primary contract. There is no allegation that Young knew or ought to have known the material standards required by the Ontario Building Code. Despite the fact that the filter medium might be an integral part of the work to be performed in installing the septic systems, the allegations of Young’s involvement in the project are minimal. Even the allegation that it knew the intended purpose of the filter sand does not raise Young to the status of being a subcontractor. No contract between Parkhill and Young has been specifically pleaded; the only reference to a contract is at para. 6 of the third party claim, in which indemnity is sought for Young’s breach of contract. In contrast, in Ani‑Wall, Dominion had greater involvement; it prepared the concrete to specifications and delivered it to pre‑arranged job sites.
[61] Defence counsel have provided additional cases from other jurisdictions involving the interpretation of builders’ risk policies for the purpose of determining who qualifies as a “subcontractor” within the meaning of those policies. Given that the purpose of a builders’ risk policy may be different from that of a commercial general insurance policy, I am reluctant to apply the reasoning of those cases to the case before me.
[62] In the result, on the basis of the pleadings, I find that the moving party has not discharged the burden necessary to demonstrate that Young is a subcontractor, so as to oust the “your work” exclusion.
[63] In light of the result, there is no need to consider the second exclusion advanced by the respondents.
[64] Accordingly, the motion by Parkhill in each of action CV‑14‑121, CV‑14‑126 and CV‑12‑109305‑A1 shall be dismissed.
[65] The parties are urged to settle the issue of costs on consent. If it is necessary to address the court on the issue of costs, submissions are to be forwarded to the court on a timetable to be agreed upon by counsel. Written submissions shall not be longer than three double‑spaced pages, plus any costs outlines and offers to settle that the parties seek to rely upon.
HEALEY J.
Released: October 13, 2015
[^1]: The wording of the RSA policy is slightly different in that it states “property damage” to that particular part of “your work” arising out of such work and included in the “products, completed operations hazard”.