CITATION: Goodeve Manhire and Partners Inc. v. Encon Group Inc. and Temple Ins. Co. 2016 ONSC 7005
COURT FILE NO.: 15-65200
DATE: 2016/11/14
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Goodeve Manhire Inc. and Goodeve Manhire Partners Inc.
Applicants
– and –
Encon Group Inc. and Temple Insurance Company
Respondents
Mark R. Frederick, for the Applicants
Jamie Spotswood, for the Respondents
HEARD: October 6, 2016
REASONS FOR DECISION
P.E. ROGER, J.
Background
[1] This application involves the interpretation of a professional services exclusion clause contained in a construction insurance policy.
[2] The applicants, who have to date been defended by their professional indemnity policy, seek a declaration that, as additional insureds, they are entitled to both defence and indemnity from the respondent, Temple Insurance Company (“Temple”), in regards to a number of actions in the Ontario Superior Court of Justice where the tort of nuisance is alleged.
[3] These actions arise from the construction of a residential condominium development in Ottawa (the “Project” or the “Property”). The plaintiffs in the actions are adjacent property owners who allege that their respective property suffered damage as a result of the construction of the Project.
[4] Tega Developments Inc. (“Tega”) was the owner and developer of the Project. Tega is the named insured under the policy issued by Temple.
[5] The applicants were initially retained by Tega to design the shoring system and assist with securing the relevant permits. Thereafter, the applicants were retained by Dufresne Piling Company (1967) Ltd. (“Dufresne”), the installation contractor of the shoring system, to review shop drawings and provide assistance on demand. At this stage of my decision, it is not necessary to distinguish between the two applicants or their respective involvement.
[6] The applicants are defendants in the actions, along with Tega and Dufresne. Cross-claims and counterclaims are maintained against the applicants by Tega and Dufresne.
[7] The pleadings allege that the applicants were negligent in their design of the shoring system and further allege that the applicants contributed to a nuisance which resulted in damage to the plaintiffs.
Applicable Temple Policy
[8] Tega is the named insured on the policy. The policy’s declarations page identifies the “Additional Insured” as “All contractors, subcontractors, engineering and architectural consultants.”
[9] The definition of “Additional Insured” is further defined in the definitions section of the policy as follows:
- Insured
The unqualified word Insured includes the Named Insured and:
(a) Any additional Insureds so described in the Declarations, any partner, officer, director, employee or shareholder of any Insured while acting on behalf of such Insured;
The insurance provided by this policy is obtained by the Named Insured on behalf of the Named Insured and as trustee for the benefit of additional Insureds who heretofore and hereafter enter into a Contract with the Named Insured relating to the construction of the Insured Project and further that the Insurer shall not use lack of privity of Contract as reason for denial of liability to additional Insureds under this Contract.
[10] The applicable insuring agreement of the policy states:
Part I – Insuring Agreements
To pay on behalf of the Insured all sums which the Insured shall become legally obligated 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:
(1) Coverage A – Bodily Injury (as defined herein)
(2) Coverage B – Property Damage (as defined herein)
(3) …
[11] The policy contains a number of exclusions. Part 7 of the policy, under the exclusions heading, states:
This policy does not apply to any liability:
- Under Coverages A, B, E and G for:
(b) Liability arising out of the rendering or failure to render professional services, by or on behalf of the Insured, other than first aid or emergency services.
Applicable Pleadings
[12] Carmen Scaffidi-Argentina and others commenced an action against Tega, the applicants, and others by statement of claim issued on March 20, 2012, seeking damages arising out of the construction of the Project (the “Scaffidi-Argentina Action”).
[13] The plaintiffs in the Scaffidi-Argentina Action allege that they own a two-and-a-half-storey, multi-unit residential building adjacent to the Property, located at 58 Florence Street in Ottawa (“58 Florence”). The plaintiffs allege damages to their property as a result of deficient shoring of the excavation to the Property.
[14] The plaintiffs’ principal claim against the defendants, including the applicants, is framed in negligence. The plaintiffs allege that Tega and the applicants failed to take proper precautions in order to ensure that the excavation had been properly shored to avoid causing damages to 58 Florence.
[15] The plaintiffs also plead nuisance. At paragraph 40 of their statement of claim, the plaintiffs allege the following:
The plaintiffs state that the significant settlement experienced at 58 Florence and the ensuing structural damages which have rendered the building unsafe for occupancy was created by the negligence of the defendants and constitutes a continuing nuisance for which the plaintiffs claim damages from each of the defendants.
[16] Savasta Investments Inc. and Savasta Automotive Repair (2004) Ltd. commenced an action against Tega, the applicants, and others by Notice of Action dated April 30, 2013 (the “Savasta Action”). Savasta Investments Inc. owned property at 417 Gladstone Avenue, immediately to the east of the Property.
[17] The principal claim in the Savasta Action is negligence, however, the plaintiffs also plead nuisance. The negligence and nuisance claims are pleaded as follows:
The Plaintiffs state that Goodeve was retained by either the Defendant Tega or by the Defendant Blakely to act as the shoring contractor for the condominium project. As shoring contractor, Goodeve was required to design and supervise the installation of the temporary shoring. Sheet piling was used as temporary shoring. As part of its design, Goodeve was required to calculate the Pressure Effects as a required step in ensuring that the sheet piling to be installed would be of sufficient strength to prevent damage to the surrounding structures, once the excavation commenced.
The Plaintiffs state that Goodeve incorrectly calculated the Pressure Effects.
The Plaintiffs state that in order for Tega and its subcontractors, Goodeve and Dufresne (the “subcontractors”) to carry out the work to construct the foundation, including the excavation, it was necessary to dewater the excavation.
The Plaintiffs state that throughout the course of the excavation and construction of the foundation, it was necessary for Tega and the subcontractors to continually dewater the excavation to such an extent that it lowered the water table below the level of the foot of the excavation of the condominium project.
The Plaintiffs state that the lowering of the water table as a result of the dewatering by Tega’s subcontractors caused and contributed to settlement and movement of the Structure on the Plaintiff’s Property in the manner described in paragraph 13 aforesaid. The settlement and movement to the Structure caused or contributed to damages to the Structure including cracking of the foundation, the exterior and interior walls, including masonry, floors and ceilings of the Structure, which cracking has resulted in structural and cosmetic defects to the Plaintiff’s Property.
The Plaintiffs state that the removal of water by way of the dewatering process by Tega and the subcontractors carried out the excavation and construction of the foundation including the temporary shoring (sheet piling) of the condominium project caused vibrations to emanate from 435 Gladstone, which vibrations caused or contributed to the damages referred to in para. 35 aforesaid.
The escape of these vibrations constituted a private nuisance and a breach of the Rule in Rylands v. Fletcher.
The Plaintiffs state that as a result of the manner in which Tega and the subcontractors carried out the excavation and construction of the foundation including the temporary shoring (sheet piling) of the condominium project and the fact that temporary shoring (sheet piling) was of insufficient strength to prevent displacement of the Plaintiff’s’ lands and the Structure caused the east shoring wall of the excavation to deflect towards the west, resulting in lateral and vertical movement of the soil behind the wall which resulted in a loss of lateral support to the soil adjacent to and beneath the foundations of the Structure to move, which movement caused or contributed to the damages referred to in para. 35 aforesaid.
This loss of lateral support constituted a private nuisance and further constituted a breach of the Defendant Tega’s common law duty to provide support to the Plaintiffs’ lands.
The Plaintiffs state that its damages referred to aforesaid were further caused or contributed to by the negligence of the Defendants, particulars of which negligence are as follows:
B. As against the Defendants Tega, Dufresne, and Goodeve either jointly or jointly and severally:
ii) They constructed the foundation at 435 Gladstone in such a manner that the water table on the Plaintiffs’ Property would be either temporarily or permanently lowered thereby causing damage to the Structure on the Plaintiffs’ Property;
iii) They constructed the foundation in such a manner that allowed vibrations from the construction to escape 435 Gladstone to the Plaintiffs’ Property thereby causing damage;
iv) They constructed the foundation in such a manner that caused a loss of lateral support to the Plaintiffs’ lands thereby causing damages;
v) They failed to ensure that the temporary shoring (sheet piling) was of sufficient strength to prevent a loss of lateral support to the Plaintiffs’ lands once it commenced excavation at 435 Gladstone. Alternatively, they incorrectly installed the temporary shoring (sheet piling).
D. As against the Defendants, Blakely, Goodeve, and Paterson…
i) They designed the foundation in such a manner that when the foundation was constructed it allowed the water table to be lowered…when it knew or ought to have known…
ii) They failed to revise their design…
iii) They designed the temporary shoring….
Position of the parties
[18] The respondents deny any obligation to defend or indemnify the applicants, relying on the exclusion in the policy described above and referred to as the “professional services exclusion”.
[19] The applicants’ position is that Temple’s denial of coverage is improper, as the professional services exclusion does not apply with respect to the allegations of nuisance. They argue that liability for nuisance does not arise from the provision of any professional services and is imposed strictly in the sense that the insured may be found liable independently of providing professional services and regardless of having taken great care in whatever activity it performed, professional or otherwise. They argue that the allegations in nuisance are independent of the allegation in negligence and that the claim in nuisance is not derivative. They argue that no pleading alleges that nuisance was caused negligently and that it is not pleaded that the applicants committed nuisance arising out of any professional services, but simply that they caused or contributed to nuisance. They point out that a contractor could be found liable in nuisance even though they met the standard of care in all respects with no finding of negligence (see e.g. Mascioli v. Betteridge-Smith Construction Co. Ltd., 1965 CanLII 231 (ON SC), [1965] 1 O.R. 627 (H.C.)).
Issues
[20] The primary issue in this application is whether the professional services exclusion clearly and unambiguously excludes coverage under the policy. The sufficiency of the contractual documents in place between the applicants and Tega and Dufresne is no longer at issue. Other issues to be decided, depending on the answer to the primary issue, include the starting date and the extent of coverage of the applicants’ defence costs.
Law and Analysis
[21] The threshold for finding a duty to defend is low. A duty to defend arises where there is a “mere possibility” that a claim made against the insured may be within the policy (see e.g. Trafalgar Insurance Co. of Canada v. Imperial Oil Ltd. (2001), 2001 CanLII 21205 (ON CA), 57 O.R. (3d) 425 (C.A.), at para. 17).
[22] The widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy (see e.g. Nichols v. American Home Assurance Co., 1990 CanLII 144 (SCC), [1990] 1 S.C.R. 801, at p. 812).
[23] The onus is on the insured to show that the pleadings fall within the initial grant of coverage. Thereafter, the onus shifts to the insurer to show that coverage is precluded by an exclusion clause. Because the threshold for the duty to defend is only the possibility of coverage, the insurer must show that an exclusion clearly and unambiguously excludes coverage (see e.g. Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 29, 51).
[24] Courts must interpret the provisions of a particular policy in light of the general principles of interpretation of insurance policies. These include:
(a) the contra proferentum rule;
(b) that coverage provisions should be construed broadly and exclusion clauses narrowly; and
(c) giving effect to the reasonable expectations of the parties, where the policy is ambiguous.
(See ING Insurance Co. of Canada v. Miracle, 2011 ONCA 321, 105 O.R. (3d) 241, at paras. 13–14.)
[25] The Supreme Court of Canada in Nichols, supra, at pp. 810–11, and again in Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 80–82, set out the specific principles applicable to determining whether there is a duty to defend:
(a) the allegations in the pleadings govern whether a duty to defend arises;
(b) it is not necessary to prove the obligation to indemnify will in fact arise; a mere possibility of such suffices to trigger the duty;
(c) the widest latitude should be given to the allegations in the pleadings in the underlying action, in determining whether they raise a claim within the policy; and
(d) where it is clear that the claim falls outside of 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.
[26] As indicated in Scalera, at paras. 50–52, 70–71, 85, determining whether or not a claim could trigger indemnity is a three-step process:
(i) First, the court should determine whether the plaintiff’s allegations are properly pleaded determining the true nature or substance of the allegations. The use or absence of use of a particular label is not determinative.
(ii) At the second stage, having determined what claims are properly pleaded, in circumstances where there may be properly pleaded allegations of both intentional and non-intentional tort, the court should determine if any claims are entirely derivative in nature. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.
(iii) At the third stage, the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the duty to defend.
[27] In Scalera, the Supreme Court of Canada was asked to determine whether the insurer had a duty to defend against allegations of negligence and the tort of battery. Justice Iacobucci, at para. 85, expanded upon the second stage of the analysis, describing the test for a derivative claim as follows:
Having construed the pleadings, there may be properly pleaded allegations of both intentional and non-intentional tort. When faced with this situation, a court construing an insurer’s duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis.… A claim should only be treated as “derivative”, for the purposes of this analysis, if it is an ostensibly separate claim which nonetheless is clearly inseparable from a claim of intentional tort.
[28] The crucial issue of this application is whether the respondent has demonstrated that the exclusion, at Part 7 of the policy, when construed narrowly, clearly and unambiguously excludes coverage.
[29] This is not the kind of case where it was argued that the allegations, in any of the statements of claim, are improperly pleaded. I was not asked to look beyond any label but, instead, at the true nature and substance of the allegations. The parties argue that nuisance is (in the case of the respondents) or is not (in the case of the applicants) derivative of the negligence claim.
[30] The respondents argue that the allegations of nuisance are derivative of the claim in negligence and cannot be dissociated from the provisions of professional services rendered by the applicants.
[31] The applicants argue that nuisance is an entirely separate claim, not derivative of the claim in negligence. The applicants further argue that the allegations are not derivative because the two can stand independent of one-another and because nuisance may be found despite any breach of the standard of care.
[32] In my opinion, both parties fell victim to some misunderstanding of the derivative claims test and, consequently, placed too much emphasis on its application. This might be explained by the seemingly clear language used by the Supreme Court in the introduction and overview part of its decision in Scalera (at paras. 50–52). However, the general language used in the introduction is explained and is made more precise in the analysis part of the Court’s decision (at para. 85).
[33] As explained by Iacobucci J., the test for whether certain claims are derivative was specifically formulated to address situations where the court is deciding whether the harm allegedly inflicted by the negligent conduct is derivative of intentional conduct excluded from coverage. This is clearly stated by Justice Iacobucci at paragraphs 85 to 89.
[34] It seems clear from the cases in which this analysis has been applied that it is usually applied in deciding whether the harm allegedly inflicted by the negligent conduct is derivative of intentional conduct excluded from coverage (see e.g. Temple Insurance Co. v. Sirman Associates Ltd. (2003), 2003 CanLII 48143 (ON CA), 179 O.A.C. 47 (C.A.); Durham District School Board v. Grodesky, 2012 ONCA 270, 110 O.R. (3d) 76; Godonoage (Litigation Guardian of) v. Khatambakhsh (2000), 2000 CanLII 5737 (ON CA), 49 O.R. (3d) 22 (C.A.)). Indeed, the derivative analysis outlined in Scalera applies logically within a factual context involving an exclusion for some intentional act. It does not apply as instinctively when trying to decide whether a “professional services” exclusion is or is not applicable to a claim in nuisance, as “professional services” is not a cause of action.
[35] In fact, cases referred to by counsel not involving intentional conduct do not apply this test. For example: Progressive Homes, supra (dealing with a “work performed” exclusion) and ING Insurance Co. of Canada v. Miracle, supra (dealing with a “pollution liability” exclusion). Instead, the Supreme Court of Canada in Progressive Homes (at para. 70) and the Ontario Court of Appeal in Miracle (at para. 24) focused on the clear and unambiguous language of the exclusion clauses to determine whether the alleged claims triggered the duty to defend. Similarly, in this case, what is required is a determination of whether or not the respondents have met their onus of establishing that coverage is clearly and unambiguously excluded.
[36] In my opinion, the claims as pleaded in the statements of claim fall squarely and unambiguously within the language of the exclusion clause as a claim for “[l]iability arising out of the rendering or failure to render professional services, by or on behalf of any Insured, other than first aid or emergency medical services.” They are clearly excluded and, consequently, could not trigger the duty to defend.
[37] I note that this interpretation of the exclusion clause is not inconsistent with the main purpose of the insurance coverage. Although this was not argued, giving effect to the language of the exclusion clause does not virtually nullify coverage. Tega and other contractors, subcontractors, engineering and architectural consultants face the risk of a wide range of liability claims for bodily injury, damage to property, personal injury and others, that the policy will cover arising out of the insured’s work, that is essentially not covered by a professional liability policy.
[38] In certain circumstances, a contractor or a professional engineer may be liable in nuisance. As indicated by Cameron J. in Phase Three Properties Ltd. v. 529952 Ontario Ltd. (1996), 1 O.T.C. 48 (C.J.), at para. 82,
[t]he Developer clearly created the nuisance. It was suggested in argument that neither a contractor nor a professional engineer could be liable in nuisance. There is no reason why they cannot. They are engaged in, and profit from, a business which could interfere with the plaintiff’s enjoyment of its land. Whether this is an unreasonable interference will depend on the circumstances but the engineer’s involvement should not make it less unreasonable. [emphasis added]
[39] In Mascioli v. Betteridge-Smith Construction Co. Ltd., supra, a contractor was found liable in nuisance for damage to the plaintiff’s building despite a lack of negligence in the contractor’s operations.
[40] However, the nature of the acts that gave rise to the allegations of nuisance is a relevant factor in a nuisance action to assess the unreasonableness of the interference.
[41] Nuisance consists of an interference with the claimant's use or enjoyment of land that is both substantial and unreasonable (see Antrim Truck Centre Ltd. v. Ontario (Transportation), 2013 SCC 13, [2013] 1 S.C.R. 594, at paras. 18–29).
[42] The reasonableness of the interference must be assessed in light of all the relevant circumstances by balancing the gravity of the harm and the nature of the defendant’s conduct. As explained by the Supreme Court in Antrim (at paras. 28–29), although the focus of the reasonableness analysis is on the character and the extent of the interference with the claimant’s land (as the burden is on the claimant to show that the interference is substantial and unreasonable), the nature of the defendant’s conduct is not irrelevant to that assessment. Whether the conduct is malicious or careless and whether the conduct is reasonable are relevant factors for the court to consider when assessing whether the interference is unreasonable. It is at the second branch of the test (in determining whether the interference is unreasonable) that the Court is required to assess the nature of the acts that give rise to the alleged harm, even though the focus is on the harm.
[43] The Court of Appeal for Ontario described this assessment in Smith v. Inco, 2011 ONCA 628, 107 O.R. (3d) 321, at para. 40:
The reasonableness inquiry focuses on the effect of the defendants conduct on the property rights of the plaintiff. Nuisance, unlike negligence, does not focus on or characterize the defendant's conduct. The defendant's conduct may be reasonable and yet result in an unreasonable interference with the plaintiffs property rights. The characterization of the defendant's conduct is relevant only to the extent that it impacts on the proper characterization of the nature of the interference with the plaintiff's property rights.
[44] In ING Insurance Co. of Canada v. Miracle, supra, the insured, who operated a convenience store and gas bar, was sued in negligence and nuisance based on allegations that gasoline from an underground tank had seeped into adjacent lands. The insurer sought a declaration that it had no duty to defend under a commercial general liability insurance policy on the basis of a “pollution liability exclusion” clause. The application was dismissed. The insurer appealed.
[45] Mr. Miracle sought to characterize the claim as if it primarily, if not exclusively, sounded in negligence. The Court of Appeal rejected this approach, stating that the damages claimed in nuisance and negligence are for harm to the environment and the costs associated with investigating and remediating that harm, all of which was covered by the exclusion. In allowing the appeal, the Court of Appeal held, at para. 24, that
the claim as pleaded fell squarely and unambiguously within the language of the exclusion clause as a claim “arising out of the actual, alleged or threatened spill, discharge, emission, dispersal, seepage, leakage, migration, release, or escape of pollutants”. Indeed, it would take a “hyperliteral” reading of the language of Zurich, detached from the facts and issue considered in that case to conclude otherwise.
[46] That is quite similar to the facts of this case. The applicants’ arguments seem to ignore the plain language of the professional services exclusion. This exclusion is clear and unambiguous and, by its clear language, requires an examination of the cause of the liability rather than the cause of the damages. It is this same focus on liability rather than damages that the Court of Appeal for British Columbia emphasized was required in Precision Plating Ltd. v. Axa Pacific Insurance Co., 2015 BCCA 277, 387 D.L.R. (4th) 281, at para. 41.
[47] It is clear from the pleadings that nuisance was allegedly caused by movement due to dewatering and lowering of the water table, vibration caused by the shoring, and movement due to a loss of lateral support from inadequate shoring and excavation. When one considers the allegations made in the actions, including those of nuisance, all are based on acts of Goodeve arising out of the rendering or failure to render professional services and not some other act.
[48] The policy is unambiguous; its language is clear. Construing the exclusion clause narrowly, the exclusion clearly and unambiguously excludes coverage.
[49] I note further, in closing, that if I had conducted the derivative analysis under the second part of the test in Scalera, I would have reached the same conclusion.
[50] This application is therefore dismissed. If the parties cannot agree on costs within the next 30 days, brief written submissions are to be sent by the respondents within 40 days from the date of this endorsement, and brief responding submissions are to be sent by the applicants within 10 days of receiving the submissions of the respondents. I will assume that costs have been agreed upon if no costs submissions are not received by December 31, 2016.
Justice P.E. Roger
Released: November 14, 2016
CITATION: Goodeve Manhire and Partners Inc. v. Encon Group Inc. and Temple Ins. Co. 2016 ONSC 7005
COURT FILE NO.: 15-65200
DATE: 2016/11/14
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Goodeve Manhire Inc. and Goodeve Manhire Partners Inc.
Applicants
– and –
Encon Group Inc. and Temple Insurance Company
Respondents
REASONS FOR JUDGMENT
Roger, J.
Released: November 14, 2016