Court File and Parties

COURT FILE NO.: CV-10-410508 DATE: 20180718

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

JOE MAIO and LIDIA MAIO Plaintiffs – and – MER MECHANICAL INC. Defendant

COUNSEL: G. Caplan and S. Erentzen, for the Plaintiffs J. Cormier, for the Defendant

HEARD: April 18, 2018

REASONS FOR DECISION

SCHRECK J. :

1Joseph and Lidia Maio had their dream house built on a property in Vaughan. It took two years to build and was finally completed in September 2009. The Maios moved into the house on November 1, 2009. Nine days later, a faucet on the main floor became detached, resulting in a flood that caused over $3,000,000 in damage.

2The Maios made a claim under their homeowner’s policy and their insurer subsequently commenced a subrogated action on their behalf against the City of Vaughan, a subcontractor who had provided services, Kapp Contracting, and the plumbing contractor who had installed the faucet, Mer Mechanical Inc. (“Mer”). The actions against the City of Vaughan and Kapp Contracting have been settled and the trial in the action against Mer is scheduled for September 2018.

3The defendant Mer has brought a motion for summary judgment. It takes the position that it is entitled to coverage under a builder’s risk policy that the Maios had purchased during the construction of the house and because that policy included a waiver of subrogation, the Maios’ claim against it is barred.

4For the reasons that follow, the motion is dismissed. Builder’s risk policies are not intended to apply to situations of this nature and in my view, a proper reading of the terms of the builder’s risk policy leads to the conclusion that it does not cover the occurrence that led to the damage in this case.

I. EVIDENCE

A. The Construction of the House

5The plaintiffs purchased property in Vaughan in 2006. They demolished the existing building and built a new residence between 2007 and 2009. Joseph Maio acted as his own general contractor during the construction. Among the subcontractors he hired was the defendant, Mer Mechanical Inc., which was responsible for providing plumbing services and installing sinks and faucets.

B. The Insurance Policies

6During the construction, the plaintiff had in place a Commercial Multi-Peril Policy (“CMPP”). This was a composite policy that included both Residential Builders – All Risks Insurance (“RBAR”) and Residential Contractor’s General Liability Insurance (“CGL”). Both are occurrence-based policies. However, the definition of “occurrence” is different in each policy. In the RBAR policy, “occurrence” is defined as:

… any one loss, casualty or disaster or series of losses, casualties or disasters, arising out of one event. If the inception of the event causing the loss occurs prior to the estimated completion date of the project, then the Insurer shall be liable for any loss incurred after the estimated completion date of the project, as a result of the event.

In the CGL policy, “occurrence” is defined as

…an accident, including continuous or repeated exposure to substantially the same harmful conditions.

7The RBAR insurance coverage ran from July 12, 2007 to September 1, 2009. It included a term that the RBAR insurance was to be the primary insurance for the project.

8There is no issue that the defendant was an insured under the RBAR policy, which stated that “All contractors and/or subcontractors are added as Additional Insured”.

9The RBAR policy insured, among other things, “property of every kind and description used or to be used in, or incidental to, construction, installation, erection, dismantling, demolition, reconstruction or repair, owned by the insured”. The policy included a waiver of subrogation.

C. The Flood

10At some time between June and August 2009, prior to the expiry of the RBAR policy, the defendant installed a faucet in a servery on the main floor of the house.

11On November 9, 2009, after the expiry of the RBAR policy, an extension tube that connected the faucet to the water line separated, resulting in a leak. The ensuing flood caused over $3,000,000 in property damage.

12An engineer retained by the defendant, Robert Sparling, was of the opinion that the components of the faucet began to be stressed soon after it was installed, which affected the water seal’s resistance to water pressure. He referred to this as “creep/stress relaxation”. In Mr. Sparling’s opinion, this “creep/stress relaxation” ultimately led to the failure of the faucet on November 10, 2009.

II. ANALYSIS

A. The Positions of the Parties

13The defendant moves for summary judgment. It’s argument is as follows:

• The RBAR policy covers any “occurrence” during the coverage period, provided that the “the inception of the event causing the loss occurs prior to the estimated completion date of the project”.
• The “inception” of the faucet’s failure is the “creep/stress relaxation” that began soon after the installation of the faucet, which took place during the coverage period.
• Because the RBAR is the primary policy, the plaintiff was obliged to make a claim under it, not his homeowner’s policy.
• The defendant is an insured under the RBAR policy and both the terms of the policy and the common law provide that an insurer cannot subrogate against its own insured. The plaintiff therefore cannot sue the defendant.

14The plaintiff submits that the “occurrence” was the separation of the faucet’s connection, which took place after the expiry of the RBAR policy. He submits that the RBAR policy was not intended to apply to this type of situation but, rather, to provide coverage while construction is ongoing in order to ensure that the project is not disrupted by litigation. In any event, no claim was made under the RBAR policy, so the subrogation issue simply does not arise. The existence of a waiver of subrogation in the RBAR policy cannot prevent a subrogated action under the plaintiff’s homeowner’s policy. As well, the plaintiff submits that there are facts in dispute respecting the cause of the rupture.

B. The Applicability of the Builder’s Risk Policy

15As noted by counsel for the defendant, the primary issue is whether the “occurrence” of the loss took place within the RBAR policy period. If it did not, the defendant’s motion must fail and there is no need to consider the other issues raised by the plaintiff.

16The defendant relies on two Nova Scotia cases where courts had to determine whether insurers had a duty to defend pursuant to builder’s risk policies: Meridian Construction Inc. v. Royal & Sun Alliance Insurance Co. of Canada, 2012 NSCA 84, 320 N.S.R. (2d) 267 and Co-Operators General Insurance Co. v. Wawanesa Mutual Insurance Co., 2014 NSSC 23, 339 N.S.R. (2d) 367. In Meridian Construction, pipes that were installed during the coverage period ruptured after the expiry of the policy, causing property damage. Co-Operators had similar facts. In both cases, the courts concluded that the terms of the policies may apply, so the insurers had a duty to defend.

C. Different Definitions of “Occurrence”

17As the plaintiff points out, the policies in the Nova Scotia cases were different. In Meridian, it was a “Builder’s Risk/Wrap Up Liability Composite Policy” and in Co-Operators, it was a general liability policy. Significantly, the definition of “occurrence” in the policies was different than that in the RBAR policy in this case. The definition was similar in both cases and was described in Meridian, at para. 26:

“Occurrence” is defined as an accident, including continuous or repeated exposure to substantially the same harmful conditions. Property damage that results in a loss of use of tangible property that is not physically injured is “deemed to occur at the time of the occurrence that caused it”.

18In Meridian, the court concluded that the property damage could have been caused by the original installation of the pipe. If it was, then the resulting property damage would be deemed to have occurred at that time, which was during the coverage period. As a result, the insurer had a duty to defend. The same reasoning was applied in Co-Operators.

19The definition of “occurrence” in Meridian, which is commonly found in many such policies, relies on the term “accident”. An “accident” is an “unlooked for mishap or an untoward event which is not expected or designed”: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 47. Defective workmanship can be an “accident”: Progressive Homes Ltd., at paras. 45-46. As the definition in the policy makes clear, an accident need not be a sudden event and can result from continuous or repeated exposure to conditions: Progressive Homes, at para. 49. In any given case, it will be a question of fact as to where on a continuum of points that property damage in fact occurred, although it may be impossible to determine this with precision: Alie v. Bertrand & Frere Construction Co. (2002), 62 O.R. (3d) 345 (C.A.), at paras. 91-93.

20The definition of “occurrence” in the CGL policy in this case is similar to that in the Nova Scotia cases. In the RBAR policy, however, it is different. “Occurrence” is defined as

… any one loss, casualty or disaster or series of losses, casualties or disasters, arising out of one event. If the inception of the event causing the loss occurs prior to the estimated completion date of the project, then the Insurer shall be liable for any loss incurred after the estimated completion date of the project, as a result of the event.

21The term “accident” does not appear in this definition, nor is there any reference to “continuous and repeated exposure” to harmful conditions. Instead, an “occurrence” is defined as “arising out of one event”.

D. The “Inception of the Event”

22In this case, the “event” was the detachment of the faucet from the water supply. I do not understand the defendant to dispute this. Rather, it submits that the “inception of the event” was the improper installation resulting in the “creep/stress relaxation.” Since this occurred during the coverage period, the insurer is liable for the resulting loss according to the terms of the policy.

23With respect, the defendant appears to have confused “inception” with “cause”. The terms are not synonymous. According to the Canadian Oxford Dictionary, “inception” means “a beginning”. The beginning of an event is part of the event. The cause of an event is not part of the event, but, rather, distinct from it: Atomic Energy of Canada Ltd. v. Allianz Global Risks US Insurance Co., 2017 ONSC 4124, 70 C.C.L.I. (5th) 32, at para. 25. An event cannot be the cause of itself. Thus, the “inception of the event” was not the installation of the faucet and did not occur during the policy coverage period.

E. The Purpose of Builder’s Risk Policies

24The definition of an “occurrence” as being tied to a single event as opposed to an “accident” or “continuous and repeated exposure” to harmful conditions is consistent with the purpose of a builder’s risk policy. It’s primary purpose is to provide coverage during the construction project in order to ensure that the project is not interrupted by disputes and litigation between various contractors: Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd., [1978] 1 S.C.R. 317, at pp. 323-324; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at paras. 66-67. Contractors and sub-contractors accordingly have an insurable interest in the property because of their common goal of completing the project. Once the project is completed, that insurable interest ceases to exist: Daishowa-Marubeni International Ltd. v. Toshiba International Corporation, 2003 ABCA 257, 20 Alta. L.R. (4th) 203, at para. 59.

F. Conclusion

25It follows from the foregoing that the loss in this case was not an “occurrence” within the meaning of the definition in the RBAR policy. As a result, the defendant was not an insured under that policy and there is no bar to any subrogated claim against it by the plaintiff.

III. DISPOSITION

26For the foregoing reasons, the motion for summary judgment is dismissed.

27In accordance with the agreement reached by the parties, costs are fixed at $20,000.00, inclusive of disbursements and HST, to be paid by the defendant to the plaintiff.

Schreck J.