An appellant's covenant to insure signified it had assumed all risk of damage except for damages up to the limit the defendant accepted responsibility for in the contract. As the covenant to insure required all-risk insurance insuring against loss or damage arising from any person, whether or not a party to the contract, the contractual parties intended to extend the benefit of the insurance covenant to all persons involved in the very activities contemplated by the agreement.

[2015] O.J. No. 577

2015 ONCA 88

Ontario Court of Appeal

A. Hoy A.C.J.O., J.M. Simmons and M.H. Tulloch JJ.A.

February 9, 2015

The respondent and the insured appellant entered into an agreement whereby the appellant would store vaccines at the respondent’s temperature controlled warehouse at a certain temperature. The storage contract contained a covenant to insure requiring the appellant to insure the vaccines under an all-risks policy. The contract also provided that the respondent would be liable for vaccines damaged solely due to its negligent acts or omissions up to a maximum of $100,000 per year. The warehouse cooling system malfunctioned and all of the vaccines were damaged.

The appellant’s insurer brought a subrogated claim against the respondent and others, including the manufacturer of the cooling equipment and installer of the alarm system for the full value of the vaccines. The respondent brought a motion for summary judgment on the basis that the covenant to insure barred the subrogated claim. The motions judge found the covenant to insure signified that the appellant had assumed the risk “of the very damage for which it sues” and the claim was barred. The motions judge also found the parties intended to extend the benefit of the covenant to insure to all the defendants.

The court of appeal found the covenant to insure signified the insured assumed all risk of damage to the vaccines, except for up to $100,000 caused solely due to the respondent’s negligent acts or omissions. The court ordered the respondent to pay $100,000 to the appellant. The rest of the appeal was dismissed. The court of appeal noted the covenant to insure required all-risk property insurance insuring the vaccines against loss or damage arising from the negligence of any person, whether or not a party to the contract. It should be implied that the parties to the contract intended to extend the benefit of the covenant to insure to those persons whose negligence caused the loss as they were involved in the very activity contemplated by the contract. To find otherwise would either nullify the protection the contract was intended to provide to the respondent or risk an injustice to the other respondent. The court of appeal confirmed the activities performed by the respondent who were not privy to the contract were the very activities contemplated as coming within the scope of the agreement.