On October 28, 2013, in Promutuel du Lac au fjord vs. Gagné (Construction et Rénovation Gagné et Fils), the Superior Court rendered an interesting ruling with respect to the insurer’s duty to defend and to indemnify regarding a CGL policy in the context of unfinished construction work.
Essentially, the Plaintiff’s Insured entered into a contract with the Defendant on October 2010 to demolish a country house and build a new one thereafter. As the construction of the house was ongoing, same was completely destroyed by a fire. Plaintiff took recovery proceedings against the Defendant.
The Defendant’s Insurer refused to defend its Insured who in turn took third party proceedings against its Insurer. With respect to the aforesaid third party proceedings
Justice Roger Banford stresses that the exclusion invoked by the Defendant’s Insurer reads as follows:
This insurance does not apply to:
2.7 Damages to certain goods Property damages:
2.7.1 to property owned or occupied by or rented to the Insured, including the costs or fees incurred by the Insured or any other person or for the reparation, replacement, improvement or maintenance of aforesaid property for any reason, including to prevent accidents or damages to property that belongs to others; (Our translation)
The Insurer invoked that the exclusion in light of article 2115 C.c.Q. which states that the contractor is liable for the loss of property occurring before the finalization of the work.
2115. The contractor is liable for loss of the work occurring before its delivery, unless it is due to the fault of the client or the client is in default to receive the work (…).
In response, Defendant attempted to demonstrate that he has never been informed of the scope of the exclusion. This argument was dismissed since the Defendant obtained its insurance policy through a broker who, as a representative of the Defendant, had the duty to inform the latter accordingly.
With respect to the Insurer’s duty to defend, the Court reiterated the well-known principles to the effect that the duty to defend is broader than to duty to indemnify because the Insurer must defend an Insured whenever the underlying action alleges facts which, interpretated liberally in favor of coverage, might fall within coverage.
Hence, the Court ruled that the exclusion clearly precludes coverage to the Insured and concluded that the Insurer did not have a duty to defend to its Insured.
Since the case was heard on the merits, the Court went further and discussed the Insurer’s duty to indemnify.
The Court dismissed the Defendant's argument suggesting that there is a distinction between the presumption of liability set forth in article 2115 C.c.Q. and the definition of ownership set forth in the Quebec Civil Code. Referring to Bujold vs. Constructions Camil Vermette & Fils, the Court confirmed the correlation between the presumption of liability and ownership arising out of article 2115 C.c.Q. and consequently ruled that Defendant’s Insurer had no duty whatsoever to indemnify in this matter.
In light of the above, one can conclude that the Insurer who provides commercial general liability coverage can raise an exclusion pertaining to property damages when the loss occurs while the construction is ongoing. Indeed, it is worthy to recall that the contractor’s presumption of liability while the work is underway implies a presumption of ownership of the damaged property by the contractor.