Application on the issue of whether the insurer had a duty to defend the insured in legal proceedings alleging damages caused by defective work. The insured’s plumbing work was completed while the insurance policy was valid. Years later, the plumbing system failed and caused damage. The insurer argued the pleadings did not allege facts showing that an occurrence causing damage took place before the expiry of the policy and in the alternative, the damage was excluded from coverage as a result of the "your work" exclusion. The insurer's application was dismissed because there was an occurrence during the policy period and the insurer could not demonstrate that the exclusion clause clearly applied.

[2014] N.S.J. No. 111

2014 NSSC 23

Nova Scotia Supreme Court

M.J. Wood J.

January 27, 2014

The insurer issued a commercial general liability policy to the insured from May 10, 2004 to May 10, 2005. The statement of claim alleged the plaintiff installed an expansion tank for the hot water heating system in 2004. In April 2011, an inspection of the residence revealed that the expansion tank had fallen from its original place of installation and struck a fuel oil line, resulting in a significant oil spill. The plaintiff alleged the insured was negligent by improperly installing or fastening the expansion tank and ensuring that it was properly supported.

The insurer brought an application seeking an order that it had no duty to defend the insured. The insurer took the position that the statement of claim did not allege facts showing that an occurrence causing damage took place before the expiry of the policy. In addition, even if the allegedly defective installation could be interpreted as having caused damage at the time the work was done, the insurer said that such damage would be excluded from coverage as a result of the "your work" or "your product" exclusions.

The insured argued that once the allegedly defective installation took place, the property was damaged. The insured relied on Alie v. Bertrand & Frére Construction Co., [2002] O.J. No. 4697 and Meridian Construction Inc. v. Royal & Sun Alliance Insurance Co. of Canada, 2012 NSCA 84.

The claim in Meridian Construction involved allegations of negligent installation of a plumbing system with a sudden event causing damage after the expiry of the policy period. The Court found that the relevant policy wording in Meridian Construction was essentially the same as that found in the insurer's policy. There were slight differences between the two policies; however, these variations were not material and did not affect the scope of coverage. Accordingly, the Court found it was bound by the decision of the Court of Appeal in Meridian Construction and the allegations in the statement of claim (alleged negligent installation and a failure outside of the policy period) qualified as an occurrence within the policy period and gave rise to a duty to defend.

In the alterantive, the insurer argued that if there was property damage during the policy period, it must have related to the work of the insured and, therefore, would fall within the scope of the "your work" or "your product" exclusions. The Court noted that the only information that should be considered in deciding whether a duty to defend arises are the statement of claim against the insured and the terms of the insurance policy. There was little information in the statement of claim about the particular defects alleged to result from the insured’s work. After reviewing the broad allegations in the statement of claim, the Court concluded that the insurer had not demonstrated that the exclusion clauses "clearly and unambiguously" excluded coverage. Accordingly, the insurer's application was dismissed.