A covenant to insure operated to bar a subrogated claim against a subcontractor. A subcontractor was also considered an unnamed insured even though the policy did not contain any wording expanding the definition of an insured beyond that of the named insured.

[2015] O.J. No. 4364

2015 ONSC 4125

Ontario Superior Court of Justice

M.D. Faieta J.

August 19, 2015

The insured, an owner developer, hired a contractor to supply all labor and equipment for the concrete forming of the insured’s residence. The contractor agreed to provide, erect, and dismantle a construction crane required for the work. Under the agreement, the insured covenanted to obtain an “All Risk Property Insurance” policy for the project to cover “trade contractors, subcontractors and others having an insurable interest in the work, engaged in or connected with the constructions, site preparation and related operations”. The insured obtained this coverage from the insurer.

The contractor hired subcontractors to lease, operate, inspect, and certify the inspection of the crane. The crane fell onto the residence and caused significant damage. The damage was covered by the insurer and the insurer brought a subrogated claim against the contractor, lessor, inspector, and engineer certifying the inspections. The contractor and the crane lessor brought a motion for summary judgment in order to be entirely removed from the action.

The issue was whether the covenant to insure and/or the terms of the insurance policy operated to bar the owner developer from seeking compensation from the contractor and lessor of the crane for the loss covered by the policy. The court held the contractor was clearly a beneficiary of the insurance covenant and entitled to rely upon it as a bar to the claim. The court found the crane lessor was also entitled to enforce the insurance covenant against the insured as it met the two part test: (i) the parties to the agreement intended to extend its benefit to the crane lessor as it was a “subcontractor” within the meaning of the covenant, and (ii) the activities performed by the crane lessor were within the scope of the agreement. Accordingly, the other defendants could not claim for contribution against the contractor or the crane lessor. The court reiterated the principle that liability to a plaintiff is a precondition of the right to resort to contribution.

In obiter, the court held that the terms of the policy also barred the subrogated claim against the contractor and crane lessor for the covered losses. Under the policy, the insurer waived its subrogation rights against any other insured. Only the owner developer insured was identified as an insured under the policy. The policy did not contain any definition or extension of the meaning of insured. Regardless, the court found the contractor and crane lessor were unnamed insureds under the policy because they had an insurable interest in the construction project.