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Defective construction work may be an accident

In the context claims for insurance coverage for defective constructions, some lower courts, citing policy concerns about turning insurance policies into performance bonds, restricted the meaning of the word “accident” and held that defective construction was not an “accident” unless it caused damage to third party property:
 
[I]in the context of an insurance policy covering physical injury to tangible property, defective construction is not an “accident” (and therefore coverage is excluded) unless there is damage to the person or property of a third party.
(GCAN Insurance Company v. Concord Pacific Group Inc. et al, 2007 BCSC 241 at para. 95).
 
Similarly:
 
[D]efective construction is not an “accident” unless there is damage to the property of a third party…
(Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2007 BCSC 439 at para. 43).
 
However, in the appeal of the decision in Progressive Homes the Supreme Court of Canada held that no general principle should be applied that defective construction is only an accident when it results in damage to third party property. Instead, in every case the plain wording of the policy should be considered:
 
[W]hether defective workmanship is an accident is necessarily a case specific determination.  It will depend both on the circumstances of the defective workmanship alleged in the pleadings and the way in which “accident” is defined in the policy.  I, therefore, cannot agree with Lombard’s view that faulty workmanship is never an accident.  This Court’s jurisprudence shows that there is no categorical bar to concluding in any particular case that defective workmanship is an accident.
(Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 46).
 
In the subsequent case of Bulldog Bag Ltd. v. AXA Pacific Insurance Company, 2011 BCCA 178 the insurer, acknowledging the significance of the decision in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 did not even contest that failure of ink on plastic bags manufactured by the insured (to be used for packaging manure) constituted an “accident”:
 
AXA concedes that in light of Progressive Homes, the trial judge’s reasoning in the case at bar can no longer be supported, particularly as it relates to … whether faulty workmanship can constitute an “accident” or “occurrence”… the insurer concedes that the faulty workmanship that resulted in the defective bags qualifies as an “accident” or “occurrence” within the meaning of the policy.
(Bulldog Bag Ltd. v. AXA Pacific Insurance Company, 2011 BCCA 178 at para. 25).
 
Further, the British Columbia Court of Appeal, which had acknowledged arguments regarding policy concerns when it heard the Progressive Homes case before it was appealed to the Supreme Court of Canada, confirmed the clear direction from the Supreme Court of Canada that faulty workmanship may be an accident: 
 
Notwithstanding the argument noted by this court in Progressive Homes that such an interpretation would “convert CGL policies into performance bonds”, the Supreme Court of Canada found “no categorical bar” to the notion that defective workmanship might constitute an “accident”.
(Bulldog Bag Ltd. v. AXA Pacific Insurance Company, 2011 BCCA 178 at para. 23).

 

 
This book was written by Michael Dew, a Vancouver lawyer who practices civil litigation, including representing persons who have been denied coverage under property insurance policies, or liability insurance policies. If you have been denied insurance coverage and require assistance with making a claim against your insurer call Michael at 604 895 3160.