​​Vancouver (August 18, 2015) — A unanimous panel of the British Columbia Court of Appeal upheld the BC Supreme Court decision to award $9-million in construction insurance coverage to the clients of Borden Ladner Gervais LLP (BLG),  Acciona Infrastructure Canada and Lark Projects.

At issue was coverage under a Course of Construction (Builder’s Risk) Project Insurance Policy for damage to suspended slabs which occurred during the construction of the eight storey New Patient Care Centre addition to the Royal Jubilee Hospital in Victoria. BLG successfully argued that the trial Judge correctly held that the over-deflected and cracked slabs suffered “physical loss” or “damage” within the “All Risks” Perils Insured grant of coverage in the COC Policy. Further, BLG successfully argued that the trial Judge did not err and correctly interpreted the LEG2 Defects Exclusion, whereby none of the costs incurred to remediate the damaged slabs were excluded by the Policy. In addition to the significant financial victory for the clients, the decision is important to the Construction and Insurance industries for the following reasons as it:

  • reviews the grant of coverage under a COC policy, by confirming that “direct physical loss of or damage” includes the  “alteration in the appearance, shape, colour or other material dimension” to the insured property from a satisfactory to unsatisfactory state caused by a defect (in this case defective workmanship in the shoring procedures used during each successive pour). This is not, as argued by the Insurers, the mere manifestation of a defect;
  • confirms that a COC Policy is intended to afford coverage for damage to property that is in a partially finished state during construction. Overall, the Court of Appeal held that the trial Judge did not err, as he correctly held there was damage to tangible property. The irreparable damage to the rebar and the over-deflections and cracking of the slabs fell within the Perils Insured  grant of coverage;
  • affirms the proper interpretation and application of the LEG2 Defects Exclusion as held by the trial Judge, whereby “the excluded costs are only those that would have remedied or rectified the defect immediately before any consequential or resulting damage occurred, but the exclusion does not extend to exclude the costs of rectifying or replacing the damaged property itself”. It also provides guidance on the interpretation of the LEG3 exclusion;
  • interprets the LEG2 Defects Exclusion, which is a standard exclusion clause developed by the London Engineering Group for use in these type of policies. Although the LEG exclusions have existed since 1996 and are used in COC (Builder’s Risk ) policies for large construction projects in Canada, the US and throughout the British Commonwealth, this was the first judicial interpretation of LEG2 anywhere in the world;
  • confirms that based on the Indemnity language in the COC Policy, coverage is provided for all costs arising from the damaged property. In that regard, the Court of Appeal agreed with the trial Judge that the increased Subcontractor costs incurred after repairing the damaged slabs were not covered, as they did not arise from the damage to the slabs. That suggests that in the right factual circumstances, impact costs which arise from the damaged property would be afforded coverage; and
  • applies the 2014 Supreme Court of Canada decision in Sattva, whereby the Court of Appeal held that in the absence of “palpable and overriding error”, it should not interfere with the trial Judge’s decision. In this case, trial Judge’s interpretation of the COC Policy was a question of mixed fact and law with no extricable questions of law. As such, the trial Judge’s decision was subject to appellate review on the basis of “reasonableness” and not “correctness”.

The BLG team whose work resulted in this successful outcome includes the appellate team led by Patrick Foy,QC and David Miachika, P. Eng., with assistance and input from Christopher O’Connor, QC, Grant Mayovsky and Lauren Kristjanson.

BLG’s Construction Group brings together a dedicated team of expert practitioners, including litigators, solicitors and engineers, to provide the legal strategies that will put you ahead of the game. Our Group has the knowledge and dedication to help you achieve the best possible results in any matter relating to contracts, dispute resolution and international construction projects.