A key difference between a builder’s liability insurance policy and a liability insurance policy

Starr Insurance & Reinsurance Limited does not have to defend its insured in a Quebec construction case because its construction risk policy is essentially a property policy and not a liability policy, the Superior Court of Quebec has ruled.

In construction, a builders risk insurance policy typically covers the cost of repairing an unfinished structure or replacing building materials when weather, fire, vandalism or theft strikes a job site. of construction.

“The court first noted that the Civil Code of Quebec provides for two types of damage insurance: liability and property,” commented Nathan Hassan Omar of Robinson Sheppard Shapiro LLP in an August 30 article on Mondaq. “[Quebec Superior Court] Judge Andres C. Garin observed that the legal obligation to defend an insured…applies exclusively to liability insurance.

“Judge Garin went on to observe that construction policies are generally property insurance policies. After reviewing Starr’s policy, the court concluded that it was in fact a property insurance policy that did not provide for the insurer’s obligation to meet the interests of its insured in case of claim or lawsuit.

In Bridor inc. vs. 90784497Quebec inc.the Superior Court ruled on a fundamental distinction between a builder’s risk policy — which aims to prevent subcontractors on a construction project from having to sue to recover the costs of property damage in the event of disaster — and a liability insurance policy.

Bridor, a company specializing in the bakery and pastry products industry, wanted to expand its factory in Boucherville, Quebec, and awarded Construction Mikado the contract to supervise the expansion work, according to the court decision made public. the 5 of July.

Starr Insurance & Reinsurance Ltd. insured the project under a builder’s liability policy and a wrap-up policy, which provides comprehensive builder’s liability insurance.

On May 26, 2021, Bridor filed a lawsuit against Mikado and Starr, claiming:

  • $982,708 from Mikado for mismanagement of the project;
  • compensation of $1 million for damage to the architectural “sandwich panels” that formed the exterior walls of the Bridor factory expansion; and
  • $516,752 in damages for poor finishing of the concrete slab of the expansion.

Bridor also seeks joint and several liability from Starr for the last two heads of claim.

None of Bridor’s allegations have been proven in court.

Mikado filed a Wellington-type motion against Starr, asking the court to require Starr to defend itself against Bridor’s second sandwich panel allegation. Mikado’s claim to Wellington relied exclusively on the construction site insurance policy issued by Starr, not the recapitulation policy.

“It is apparent from the structure of the [Civil Code of Quebec] that the legal obligation of the insurer to defend its insured only applies in matters of liability insurance,” wrote the Superior Court of Quebec in its decision.

“That the duty to defend is so limited makes perfect sense. The purpose of liability insurance is to protect the insured against [financial] consequences of its contractual or extra-contractual civil liability. However, such civil liability is generally sought in the context of a legal action against which the insured will have to defend himself, thus generating defense costs that the insurer will have to assume.

“This reality is absent in the case of property insurance whose purpose is to indemnify the insured for the material losses he suffers.”

The court went on to conclude:

“It follows that Article 2503 [of the Civil Code of Quebec]which applies only to liability insurance, imposes no obligation on Starr to assume the defense of Mikado.

“Not only is there no legal obligation to defend here, but the site policy [i.e. the builders’ risk policy] contains no provision imposing a contractual obligation on Starr to defend its policyholders. Accordingly, Mikado’s Wellington claim, based on the site [policy]must fail.

Image courtesy of iStock.com/Drazen_