
Legal Blog
Property Damage
Sometimes contractors make mistakes and damage the project on which they are working. We have discussed the effect of those mistakes on a number of occasions (see newsletters of May 1998, January 2003, September 2005). The latest twist to the problem was discussed in Williams-Sonoma Inc. v. Oxford Properties Group Inc., a 2013 decision of the Ontario Court of Appeal.
Occurrence
A general was working at a mall for the mall owner. The owner allowed the general to use the vacant third floor area in the mall for its office and storage. A vandal opened a fire hose located in that area, damaging the tenants’ premises below. The tenants commenced an action against the general, claiming that it negligently secured the area where the fire hose was located.
The leases between the owner and the tenants discussed insurance and damage. They required the tenants to take out insurance regarding all water damage, regardless of its cause, and released the landlord and those for whom it “is in law responsible” for all occurrences for which the tenants were responsible to obtain insurance.
The general argued that it was a person for whom the landlord was responsible and that, accordingly, not only did the tenants release the landlord from all liability, they also released the general. The general moved for summary judgment to dismiss the tenants’ action.
Law
The Court of Appeal analysed the law of privity of contract, an arcane exercise with which we shall not bore you. The Court determined that the general was allowed to take advantage of the insurance clause and release in the leases between the tenants and the owner because:
a) the owner and tenants intended to extend the benefit of the release to the general; and
b) the activities that the general was performing were the very activities that were contemplated as coming within the scope of the insurance and release clauses.
Accordingly, the Court dismissed the tenants’ action against the general.
Outcome
The action was not really an action by the tenants against the owner. Presumably, the tenants’ insurers had compensated them for their losses. The insurers were subrogated to the tenants’ interests. They commenced the action in the tenants’ names to recoup the money that the insurers had paid to the tenants.
The moral of the story is that when a contractor performs work that results in damage to a project, all relevant insurance policies and contracts (e.g. prime contracts and leases) should be investigated.