Legal Blog

Property Insurance

Generals and subs continue to misunderstand the nature of insurance and their contractual responsibilities relating to insurance. Two recent cases demonstrate this.

Failure

In Active Fire Protection 2000 Ltd. v. BWK Construction, a 2004 decision of the Ontario Superior Court of Justice, the general had a contract with the sprinkler sub in which the general was to take out builder’s all-risk property insurance. For whatever reason, the general did not do so. The sub negligently installed its sprinklers, resulting in a flood that the general spent $75,000 to clean up. Had the general taken out the insurance, the insurer would have covered the loss. Since there was no insurance, the general sued the sub for the damages incurred.

As a rule of law, a party cannot benefit from its own wrong. The judge held that the general could not simply ignore its duty to obtain all-risk insurance and leave the sub hanging in the wind. The court refused to assist the general in benefiting from its own negligence.

To look at the issue another way, the sub could have taken out its own insurance. However, it would have made no economic sense for the general and each sub to do so, which is why the general was supposed to do it. The sub relied on the general to take out the insurance. The general had to take responsibility for the sub’s reasonable reliance on the general to do what it was supposed to have done.

Recovery 

In Belluz v. 779457 Ontario Ltd., a 2004 decision of the Ontario Court of Appeal, a homeowner incurred damage to her house, arising from the alleged negligence of her contractor. The owner commenced actions against both her insurer and the contractor. She settled the action against her insurer and received $100,000. The contractor wanted credit for that $100,000 against any damages for which it might become liable. The contractor argued that if credit was not given, then the owner would receive double recovery for the loss and this would be unfair.

The trial judge stated: 

“The present law, whereby the owner recovers in full from the wrongdoer in a single action and the insurer’s right of action is determined as between the insurer and the insured is a convenient way of achieving the appropriate result. If the insurer has not contracted for the right of subrogation¹, it might appear that the plaintiff is over compensated, but that will be because of the terms of the insurance contract, for the benefit of which the plaintiff will have paid in full by premium.”

The trial judge held that the contractor would receive no credit and the Court of Appeal upheld that decision.

¹ Subrogation is the process by which the insurer pays to the insured monies due under the policy and then stands in the insured’s shoes to commence an action against wrongdoer responsible for the loss.