February 27, 2013 by Canadian Underwriter
A British Columbia court this week denied an application by a group of condo owners suing the Travelers Guarantee Company of Canada over a new home warranty to get a summary determination on a question of what the warranty actually covers.
A full trial in the case is scheduled to start March 11.
The condo owners, of units in “The Q” in North Vancouver, allege that building defects caused property damage due to water ingress, and that Travelers, which provides new home warranties in B.C., breached a warranty by failing to repair building envelope defects. The allegations have not been proven in court.
The owners also argue that a Travelers building envelope warranty “should be construed on the principles of interpretation applicable to insurance policies,” while Travelers argues that where contract terms are mandated by home owners’ protection legislation, such a warranty “should be interpreted by application of the rules of statutory construction.”
In a decision published Monday, Mr. Justice Paul Pearlman of the B.C. Superior Court noted that Strata Plan LMS 4443, a strata corporation whose members own units in The Q, argued in court that “a summary determination of whether proof of water penetration into or through the building envelope by the five-year anniversary of the (Travelers home warranty) is necessary would assist in the resolution of this litigation by addressing an important coverage issue.”
According to court records, the condo owners also argued “that the summary trial of this issue will have no impact on (their) claims in negligence and breach of contract against the other defendants.”
The other defendants include the developer, architect, general construction contractor and various subcontractors specializing in windows and doors, painting, wall covering, concrete and mechanical. The City of North Vancouver is also named as a defendant.
The court noted there is “no prior judicial decision” interpreting the requirements for coverage under new home warranties in the province.
“Determination of this issue will affect not only the plaintiff, but potentially, thousands of homeowners throughout British Columbia,” Judge Pearlman wrote in explaining why he is denying the condo owners’ application to determine coverage at summary trial. “Travelers’ interest transcends the outcome in this particular case because, as a home warranty provider, it has issued many policies containing identical terms.”
According to court records, The Q, on 124 West 1st St. near 3rd St. and Lonsdale Ave., was nearing completion in the summer of 2001. At that time, the owners were issued several warranties, including a “2/5/10 Home Warranty Certificate” from Travelers, covering common property including “certain building envelope defects.” That warranty expired in 2006 and Travelers argued that the warranty “requires actual water penetration of the building envelope within the five-year term.”
In its lawsuit, the condo owners alleged that “building envelope defects have caused property damage to the condominium and loss of use of the property to the owners due to structural deterioration and water ingress through and within the building envelope, as well as ongoing potential for such water ingress and structural deterioration.”
Alleged damage includes corrosion of reinforcing steel and steel studs, staining and damage to gypsum, drywall, ceilings, carpets, wood and interior walls.
According to court records, the owners delivered a Request for Claims Adjustment to Travelers in June, 2005, advising of alleged defects in the building envelope at 10 locations that “have permitted water to enter” condos. Travelers completed repairs by March of 2006, but then on July 4 of the same year, the same day the Travelers 2/5/10 Home Warranty Certificate expired, the owners delivered a second claims adjustment request.
That request advised “of claimed defects in the building envelope which ‘are permitting water penetration of the building envelope which is causing and has caused damage to the common property and strata lots.'” It included two reports from building engineers.
Travelers conducted inspections in November 2006, four months after the warranty expired, and “determined that it did not have sufficient particulars of the alleged water penetration to complete its investigations.” After more letters and inspections over the next year, Travelers claimed one of the alleged defects was due to faulty mechanical equipment, which was excluded from coverage.
“Travelers acknowledged that there were two areas of water penetration at the penthouse covered under the Warranty but maintained that none of the defects alleged in the 2006 Notice of Claim fell within the building envelope or structural defects warranty coverage,” according to background information provided with Monday’s decision.
Travelers performed more repairs in 2009 but the owners filed notice of their lawsuit in October 2011. The writ of summons commencing the case had been filed in 2006. The case refers to both the warranty itself and to the provincial Home Owner Protection Act.
“Section 189.1(3) of the Insurance Act mandates home warranty insurance coverage at least equal to the minimum standards set out in the Regulation and provides that if the home warranty insurance does not meet the prescribed minimum coverage, the coverage provided in the relevant provisions of the contract is deemed to be replaced by the prescribed minimum coverage,” Judge Pearlman wrote.
“While the plaintiff submits that the building envelope Warranty should be construed on the principles of interpretation applicable to insurance policies, Travelers contends that where, as here, the terms of the contract are mandated by legislation, the Warranty should be interpreted by application of the rules of statutory construction.”
Judge Pearlman added: “The plaintiff argues that the summary trial of this issue will have no impact on the plaintiff’s claims in negligence and breach of contract against the other defendants,” and that the owners argue “there is no material conflict in the evidence that would prevent the court from making the findings of fact necessary to determine the issue arising on this application.”
But Travelers is opposed to a summary trial, arguing the owners would be “litigating in slices” suggesting the matter requires “consideration of the relevant factual matrix, which includes the actual claims submitted by the Owners and the resolution of disputed material facts, all of which requires a conventional trial.”
Judge Pearlman noted there were conflicting views of experts called by the plaintiff and defendants on both “the scope and cost of the investigation required to determine the extent of water penetration into The Q’s building envelope,” and on “whether cracking in the exterior concrete walls constitutes a defect in the building envelope.”
Therefore, the court noted, the expert witnesses will help the court interpret Travelers’ warranty and will require cross examination.
“The issue raised on this application is intertwined with the interpretation and application of the Warranty as a whole, including its notice requirements,” Judge Pearlman wrote. “The Court should not be asked to make a determination regarding coverage under the Warranty in the absence of all of the facts relating to the application of the Warranty to the specific claims made by the plaintiff.”