CGL covers third party property damage to condo’s foundation, court rules

A Commercial General Liability (CGL) policy does cover third party property damage caused by a condominium contractor’s negligence in trying to repair its own constructed foundation, the Ontario Court of Appeal has ruled.
In making the ruling, the court distinguished between a “constructed” and “natural” foundation.
If negligent repairs to a constructed foundation cause further damage to a building’s natural foundation, then an insurer is responsible for paying third party property damages according to the CGL policy, the Court of Appeal found.
In York Region Condominium Corporation v. Lombard Canada Ltd., condo owners sued Bradisil, a general contractor for a condominium project north of Toronto, after the owners paid about Cdn$7.3 million to clean up damages to a sinking parking garage.
The damages resulted from Bradisil’s subcontractors installing a dewatering system as a means to repair an aquifer punctured when the condominium was first constructed.
But the subcontractor’s faulty dewatering system pumped soil as well as water away from the building foundation between 1989 and 1995. It was noticed when condo owners discovered the garage was sinking.
Bradisil sued its insurer, Lombard Canada Ltd., which denied coverage on the basis of wording in the CGL.
Lombard argued damages awarded against Bradisil did not constitute compensation for property damage suffered by third parties [i.e. the condo owners].
Instead, Lombard argued, by installing the faulty dewatering system, Bradisil had caused damage to the building’s constructed foundation, which was its own work product.
The CGL did not cover the insured, Lombard, concluded, because the property that had been damaged (i.e. the foundation) did not belong to third-party condo owners, but rather to Bradisil.
The Appeal Court found Lombard’s argument “stems from confusion over the dual meaning of the term ‘foundation.'”
The court distinguished between the “constructed foundation” of a building and the compacted soil, earth or rock that comprised the “natural foundation” of a building.
When the dewatering system removed the soil from the area under the constructed foundation, it damaged the natural foundation, the Court of Appeal ruled. “The natural foundation is the land beneath the building and is part of the property of the third party owners of the building,” the court ruled.
The CGL, therefore, applied to the third party damages suffered by the condo owners.