Canadian Underwriter

The curious case of who pays for a building flood claim

November 28, 2017   by Greg Meckbach, Associate Editor

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A negligence lawsuit after a flood—against a company in charge of watching building automation systems—was recently tossed out of court because of the terms of the lease agreement.

A plumbing firm paid settlements to tenants after a building flood, and then sought to recover the money from the property management firm responsible for overlooking the building automation systems.

However, under the terms of the property management firm’s insurance contract, the property management firm would not have owed the tenants the money for the flood itself, the Ontario Superior Court found. Therefore, the plumbing firm was not entitled to collect the settlement money back from the property management firm.

The origins of the suit began early in the morning of Feb. 12, 2009, when a leaking pipe flooded the office of Marsh Canada and other companies on the 22nd floor of the TD Canada Trust Tower in Toronto.

Marsh and other tenants settled lawsuits against Centennial Plumbing and Heating Limited, also known as Century Plumbing and Heating. The plumbing firm wanted property management firm Brookfield Properties Limited to reimburse it for the money it paid the tenants in the settlements. Century plumbing lost its case in a ruling released Nov. 21, 2017.

Century Plumbing alleged that Brookfield was negligent in monitoring and/or operating the building automation system. The negligence allegations against Brookfield were not proven in court. The BAS monitors electrical, climate control, ventilation, fire and piping systems, among others.

Brookfield had responded to the flood “in its capacity as after-hours property manager,” Ontario Superior Court Justice Patrick Monahan wrote in his ruling, indexed as Marsh Canada Limited v. Centennial Plumbing and Heating Limited.

The lease agreements require the tenants to have “property insurance covering leasehold improvements, along with all property, furniture, fixtures and equipment in the leased premises, on a full replacement cost basis,” Justice Monahan noted. “Conversely, the landlord is required to obtain comprehensive liability insurance covering claims for personal injury and property damage arising out of all operations in connection with the management and operation of the complex, including the common facilities and the building systems.”

Brookfield was considered an agent of the landlord and a “Limitation of Liability Clause” in the lease agreements means that tenants “cannot claim against Brookfield” for their flood losses, Justice Monahan wrote.

“It is a precondition of the right to claim contribution and indemnity that there be liability to a plaintiff,” Justice Monahan wrote. “It necessarily follows that Century Plumbing is barred from pursuing a claim against Brookfield, because Brookfield has no liability to the plaintiffs in the relevant actions.”

The lease stipulated that the landlord plus “its agents, directors, officers, employees, and other persons for whom the landlord is legally responsible” are not liable for damage to tenants’ property, even if the loss is caused by “the negligence of the landlord, its agents, officers, employees, or other persons for whom the landlord is legally responsible” or “the operation, faulty operation, interruption, or breakdown of any of the Building Systems …”