Defective work can be an “accident” covered by a commercial insurance policy: Supreme Court

Defective workmanship can be interpreted as an “accident” under a Commercial General Liability (CGL) Policy, the Supreme Court of Canada has ruled, and “property damage” under a CGL is not necessarily limited to third-party property damage.
In making this ruling in Progressive Homes Ltd. v. Lombard General Insurance, the Supreme Court of Canada ultimately ruled that Lombard owed a duty to defend a claim made against Progressive for negligence and breach of contract.
B.C. Housing Management Commission (BCHMC) hired Progressive Homes as a general contractor to build several housing complexes in B.C.
BCHMC later sued Progressive, alleging significant damage caused by water leaking into four buildings that were part of the housing complexes to be completed.
Lombard denied a duty to defend Progressive, arguing that “property damage,” as defined in its commercial liability policy, cannot result from damage arising from another part of the same building. In other words, “property damage” is limited to damage caused to third-party property and cannot apply to damage arising from the insured’s own work.
The lower courts upheld Lombard’s argument, but the Supreme Court found otherwise. On behalf of the court, Supreme Court of Canada Justice Marshall Rothstein wrote: “The definition of ‘property damage,’ according to the plain definition…include[s] damage to any tangible property. I do not agree with Lombard that the damage must be to third-party property. There is no such restriction in the definition.”
Lombard also successfully argued in the lower courts that workmanship defects were excluded from the policy because such defects could never constitute ‘accidents.’
Again, the Supreme Court disagreed. “Whether defective workmanship is an accident is necessarily a case-specific determination.”
The lower courts found that if defective workmanship were to be construed as an ‘accident,’ that would cancel out the notion that insurance should provide coverage only in the event of “fortuitous contingent risk.”
But the Supreme Court said the notion of fortuity was built right into the policy definition of an ‘accident.’ The policy definition requires only that the insured, Progressive, did not expect or intend the damage to occur.
“In my view, the [BCHMC] pleadings sufficiently allege an ‘accident,'” Rothstein wrote. “There is no reference to intentional conduct by Progressive which would suggest that the property damage was expected or intended. The pleadings allege negligence, which, on its face, suggests that the damage was fortuitous.”