Canadian Underwriter

Engineering or maintenance? Why both CGL and professional liability could cover this lawsuit

September 1, 2021   by Greg Meckbach

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A British Columbia court has ruled in favour of Northbridge General Insurance Corporation in a dispute with XL Specialty Insurance Company over liability coverage arising from a strata power failure.

Both insurers wrote policies for PCA Valence Engineering Technologies Ltd., which is being named in a lawsuit filed by a B.C. strata corporation. Allegations against PCA Valence Engineering have not been proven.

An electrical transformer on strata corporation property failed Jan. 9, 2017. The strata alleges water damage resulted after the temperature dropped, water froze in pipes and water escaped from the pipes.

The unproven allegations against the engineering firm include a claim that the defendant breached its duties to exercise care in the inspection of, testing of, and reporting on the transformer. Northbridge wrote commercial general liability insurance for the engineering firm. At the same time, under a separate contract of insurance, PCA Valence has a policy with XL Specialty covering professional liability for construction contractors and construction support services providers.

As of August, 2021, Northbridge Insurance had funded 100% of the costs to defend PCA Valence in the lawsuit, without any contribution from XL Specialty.

But that is about to change.

Northbridge asked a B.C. court to order XL Specialty to contribute to the costs of defending against an underlying lawsuit. The Northbridge CGL policy has an exclusion for “property damage due to the rendering of or failure to render by you or on your behalf of any ‘professional services’ for others, or any error or omission, malpractice or mistake in providing those services.”

Northbridge says this exclusion applies and as a professional liability insurer, XL Specialty should contribute to defence costs.

For its part, XL Specialty argued it is only providing coverage in excess to Northbridge and that in any case, the underlying lawsuit does not allege PCA Valence was providing engineering services. Instead, the underlying lawsuit alleges PCA Valence was providing maintenance services, says XL Specialty.

XL Specialty argues that PCA Valence is an engineering technologist firm rather than a professional engineering firm. XL Specialty further argues  a technologist only requires a diploma from a college.

In Northbridge General Insurance Corporation v XL Specialty Insurance Company, released Aug. 26, 2021, Justice Diane MacDonald of the Supreme Court of B.C. ordered XL Specialty to indemnify Northbridge Insurance 50% for all defence costs incurred to date. Going forward, XL Specialty and Northbridge Insurance must split 50-50 the ongoing legal costs to defend PCA Valence.

“It is possible some of the claims against PCA Valence for negligent performance of services constitute ‘professional activities and duties’ as activities ‘undertaken by or under the supervision of persons or personnel who have attained an appropriate professional qualification, certification, or license,’ such that they fall within the grant of coverage in the [XL Specialty] Policy. The word ‘professional’ is not defined in the Policy, and is not limited to only specific professional bodies such as engineers,” Justice MacDonald wrote.

Northbridge is conceding it is possible the strata corporation’s lawsuit against the contractor, with regard to maintenance services, may fall within the CGL coverage Northbridge wrote for PCA Valence.

“It is possible that PCA Valence will be found liable as a services provider for negligence, errors or omissions undertaken by or under the supervision of its professionally qualified, certified, or licensed personnel,” Justice MacDonald wrote in explaining how XL Specialty’s professional liability coverage could kick in.

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