Canadian Underwriter

One key difference between a builders’ risk policy and a liability policy

August 30, 2022   by David Gambrill

Employees working on construction site,

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Starr Insurance & Reinsurance Limited does not have to defend its insured in a Quebec construction case, because its builders’ risk policy is essentially a property policy, not a liability policy, Quebec’s Superior Court has ruled.

In construction, a builders’ risk policy typically covers the costs of repairing an unfinished structure or replacing building materials when weather, fire, vandalism or theft hits a construction site.

“The court first noted that the Civil Code of Québec provides for two types of damage insurance: liability, and property,” Nathan Hassan Omar of Robinson Sheppard Shapiro LLP commented in an Aug. 30 article on Mondaq. “[Quebec Superior Court] Justice Andres C. Garin observed the legal obligation to take up an insured’s defence…applies exclusively to liability insurance.

“Justice Garin then observed that builder’s risk policies are usually property insurance policies. After examining Starr’s policy, the court concluded that it was in fact a property insurance policy that did not provide for the insurer’s obligation to take up its insured’s interest in case of a claim or lawsuit.”

In Bridor inc. c. 90784497 Québec inc., the Superior Court ruled on a fundamental distinction between a builders’ risk policy — which is designed to prevent subcontractors on a construction project from having to sue each other to recover costs for property damage in the event of a claim — and a liability insurance policy.

Bridor, a company specializing in the bakery and pastry products industry, wished to expand its factory in Boucherville, Que., and gave Construction Mikado the contract to supervise the expansion work, according to the court decision, released July 5.

Starr Insurance & Reinsurance Ltd. insured the project under a builders’ risk policy and a ‘wrap-up’ policy, which offers global worksite civil liability insurance.

On May 26, 2021, Bridor filed a lawsuit against Mikado and Starr, claiming:

  • $982,708 from Mikado for poor management of the project;
  • $1 million compensation for damage to the architectural ‘sandwich panels’ that formed the exterior walls of the expansion at the Bridor plant; and
  • $516,752 in damages for improper finishing of the expansion’s concrete slab.

Bridor also seeks Starr’s joint and several liability with respect to the last two heads of claim.

None of Bridor’s allegations have been proven in court.

Mikado brought a Wellington-type application against Starr, asking the court to require Starr to defend it against Bridor’s second allegation concerning the sandwich panels. Mikado’s Wellington claim relied exclusively on the builders’ risk construction site policy issued by Starr, not the wrap-up policy.

“It appears from the structure of the [Civil Code of Quebec] that the insurer’s legal obligation to defend its insured applies only in matters of liability insurance,” the Quebec Superior Court wrote in its decision.

“That the duty to defend should be so limited makes perfect sense. The purpose of liability insurance is to protect the insured against the [financial] consequences of his contractual or extra-contractual civil liability. However, such civil liability is typically sought under the terms of a legal action against which the insured will have to defend himself, thus generating the defense costs that the insurer will have to assume.

“This reality is absent in the case of property insurance whose purpose is to compensate the insured for the material losses he suffers.”

The court went on to conclude:

“It follows that article 2503 [of the Civil Code of Quebec], which only applies to liability insurance, imposes no obligation on Starr to assume the defense of Mikado.

“Not only is there no legal duty to defend here, the construction site policy [i.e. the builders’ risk policy] contains no provision that imposes a contractual obligation on Starr to defend its insureds. Accordingly, Mikado’s Wellington claim, based on the site [policy], must fail.”


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