Canadian Underwriter

Temple Insurance wins appeal in construction wrap-up dispute

July 12, 2021   by Greg Meckbach

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Temple Insurance Company has won its appeal of a 2020 Court of Queen’s Bench of Saskatchewan ruling in a disputed construction wrap-up liability claim.

Temple now has to pay some (but not all) of the legal defence costs incurred by four construction subcontractors in lawsuits filed in 2015 and 2017. Specifically Temple only has to pay legal defence costs after August 2018, which Temple had agreed to in the first place.

Originally in 2020, Court of Queen’s Bench for Saskatchewan Justice Krista Zerr ordered Temple to pay the legal fees of all four subcontractors sued by the general contractor of Preston Park II, a seniors’ residence in Saskatoon.

The general contractor is Man-Shield (Alta) Construction Inc., which is one defendant being sued by the project owner for alleged deficiencies. Man-Shield in turn is suing four of its subcontractors.

Allegations that the construction contractors are liable for alleged deficiencies in the construction of Preston Park II have not been proven in court.

In Temple Insurance Company v Aberdeen Specialty Concrete Services, released June 30, Saskatchewan’s Appeal Court did not rule on the merits of the general contractor’s lawsuits against subcontractors or the project owner’s lawsuit against the general contractor, architect, and others. Rather, the case focused on Temple’s obligation to pay the subcontractor’s legal defence costs.

Temple agrees that, after June 14, 2018, it must pay the legal defence costs of the four subcontractors [Aberdeen Specialty Concrete Services, Hanneson Construction Inc., JLP Masonry Incorporated and Vicwest Inc. ] being sued by the general contractor, Man-Shield. However, Man-Shield filed its lawsuit against Hanneson in 2015, and filed its lawsuits against Aberdeen Specialty Concrete, JLP Masonry, and Vicwest in 2017. All four defendants incurred some of their legal costs before June 14, 2018.

Temple did not believe it was obligated to pay the four subcontractors’ legal defence costs from prior to June 14, 2018. That’s because, before June 14, the four subcontractors had initially made claims with their own commercial general liability insurers rather than with Temple.

Then the four subcontractors got a letter dated Apr. 18, 2018, from managing general agent Encon. In that letter, Encon advised those subcontractors that they potentially had insurance coverage under Temple’s wrap-up policy.

The four subcontractors told the court that the Encon letter was the first time they were made aware that they might be covered by Temple.

The wrap-up liability policy was written for All Seniors Care Living Centres Ltd., the project owner. The general contractor and subcontractors are among the additional insureds.

Temple says the June 14, 2018, letter was the date of “defence acknowledgement letter” that Encon wrote to each of the subcontractors.

In general terms, those letters confirmed that Temple would assume the defence of the third party claims under the wrap-up policy, but subject to a reservation of rights and only “on a go forward basis.”

In 2020, Justice Zerr ruled in the lower court that Temple was effectively put on notice of a potential lawsuit against the contractors much earlier than 2018. One of several reasons for her finding was that project owner All Seniors mistakenly filed a claim with Encon under the wrap-up policy in August 2014. That was a mistake because All Seniors was trying to make a first-party property claim under a third-party liability policy.

Furthermore Justice Zerr found that as of Jan. 14, 2015, Encon had enough information to determine that All Seniors would have a claim alleging several construction deficiencies and would launch a lawsuit against parties that it felt was responsible.

This was a palpable and overriding error of fact, Court of Appeal for Saskatchewan Justice Georgina Jackson wrote in a unanimous ruling.

“There is no indication as of Jan. 14, 2015, that Temple knew that a lawsuit would be commenced by Man-Shield against the [four subcontractors] for damage caused by their work. Here, the initial Aug. 28, 2014, letter fell far short of telling Temple the essential facts of who was claiming what and as of when. By Jan. 14, 2015, nothing had changed on that front. In such circumstances, it is not possible to say that All Seniors was in sufficient proximity of the [four subcontractors being sued by the general contractor] to give Temple effective notice of the [subcontractors] claim as additional insured parties,” wrote Justice Jackson.

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