GENERAL LIABILITY (CGL) POLICY Robert Emblem*
TABLE OF CONTENT
INTRODUCTION... 3
I. – THE CGL POLICY AND “BUSINESS RISKS” ... 3
II. – CGL “PROPERTY DAMAGE” INSURING AGREEMENT... 5
A. Contractual Liability... 7
B. Damage to Ongoing Work... 9
C. Your Products ... 13 D. Your Work... 14 E. Impaired Property ... 17 F. Sistership... 19 CONCLUSION ... 19 APPENDIX I ... 21 * Partner, Nicholl Paskell-Mede.
INTRODUCTION
1 Lawyers are often called upon to advise clients whether claims alleging faulty workmanship trigger insurance coverage.1 These claims can take many different forms, including allegations that a particular product is defective or certain work performed is shoddy. Indeed, any business which sells products, performs work or renders services is likely to have to respond to such claims at one time or another. The question for consideration here is whether such claims attract general liability insurance coverage.
2 In order to respond, it is necessary to examine the Commercial General Liability (“CGL”) policy, which has become the most common form of liability insurance for businesses across Canada over the last decade. As the successor to the Comprehensive General Liability insurance policy, it embodies many of its terms and conditions. Nevertheless, today’s CGL policy incorporates a number of terms and conditions which are the result of successive wording modifications to its predecessors—a point to be kept in mind when referring to older jurisprudence.
3 It is also important to note that there is no single, standard form CGL policy. That being said, unlike other areas of liability insurance, particularly Directors’ and Officers’ and Errors and Omissions, there is in fact a large degree of uniformity amongst CGL policies offered by insurers in Canada. As a result, it is possible to employ the standard form IBC 2100 CGL wording (see Appendix I) for the purposes of this discussion on faulty workmanship claims and the CGL policy without having to refer continuously to significant differences in wordings on the market. Nevertheless, one should always bear in mind the proviso set out by the British Columbia Court of Appeal in Ellett Industries Ltd. v. Laurentian P & C Ins. Co.:
4 While general descriptive terminology distinguishing different categories of insurance coverage no doubt serves a useful purpose in some contexts it cannot be determinative of the rights and duties of the parties to the policy. Those matters can only be resolved definitively by asserting the intent of the parties from the language used2
5 With these introductory remarks in mind, we now address the general principle to be borne in mind when considering faulty workmanship claims presented under the CGL policy. We then address how the various parts of the policy operate to put this principle into effect.
I. – THE CGL POLICY AND “BUSINESS RISKS”
6 It is often said that CGL policies are not meant to respond to “business risks”, including the costs of making good faulty workmanship or replacing
1 I would like to thank Heather Sanderson of Polsky, Sanderson of Edmonton, Alberta, co-author (along with Robert Emblem and Lyle Woodley) of Commercial General Liability Insurance (Toronto and Vancouver: Butterworths, 2000) for allowing me to draw inspiration for this paper from her chapter “When It Starts Raining Inside: Faulty Workmanship Claims and the CGL”. The author also wishes to thank Butterworths in this regard.
2
defective products. To quote the Supreme Court of Minnesota, in Bor-Son Building Corp. v. Employers Commercial Union:
7 The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuild the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damage to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.3
8 In other words, someone providing a service, performing work or manu-facturing a product is exposed to different types of risks. For our purposes, there are two that are relevant. First, there is the possibility that the service one provides, the work one performs or the product one produces turns out to be inadequate, faulty or defective. One is therefore exposed to the risk that the work will have to be redone or the product replaced. This is not, however, a risk which is properly assumed by the CGL policy, but rather a normal, predictable incident of operating a business. As courts have pointed out, the CGL policy is not intended to serve as a guarantee of the quality of the insured’s products or services and it is not a performance bond.4 In the words of one Canadian court, to read the policy otherwise would allow a contractor to accept a job for $1 million, do the work carelessly at minimal expense, and then claim from its CGL carrier the cost of redoing the work it ought to have done in the first place.5 Indeed, one American court has even gone so far as to say that it is contrary to public policy to require that the CGL policy cover claims seeking to make good faulty workmanship.6
9 The second type of risk, which is properly assumed by the CGL carrier, is the potential injury to others or damage to their property caused by one’s negligence in rendering services, performing work or manufacturing products: 10 The risk intended to be insured is the possibility that the goods, products
or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable.7
11 In this paper we review the principal terms and conditions of the CGL policy which serve to delineate those risks which are properly assumed by the CGL insurer from those so-called “business risks” which are not. It is an area that has spawned a great deal of litigation, particularly in the United States. This is perhaps not surprising given the increasing popularity of CGL policies and the frequency of faulty workmanship claims. It is also an area where there has been
3
323 N.W. 2d 58 (Minn. 1982), at 63 (quoting Henderson, “Insurance Protection for Products Liability and Completed Operations – What Every Lawyer Should Know”, 50 Neb.L. Rev. 415, 441 (1971); see also, Knutson Const. v. St .Paul Fire & Marine Ins., 396 N.W. 2d 229 (Minn. 1986).
4 Pier Mac Petroleum v. Axa Pacific (1997), 47 C.C.L.I. (2d) 229 (B.C.S.C.), at 237-238. 5
Quintette Coal Ltd. v. Bow (1987), 21 B.C.L.R. (2d) 203 (S.C.), at 207.
6 Aetna Cas. & Sur. Co. v. Deluxe Systems, 711 So. 2d 1293 (Fla. App. 4 Dist. 1998), at 1296. 7
Weedo v. Stone –E-Brick Inc. (1979), 405 A. 2d 788, at 791; 81 N.J. 233 (quoting Henderson, supra, note 3, at 441).
a great deal of misunderstanding stemming, in part, from the CGL policy itself, a complicated contract which can easily bewilder not only laymen but even legal practitioners versed in insurance law.
12 We begin by reviewing some of the important parameters of the principal insuring agreement of the CGL policy which circumscribe the types of risks to which it is meant to respond. We then deal one by one with the so-called “business risk” exclusions. In this manner we will come to understand how the CGL policy positions itself vis-à-vis faulty workmanship claims.
II. – CGL “PROPERTY DAMAGE” INSURING AGREEMENT
13 The standard form IBC 2100 Commercial General Liability policy obliges the insurer to pay in respect of, inter alia, “property damage” as defined. Insuring Agreement provides as follows:
14 1. Insuring Agreement
15 a. We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. This insurance applies only to “bodily injury” and “property damage” which occurs during the policy period. The “bodily injury” or “property damage” must be caused by an “occurrence”. The “occurrence” must take place in the “coverage territory”. We will have the right and duty to defend any “action” seeking those compensatory damages but: 16 1) The amount we will pay for compensatory damages is limited as
described in SECTION III – LIMITS OF INSURANCE.
17 2) We may investigate and settle any claim or “action” at our discretion; and
18 3) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A, B or D or medical expenses under Coverage C.
19 As most faulty workmanship claims invoke or purport to invoke the CGL policy’s “property damage” coverage, we leave aside the definition of “bodily injury” and focus on the terms “occurrence” and “property damage”, which are defined in the policy as follows:
20 “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
21 “Property damage” means:
22 a. Physical injury to tangible property, including all resulting loss of use of that property; or
23 b. Loss of use of tangible property that is not physically injured.
24 As a result of these and other provisions, in order to trigger the CGL policy’s “property damage” coverage it is incumbent on the insured to prove that there has been:
· occurring during the policy period;
· caused by an “occurrence” as defined;
· taking place in the “coverage territory”;
· for which the insured is legally obligated to pay compensatory damages.
25 As it is well-established that the term “occurrence” includes the insured’s negligence8, it is not uncommon for insured to take the position that lawsuits by customers seeking the costs of making good faulty workmanship or replacing a defective product are covered pursuant to the CGL policy’s “property damage” coverage.
26 Assuming the claim is one for compensatory damages and that the other terms and conditions of the policy have been met, it is first necessary to determine if the claim is one for “property damage”.
27 The issue of what constitutes “property damage” has been considered in numerous contexts. It is often said that claims for pure economic loss are not covered by the CGL policy because no injury to or destruction of property or loss of use of property is involved. It is important to recall, however, that in some instances the definition of “property damage” extends coverage to claims for injury to or loss of use of intangible property. Where this is the case, courts have found that impairment of intangible property interests such as goodwill does trigger coverage under the CGL policy.9 In such cases, the definition of “property damage” was not restricted to physical injury to tangible property or loss of use of tangible property. It is important to note, however, that the current IBC CGL wording does define “property damage” by reference to tangible property.
28 In Bird Construction Co. v. Allstate Insurance Co. of Canada10it was held that a contractor could be held liable in tort to subsequent purchasers for the costs required to make a building safe where there was a substantial danger to the health and safety of its occupants and notwithstanding the fact that no injury had occurred. Does this liability trigger the “property damage” coverage in the CGL policy?
29 The answer is no, as the fact that a contractor is potentially liable for the costs of making a building safe does not mean that the insurer has to indemnify it where there is no “property damage” or “bodily injury” alleged.11 Indeed, the liability imposed by the Supreme Court in Bird Construction, supra, was in view of potential property damage or bodily injury.
30 The Alberta Court of Queen’s Bench in Raylo Chemicals, Inc. v. AXA Pacific Ins. Co.12 recently considered a claim against an insured under a CGL policy by a contractor who had been hired to effect certain additions and renovations to the insured’s manufacturing plant. The contractor alleged that
8
Canadian Indemnity Co. v. Walkem Machinery Limited, [1976] 1 S.C.R. 309, 3 N.R. 523, 53 D.L.R. (3d) 1, [1975] 5 W.W.R. 510, [1975] I.L.R. ¶1-654 (SUB NOM. Straits Towing Ltd. v. Washington Iron Works).
9 Blanchard v. Halifax Insurance Co. (1996), 40 C.C.L.I. (2d) 258 (N.B.Q.B.). 10
[1995] 1 S.C.R. 85.
11 Bird Construction Co. v. Allstate Insurance Co. of Canada (1996), 36 C.C.L.I. (2d) 29 (Man. C.A.). 12
because the insured had breached the contract or was negligent, it incurred increased expense and employed additional labour and materials to carry out and complete the work it had contracted to do. Although the policy at issue did not define “property damage”, the court had no difficulty in concluding that none had been alleged and therefore coverage was not triggered.
31 The court held that the policy required that there be an allegation that the claimant had suffered damages wholly or partly as a result of injury to or destruction of property or loss of a right in property. In this case, the claim was for pure economic loss unrelated to any such injury to or destruction of property or loss of a right in property. As the court pointed out, depending on what the policy wording says, there may be coverage for claims against the insured seeking damages as a result of the impairment of intangible property rights.13 This was not the case here, however. The court also noted that before examining the CGL policy’s exclusions, it is first necessary to determine that the claim is one for covered “property damage”, or alternatively “bodily injury”. It is only once this threshold has been crossed that it is incumbent on the insurer to prove that the claim is withdrawn from coverage as a result of an exclusion.
32 In this respect, one should be mindful of the oft-stated principle of insurance policy interpretation whereby provisions granting coverage are to be interpreted broadly while exclusions are to be interpreted narrowly.
33 We turn now to the six principal exclusions to be considered in relation to faulty workmanship claims. We address these in the order they appear in the policy (and not necessarily by order of importance).
A. Contractual Liability
34 The purpose of this exclusion is to withdraw coverage for claims alleging breach of contract, where such liability would not exist were it not for the contract and with the exception of an “insured contract”. The exclusion reads as follows: 35 This insurance does not apply to:
36 […] “Bodily injury” or “property damage” for which the insured is obligated to pay compensatory damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for compensatory damages:
37 1) Assumed in a contract or agreement that is an “insured contract”, or 38 2) That the insured would have in the absence of the contract or
agreement.
39 The definition of “insured contract” includes the following: 40 “Insured contract” means:
41 g. That part of any other contract or agreement pertaining to your business under which you assume the tort liability of another to pay compensatory damages because of “bodily injury” or “property damage” to a third person or organization, if the contract or agreement is made prior to the “bodily injury” or “property damage”. Tort liability means a
13
See, for example, Hildon Hotel (1963) Ltd. v. Dominion Ins. Corp. (1968), 1 D.L.R. (3d) 214 (B.C.S.C.).
liability that would be imposed by law in the absence of a contract or agreement.
42 An “insured contract” does not include that part of any contract or agreement that indemnifies an architect, engineer or surveyor for injury or damage arising out of:
43 1) Preparing, approving or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifi-cations; or
44 2) Giving directions or instructions, or failing to give them, if that is the primary cause of the injury or damage.
45 It is common in the construction industry to find contractual clauses whereby one party agrees to indemnify and/or hold harmless another. In other contexts, the insured may have warranted that its product or work is free of defects. The contractual liability exclusion withdraws from coverage claims based on such agreements or warranties, subject to certain exceptions.
46 Unless the agreement at issue constitutes an “insured contract”, the resolution of the issue depends on whether liability might also be imposed on the insured by law notwithstanding the contractual assumption of liability. Hence, in Harbour Machine v. Guardian Insurance14, the court found that a suit against the insured alleging improper installation of motorboat engines was not excluded on the basis that liability was not imposed by law or assumed under an “insured contract”. It held that there might also be a basis for liability under the implied warranty of fitness pursuant to the B.C. Sale of Goods Act. To the extent that liability was imposed by law and not only by contract, coverage might be triggered. In the result, the court held that the claim was excluded in any event on the basis of the “work performed” exclusion (see discussion below) and the absence of proof of an “occurrence” or “property damage”.
47 In B.P. v. Comco15, the plaintiff sued the insured for the costs of cleaning up a gasoline spill. The suit was framed alternatively in contract and tort. Under one of the two insurance policies under consideration, liability assumed under contract was explicitly excluded. The court held, however, that this exclusion did not apply: while it might be determined that the insured were contractually bound to indemnify the plaintiffs, this might not be the result. In effect, there was a possibility that they could be held liable in tort, i.e. extracontractual liability. Hence, the insurer was obliged to defend. Its duty to indemnify would, however, depend on the court’s final judgment.
48 Aside from the issue of whether liability exists in the absence of a contract or agreement, there is also an exception to the exclusion for what constitutes an “insured contract” under the policy. It is important to note, however, that the definition of “insured contract” is restricted to the assumption of tort liability, i.e. extracontractual liability. It does not include instances where the insured has assumed the contractual liability of another.
14 (1985), 10 C.C.L.I. 72 (B.C.C.A.). 15
49 In Yacht Harbour Pointe Development Corp. v. Architectura Waiseman16, the court dealt with a definition of “insured contract” which was not restricted to the assumption of another’s tort liability. As a result, a suit alleging breach of warranty of fitness against the owner of a residential building was held not to be withdrawn from coverage although the liability was contractual. In the result, the court held that the claim was not covered for other reasons.
It is also important to recall that the definition of “insured contract” does not create an additional insured under the CGL policy. It only extends coverage to the insured for its liability to others as a result of assuming the tort liability of a third person. It is this vicarious liability of the insured that is the object of the definition of “insured contract”.
50 As a final note, there is an important exception in the definition of “insured contract”. It does not apply to agreements to indemnify an architect, engineer or surveyor for their professional liability. It may, however, extend to other types of indemnification agreements, even with an architect, engineer or surveyor, which do not fall into one of the two categories of professional services which are excluded from the definition, i.e. “preparing, approving or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications”; or, “giving directions or instructions, or failing to give them, if that is the primary cause of the injury or damage”.
B. Damage to Ongoing Work
51 The next exclusion which may be relevant in cases alleging faulty workmanship is that which applies to “property damage” occurring before the work is completed. Exclusion h. in the current IBC CGL policy contains much of what was included under the old Broad Form Property Damage Endorsement which was often issued along with the Comprehensive General Liability policy. There are, however, differences between the two exclusionary clauses which may take on greater or lesser importance depending on the facts in dispute. The current exclusion excludes both risks which are insured under some form of first party property insurance and “business risks” arising out of ongoing work. The exclusion reads as follows:
52 This insurance does not apply to: 53 […] h. “Property damage” to:
54 1) Property you own, rent or occupy;
55 2) Premises you sell, give away or abandon, if the “property damage” arises out of any part of those premises;
56 3) Property loaned to you;
57 4) Personal property in your care, custody or control;
58 5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the “property damage” arises out of those operations; or 59 6) That particular part of any property that must be restored, repaired or
replaced because “your work” was incorrectly performed on it.
16
60 Paragraph 2) of this exclusion does not apply if the premises are “your work” and were never occupied, rented or held for rental by you.
61 Paragraphs 3), 4), 5) and 6) of this exclusion does not apply to liability assumed under a sidetrack agreement.
62 Paragraph 6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.
63 The term “your work” is defined as follows: 64 “Your work” means:
65 a. Work or operations performed by you or on your behalf; and
66 b. Materials, parts or equipment furnished in connection with such work or operations.
67 “Your work” includes warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in a. or b. above.
68 Finally, the definition of “products-completed operations hazard” provides, in part, as follows:
69 “Products-completed operations hazard” includes all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except:
70 1) Products that are still in your physical possession; or 71 2) Work that has not yet been completed or abandoned.
72 Those parts of the exclusion which are particularly relevant to claims alleging faulty workmanship are contained in paragraphs h.4), 5) and 6).
73 The care, custody or control exclusion in paragraph h.4) is intended to withdraw from coverage the risk of “property damage” inherent in the business of storage, repair, service or delivery. After all, these are risks which can be insured under various forms of first party property insurance.
74 Despite some authority to the contrary from the Newfoundland courts17, the prevailing view appears to be that paragraph h.4) refers to “personal property” in the legal sense.18 Loosely translated into civil law terms, this means movable property.
75 In a recent Quebec Superior Court decision, the court held that the term “care” in the context of a “care, custody or control” exclusion should not be given such a broad interpretation so as to withdraw coverage for the alleged failure by an insured to exercise reasonable care of property.19 In that case, the insured was sued for damages resulting from the theft of leather which it had received
17
See Day & Ross (Nfld.) Ltd. v. Ins. Corp. of Newfoundland (1987), 44 D.L.R. (4th) 343, 29 C.C.L.I. 112, 66 Nfld. & P.E.I.R. 304, 204 A.P.R. 394 (Nfld. C.A.); Strangemore’s Electrical Ltd. v. Ins. Corp. of Newfoundland Ltd. (1997), 151 Nfld. & P.E.I.R. 317, 471 A.P.R. 317, [1997] I.L.R. ¶1-3475, 43 C.C.L.I. (2d) 322 (Nfld. T.D.).
18 See Heather SANDERSON, Robert EMBLEM and Lyle WOODLEY, Commercial General Liability Insurance (Toronto and Vancouver: Butterworths, 2000) at p. 161.
19
Harrison v. Cuirs Sal-Tan Inc., [2000] J.Q. no. 1640 JEL/2000-1558, No. 500-05-005473-911 (under appeal).
from a customer for tanning. While the court had no difficulty in accepting the insurer’s argument that allegations of negligence made against the insured as bailee having the custody and control of a client’s leather were excluded, other allegations referring to the reasonable care of the leather it should have exercised were not withdrawn from coverage. A contrary interpretation would withdraw coverage for the insured’s principal activity which in this case was tanning leather.
76 The next two branches of the exclusion which are particularly relevant to faulty workmanship claims seek to withdraw coverage for “property damage” occurring before the work is completed. In order to determine whether or not the work is completed, it is necessary to review the contract documents and the facts. The definition of “products-completed operations hazard” provides the following in this regard:
77 […] b) “Your work” will be deemed completed, at the earliest of the following times:
78 1) When all of the work called for in your contract has been completed. 79 2) When all of the work to be done at the site has been completed if
your contract calls for work at more than one site.
80 3) When that part of work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
81 Work that may need service, maintenance, correction, repair or replace-ment, but which is otherwise complete, will be treated as completed.
82 The issue has been the source of frequent litigation and is discussed below in connection with the “work performed” exclusion. As we shall see, it is an important one as the “work performed” exclusion (which applies to completed work) does not bar claims for “property damage” to an insured’s subcontractor’s work arising from faulty workmanship. There is no such exception in the on-going work exclusion, however.
83 Paragraph h.5) withdraws coverage for “property damage” to that particular part of real property on which the insured or its subcontractor is working. This is a risk intended to be covered by a form of first party property insurance known as “Builder’s Risk” insurance. Builder’s Risk insurance typically covers the owner, general contractor and subcontractors to the extent of their respective insurable interests in what is being constructed and in any materials that are to become part of the completed structure. The coverage period spans the period of construction and comes to an end when the project is completed. Builder’s Risk policies usually contain an exclusion for faulty workmanship. A typical clause reads as follows:
84 This policy does not insure the costs of making good faulty or defective workmanship, material, construction or design, but this exclusion shall not apply to damage resulting from such faulty or defective workmanship, material, construction or design.20
20
See Heather SANDERSON, Robert EMBLEM, Lyle WOODLEY, Commercial General Insurance Liability, (Toronto and Vancouver: Butterworths 2000) at page 163.
85 It has been frequently argued that the exception to this exclusion (i.e. “damage resulting from such faulty or defective workmanship, material, cons-truction or design”) should be interpreted in a manner which does not withdraw coverage for the cost of redoing work due to faulty workmanship. Courts have held, however, that the exception is very narrow and that a construction project will not be broken down into its various component parts in order to whittle away at the scope of the faulty workmanship exclusion in Builder’s Risk policies.21 86 Given that recourse under a Builder’s Risk policy for the cost of redoing
faulty ongoing work is barred, the question arises as to whether there may be coverage under the CGL policy. As a result of paragraph h.5), however, such claims are excluded to the extent that they seek damages to remedy shoddy work on an ongoing construction project caused either by the insured or its subcontractor. If, however, the shoddy work causes property damage to another part of the real property (other than that “particular part” on which the insured or its contractor is working), then claims for consequential damages would not be excluded as a result of paragraph h.5). The term “real property” is used in the legal sense, translated loosely into civil law terms as immovable property.
87 The question as to what the phrase “that particular part of real property” means has been dealt with in a number of U.S. cases. It appears from these cases that if there is evidence that the construction work encompassed the whole of the building or property, then damage to any part of such building or property will fall within the exclusion. Hence, where the insured agreed to renovate a client’s apartment and the renovations extended to all of its component parts, a claim alleging fire and smoke damage which occurred before the renovation project was completed was withdrawn from coverage as a result of the exclusion despite the fact that the damage affected parts of the apartment which were not in fact being worked on at the time.22
88 In another case where an insured had damaged windows in attempting to clean them of dirt and mortar which had coated them following masonry and fireplace work undertaken at the claimant’s house, the insurer was held to have been justified in relying on the ongoing work exclusion. The work on the windows was incidental to the masonry and fireplace contract and therefore within the phrase “that particular part of real property” on which the insured was working.23 89 Paragraph h.6) refers to that particular part of property, whether real or
personal, that must be restored, repaired or replaced because “your work” was not correctly performed on it. Like paragraph h.5), this exclusion only applies to ongoing work. This is clear as a result of the last paragraph in exclusion h. which
21
Simcoe & Erie General Ins. Co. v. Royal Ins. Co. of Canada (1982), 19 Alta. L.R. (2d) 133, [1982] 3 W.W.R. 628, 36 A.R. 553, [1983] I.L.R. ¶1-1597 (Q.B.), aff’d. without written reasons (September 7, 1983) (C.A.), leave to appeal to the S.C.C. refused (1983), 51 N.R. 158n; Poole Construction Ltd. v. Guardian Assur. Co. (1977), 4 A.R. 417, [1977] I.L.R. ¶1-879 (S.C.); University of Saskatchewan v. Fireman’s Fund Ins. Co. of Canada (1997), 158 Sask. R. 223, 153 W.A.C. 223, [1998] 5 W.W.R. 276, [1998] I.L.R. ¶1-3548, 50 C.C.L.I. (2d) 272 (C.A.), leave to appeal to S.C.C. refused, 227 N.R. 287n, 168 Sask. R. 320n, 173 W.A.C. 320n; Golden Eagle Canada Ltd. v. American Home Assur. Co., [1978] C.S. 699.
22 William Crawford, Inc. v. Travelers Ins. Co., 838 F. Supp. 157 (S.D.N.Y. 1993). 23
specifically states that paragraph 6) does not apply to “property damage” included in the “products-completed operations hazard”.
90 As a result of paragraph h.6), claims for damages consisting of the cost to restore, repair or replace that particular part of the property on which the insured was working are excluded. As usual, damages to other property are not excluded, unless the other property is “personal property” in the insured’s care, custody and control in which case the claim would be withdrawn as a result of paragraph h.4).
91 An example of how this particular exclusion has been interpreted is provided by Economy Lumber Co. v. Ins. Co. of North America.24 In that case, the insurer was alleged to have supplied defective siding which was installed on a number of houses. The court held that as a result of the phrase “that particular part of any property” in the exclusion, a claim for damages to the houses which was separate from the claim for the cost of replacing the siding was not withdrawn from coverage. After all, the insured had merely provided the siding and had done no other work on the houses.
92 In Kildonan Tree Service Ltd. v. The Sovereign General Insurance Company25, a tree trimming company sought coverage under its Comprehensive General Liability Insurance policy for a claim against it for mistakenly removing trees. It had been hired to trim trees to within four meters of hydroelectric lines but proceeded to cut down four trees without obtaining the consent of the property owners. The insurer denied coverage on the basis of a number of exclu-sions for claims arising out of the insured’s faulty workmanship. The court held that the exclusions did not apply as the claims did not result from faulty work-manship. The trees were cut down very carefully and no issue of workmanship was involved. Despite differences in wording between the exclusions considered in this case and the relevant exclusions in the current IBC CGL policy, the decision presents an interesting view of what faulty workmanship means.
C. Your Products
93 The standard form CGL policy also contains a “products” exclusion which reads as follows:
94 This insurance does not apply to:
95 […] “Property damage” to “your product” arising out of it or any part of it. 96 The term “your product” is defined as follows:
97 a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
98 (1) You;
99 (2) Others trading under your name; or
100 (3) A person or organization whose business or assets you have acquired; and
24 204 Cal. Rptr. 135 (Ct. App. 1984) 25
101 b. Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.
102 “Your product” includes warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in a. and b. above.
103 “Your product” does not include vending machines or other property rented to or located for the use of others but not sold.
104 It is important to note that this exclusion does not apply to real property (or immoveables, as the term loosely translates in civil law terms). Hence, issues which used to arise under the Comprehensive General Liability policy as to whether a building was a “product” and whether damages caused to the building were excluded by the predecessor to the current “products” exclusion may no longer be relevant as far as the current exclusion is concerned (see, for example, Privest Properties Ltd. v. Foundation Co. of Canada26).
105 The scope of the “products” exclusion is wider than that of the “work performed” exclusion. In effect, the “work performed” exclusion does not apply to “property damage” to completed work performed by subcontractors even if the damage is the result of the latter’s faulty workmanship.27 If, however, what is being considered is a “product”, a subcontractor’s defective work product is excluded. In both cases, damage to other property by reason of a subcontractor’s faulty workmanship is not excluded.28
106 The following illustration may help:
107 If the insured subcontracts part of its work on a construction project and it turns out after completion that the subcontracted work needs to be redone as a result of the subcontractor’s faulty workmanship, the insured’s liability to others for the costs may be covered (depending on the application of the policy’s other terms and conditions) because the “work performed” exclusion does not apply to withdraw coverage. If, however, what was being worked on was not real (or immovable) property, but rather personal (or movable) property, the insured’s liability for the costs of making good a subcontractor’s faulty workmanship is excluded.
D. Your Work
108 The “work performed” exclusion reads as follows: 109 This insurance does not apply to:
110 […] j. “Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
26
(1991), 57 B.C.L.R. (2d) 88, [1991] I.L.R. ¶1-2731, 6 C.C.L.I. (2d) 23 (S.C.).
27 Kalchthaler v. Keller Construction Co., 591 N.W. 2d 169 (Wis. App. 1999); Maryland Casualty Company v. George Wayne Reeder, 221 Ca. App. 3d 961 (1990).
28
See, for example, Ocean Construction Supplies Ltd. v. Continental Insurance Co., [1978] 5 W.W.R. 681, [1978] I.L.R. ¶1-1035 (B.C. S.C.), aff’d, [1981] 1 W.W.R. 60, 21 B.C.L.R. 194 (C.A.); see also Gulf Plastics Ltd. v. Cornhill Ins. Co. (1990), 47 B.C.L.R. (2d) 379, 46 C.C.L.I. 144, [1990] I.L.R. ¶1-2644 (S.C.).
111 This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a sub-contractor.
112 We have already discussed the importance of the distinction between the “work performed” exclusion and the “products” exclusion. In effect, the “work performed” exclusion contains an exception for suits against the insured for the costs of redoing shoddy work performed by a subcontractor. As has been noted by an American court, however, an expert retained by the insured to inspect its work is not a subcontractor within the meaning of this exception to the “work performed” exclusion.29 Hence, the failure by an inspector hired by the insured to detect defects in the retaining wall the latter had built did not give rise to coverage for the costs to repair the insured’s faulty workmanship pursuant to the exception.
113 As with the “products” exclusion, it should always be recalled that this exclusion does not withdraw coverage for claims of damage to other property arising out of the insured’s faulty workmanship.30 An issue which often arises in connection with the “work performed” exclusion is how to define the scope of the work. After all, the exclusion only withdraws coverage for property damage to “your work”, and not damage to other property. How does one distinguish between completed work and other property?
114 Generally speaking, the work is defined by the contract under which the insured was engaged. If the damage is to property within the scope of the insured’s work as set out in the contract, then the liability for such damage should be withdrawn from coverage by the “work performed” exclusion.31
115 Another issue that often arises is whether the work has been completed. In Conacher Construction Limited v. The Canadian Surety Co.32, coverage had been denied to the insured contractor that had been retained to build waterworks and a sewer extension. The contractor carried out the work out by July 16th,
subject to certain deficiencies set out in a letter dated July 22nd which were not
corrected until September. It was told that there would be an extension of the contract and therefore put off completing the deficiencies until that time. In the interim, it removed its equipment. On August 30th, an explosion occurred as a
result of a leak from a gas line broken due to the negligence of one of the contractor’s employees while digging on July 8th. The insured denied liability on
the basis of an exclusion clause withdrawing coverage for “liability arising out of construction, installation and repair operations of the insured for another after such operations have been completed or abandoned”. The court held that the work was not in fact completed because all the deficiencies had not been corrected when the explosion occurred. There was a bona fide delay in completing the contract. As a result, the insurer could not rely on the exclusion and was liable on the policy.
116 This case is typical of many older decisions in which the insureds had purchased Comprehensive General Liability policies which did not provide for
29 Collett v. Insurance Co. of the West, 75 Cal. Rptr. 2d 165 (Cal. App. 4 Dist. 1998). 30
See, for example, Ultramar Can. v. Demik Construction (1987), 27 C.C.L.I. 161 (Ont. H.C.). 31 See, for example, Jacob v. Russo Builders, 592 N.W. 2d 271 (Wis. App. 1999).
32
“products-completed operations coverage”. In other words, claims for bodily injury or property damage resulting from the insured’s completed work were specifically withdrawn from coverage. As a result, these decisions should be approached with caution as the courts may have been inclined to find in favour of insurance coverage by taking a more restrictive view of when the work was completed.
117 In Canadian General Ins. Co. v Western Pile and Foundation (Ontario) Limited33, the Supreme Court of Canada held that an exclusion for completed construction operations which was similar to that considered in Conacher, supra, did in fact apply to withdraw coverage in a situation where there were defects which the insured was to remedy. In that case, the insured had contracted to drive steel sheet piles for a coffer dam to be constructed by another company. The piles were driven to the prescribed depths by January 29th, after which the
insured withdrew its men and equipment from the site. A “blow-in” occurred on March 5th at one of the corners of the coffer dam, causing substantial damages.
The insured was found liable for the damages as it was found that there was a gap in the piles it had driven. The insured sued its general public liability carrier which denied liability on the basis of an exclusion withdrawing coverage for “construction, installation or repair operations of the Insured for another after such operations had been completed or abandoned”. The court held that the exclusion indeed applied and that the construction operations were complete, despite the fact that the insured was obliged to maintain the work in perfect order and repair and remedy any defects which might appear.
118 As a final note on this issue, it should be recalled that paragraph 9.b. under the definition of “Products-completed operations hazard” in the IBC CGL policy deems the work to be completed at the earliest of:
119 1) When all of the work called for in your contract has been completed. 120 2) When all of the work to be done at the site has been completed if
your contract calls for work at more than one site.
121 3) When that part of work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
122 Work that may need service, maintenance, correction, repair or replace-ment, but which is otherwise complete, will be treated as completed.
123 Further, work that is otherwise complete but which may need “service, maintenance, correction, repair or replacement” is deemed completed.
124 What coverage, if any, is available to pay for the costs of removing sound construction to gain access to, remove or repair faulty workmanship? The courts have held that these costs either do not constitute “property damage” caused by an “occurrence” or are withdrawn from coverage by the “products” or “work performed” exclusions.34
33 [1972] S.C.R. 175.
34
Privest Properties Ltd. v. Foundation Co. of Canada (1991), 57 B.C.L.R. (2D) 88, [1991] I.L.R. ¶1-2737, 6. C.C.L.I. (2d) 23 (S.C.); Carleton Iron Works Ltd. v. Ellis Don Construction Ltd., [1996] I.L.R. ¶1-3373; 8 O.T.C. 287 (Gen. Div.).
125 Another question which has arisen is whether costs incurred in investi-gating the cause of the problem in cases involving faulty workmanship trigger coverage under the CGL policy. It would appear that such claims should meet the same fate as the “rip-and-tear” claims discussed above: investigation costs either do not constitute “property damage” caused by an “occurrence” or are withdrawn from coverage by the “products” or “work performed” exclusions.35
E. Impaired Property
126 The next exclusion to consider in relation to faulty workmanship claims is called the “performance” or “impaired property” exclusion. The intent of this exclusion is to withdraw from coverage claims for damages where the insured’s defective product or faulty work is incorporated into other property and renders it less useful without actually physically damaging it. This risk that an insured’s product or work will not perform as it is intended to is a “business risk” which the CGL policy is not intended to cover.
127 The “impaired property” exclusion reads as follows: 128 This insurance does not apply to:
129 […] k. “Property damage” to “impaired property” or property that has not been physically injured, arising out of:
130 1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or
131 2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
132 This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to “your product” or “your work” after it has been put to its intended us.
133 Central to this exclusion is the definition of “impaired property”, which reads as follows:
134 “Impaired property” means tangible property, other than “your product” or “your work,” that cannot be used or is less useful because:
135 a. It incorporates “your product” or “your work” that is known or thought to be defective, deficient, inadequate or dangerous; or
136 b. You have failed to fulfill the terms of a contract or agreement; 137 if such property can be restored to use by:
138 a. The repair, replacement, adjustment or removal of “your product” or “your work”, or
139 b. Your fulfilling the terms and conditions of the contract or agreement.
140 It is important to note that for this exclusion to apply, it must be proven that the “impaired property” can be corrected or fixed through the repair, removal, adjustment or replacement of the insured’s product or work or by its full performance of the contract. Hence, in Alie v. Bertrand & Frère Construction
35
Heather Sanderson, Robert Emblem, Lyle Woodley, Commercial General Liability Insurance (Toronto and Vancouver: Butterworths, 2000) at pp. 175-176
Co.36, the court held that the exclusion did not apply to a claim for damages to foundations resulting from the incorporation of fly ash (FA) along with cement powder in the concrete supplied by an insured. Neither the FA nor the concrete could be removed as they had become part of the foundations, which also contained tie rods, anchor bolts, etc. Because the problem could not be corrected by removing the FA or the concrete, the court concluded that physical damage to the foundations had occurred and therefore the “impaired property” exclusion did not apply. In effect, the foundations could not be restored to use.
A similar result was reached in Carwald Concrete v. Gen. Security37 where the pouring of defective concrete was found to have rendered useless the rebars, reinforcing steel, ducting, wiring, plumbing and anchor bolts in a concrete pad. The court held that there was “property damage” which was not excluded by the “impaired property” exclusion.
141 Assuming that the property can be restored to use, the exclusion with-draws coverage for claims otherwise covered under the policy resulting from the incorporation of the insured’s faulty workmanship or defective materials. In effect, it seeks to restrict coverage for claims which fall within that part of the definition of “property damage” which refers to “loss of use of tangible property that is not physically injured”.
142 There is, however, an exception to the exclusion in respect of loss of use of other property caused by “sudden and accidental” physical injury to the insured’s product or work after it has been put to its intended use. The phrase “sudden and accidental” has been interpreted in the context of what is known as the “sudden and accidental pollution” exclusion and there appears to be no reason why the jurisprudence interpreting this exclusion should not be applicable to the “performance” or “impaired property” exclusion in the CGL policy. The leading case in Canada on this exclusion is BP v. Comco.38 In that case, the court held that the term “sudden” necessarily imported a temporal element, while “accident” meant fortuitous.
143 Unfortunately, aside from Alie, supra, there are few Canadian cases interpreting the current “performance” or “impaired property” exclusion where faulty workmanship is alleged. There are, however, older decisions interpreting a predecessor “performance” exclusion. Caution must be exercised when referring to these, however, particularly as the current exclusion is the result of successive efforts by the insurance industry to avoid some of the adverse judgments reached in the past. In one such case, the Ontario High Court held that a claim for damages in the form of underpayment for milk delivered by a farmer resulting from the improper calibration of the volume gauge on a bulk milk tank sold to the farmer by the insured was withdrawn from coverage as a result of the “performance” exclusion.39 It is hard to fathom why counsel agreed that the underpayment constituted “property damage”. In any case, the court held that the “performance” exclusion applied to withdraw coverage.
36 [2000] O.J. No. 1360 (Q.L.) (Sup. Ct.) (under appeal). 37
(1986), 17 C.C.L.I. 241 (Alta. C.A.).
38 (1990), 49 C.C.L.I. 298, 73 O.R. (2d) 317, [1990] I.L.R. ¶1-2621 (H.C.). 39
F. Sistership
144 A last exclusion to consider in cases of alleged faulty workmanship is what is commonly known as the “sistership” exclusion. This exclusion takes its name from an American case where the insurer was held liable towards an insured which incurred costs in recalling all “sisterships” of the same design after one of its aircraft was found to be defective.40 An exclusion was later added to the CGL policy in order to withdraw similar claims from coverage in the future. 145 The “sistership” exclusion reads as follows:
146 This insurance does not apply to:
147 […] l. Any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
148 1) “Your product”; 149 2) “Your work”; or 150 3) “Impaired property”;
151 if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.
152 The intent of the sistership exclusion is to withdraw coverage for claims for costs to prevent the failure of the insured’s products.41 In order for this exclusion to apply, the claim must relate to the costs and expenses incurred in withdrawing property from the market or from use. It does not apply to withdraw coverage in cases where the property has already been damaged. Hence, where a defective pre-mix produced by the insured was incorporated into peanut butter manufactured by another party, thus causing damage to the peanut butter, the exclusion did not apply to the resulting liability.42
CONCLUSION
153 The answer to the question as to whether the CGL policy responds to faulty workmanship claims is not as straightforward as one might wish. Clearly, the principle that the CGL policy is not intended to cover “business risks” such as making good faulty workmanship is easier to state than to apply. Nevertheless, in approaching the question, one should remember to first address the issue of whether “property damage” has been alleged before turning to the so-called “business risks” exclusions. These exclusions serve to underline that the CGL policy is not intended to respond to purely contractual liability (unless what is at issue is an “insured contract” as defined). Claims alleging faulty workmanship to
40
Arcos Corp. v American Mutual Liberty Insurance Co., 350 F. Supp. 380 (E.D.Pa. 1972), aff’d 45 F. (2d) 678 (3rd Cir. Pa. 1973).
41 Carwold Concrete & Gravel Co. of Canada v. General Security Insurance Co. of Canada (1985), 17 C.C.L.I. 241 (Alta. C.A.), leave to appeal refused (1986), 17 C.C.L.I. 241n 260 (S.C.C.).
42
Foodpro National Inc. v. General Accident Assurance Co. of Canada (1986), 57 O.R. (2d) 489 (H.C.), aff’d (1988), 63 O.R. (2d) 288 (C.A.); app’n for leave to appeal to S.C.C. dismissed (October 31, 1998; S.C.C. File No. 20930). See also Gulf Plastics Ltd. v. Cornhill Insurance Co. (1990), 46 C.C.L.I. 144 (B.C.S.C.); aff’d (1991), 3 C.C.L.I. (2d) 203 (B.C.C.A.).
ongoing work are also excluded. As for completed work, there is an important distinction between faulty workmanship claims involving the insured’s products as opposed to those involving its work. In both cases, claims for damages to make good the insured’s own faulty workmanship are withdrawn from coverage. Only in respect of the “products exclusion”, however, is the faulty workmanship of the insured’s subcontractor excluded. Where the faulty workmanship is incorpo-rated into a larger product rendering it less useful without physically damaging it, the “performance” or “impaired property” exclusion will apply unless the loss results from sudden and accidental physical injury to the insured’s product or work. Finally, the costs and expenses incurred in removing property from the market or from use because of suspected faulty workmanship are excluded.
APPENDIX I
Commercial General Liability Policy INSURANCE CO.
Head Office — Canada
POLICY NO. Agent Broker
In return of the payment of the premium, and subject to all the terms of this policy, we agree with you to provide the insurance as stated in this policy.
DECLARATIONS
1. Named Insured
Address
2. Policy Period
From: ____|________|____ to: ____|________|____
12:01 A.M. Standard Time, at your address shown above. 3. Limits of Insurance
Aggregate Limit: $
Each Occurrence Limit: $
Personal Injury Limit: $
Tenant’s Legal Liability Limit: $ (Any one premises)
Medical Expense Limit: $ (Any one person)
4. Form of Business
Individual q Partnership q
Joint Venture q Organization q (Other than Partnership or Joint Venture)
5. Business Description :
6. Location of All Premises You Own, Rent or Occupy:
7. Classification
Code No. Premium Basis Rate Advance Premium
___________ __________________ ___________ _______________
8. Minimum Premium: $____________ TOTAL PREMIUM: $_____________
9. Endorsements Attached to this Policy: COUNTERSIGNED BY:
(Date) (Authorized Representative)
Commercial General Liability Policy
Various provision in this policy restrict coverage. Read the entire policy carefully to determine rights, duties and what is and is not covered.
Throughout this policy the words “you” and “your” refer to the Named Insured shown in the Declarations. The words “we”, “us” and “our” refer to the Company providing this insurance.
The word “Insured” means any person or organization qualifying as such under SECTION II – WHO IS AN INSURED.
Other words and phrases that appear in quotation marks have special meaning. SECTION I – COVERAGES
COVERAGE A.. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the Insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this Insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. This Insurance applies only to “bodily injury” and “property damage” which occurs during the policy period. The “bodily injury” or “property damage” must be caused by an “occurrence”. The “occurrence” must take place in the “coverage territory”. We will have the right and duty to defend any “action” seeking those compensatory damages but:
1) The amount we will pay for compensatory damages is limited as described in SECTION III – LIMITS OF INSURANCE.
2) We may investigate and settle any claim or “action” at our discretion; and
3) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A, B or D or medical expenses under Coverage C.
b. Compensatory damages because of “bodily injury” include compensatory damages claimed by any person or organization for care, loss of services or death resulting at any time from the “bodily injury”.
c. “Property damage” that is loss of use of tangible property that is not physically injured shall be deemed to occur at the time of the “occurrence” that caused it.
2. Exclusions
This Insurance does not apply to:
a. “Bodily injury” or “property damage” expected or intended from the standpoint of the Insured. This exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property.
b. “Bodily injury” or “property damage” for which the Insured is obligated to pay compen-satory damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for compensatory damages:
1) Assumed in a contract or agreement that is an “Insured contract”; or 2) That the Insured would have in the absence of the contract or agreement.
c. Any obligation of the Insured under a workers compensation, disability benefits or unemployment compensation law or any similar law.
d. “Bodily injury” to an employee of the Insured arising out of and in the course of employment by the Insured.
This exclusion applies:
2) To any obligation to share compensatory damages with or repay someone else who must pay compensatory damages because of the injury.
This exclusion does not apply:
i) To liability assumed by the Insured under an “Insured contract”; or
ii) To employees on whose behalf contributions are made by or required to be made by the Insured under the provisions of any workers compensation law. e. 1) “Bodily injury” or “property damage” arising out of the ownership, use or
operation by or on behalf of any Insured of:
a) Any “automobile”;
b) Any motorized snow vehicle or its trailers;
c) Any vehicle while being used in any speed or demolition contest or in any stunting activity or in practice or preparation for any such contest or activity; or d) Any vehicle which if it were to be insured would be required by law to be insured
under a contract evidenced by a motor vehicle liability policy, or any vehicle insured under such a contract, but this exclusion does not apply to the ownership, use or operation of machinery, apparatus or equipment mounted on or attached to any vehicle while at the site of the use or operation of such equipment.
2) “Bodily injury” or “property damage” with respect to which any motor vehicle liability policy is in effect or would be in effect but for its termination upon exhaustion of its limit of liability or is required by law to be in effect.
This exclusion e. does not apply to “bodily injury” to an employee of the Insured on whose behalf contributions are made by or required to be made by the Insured under the provisions of any workers compensation law.
f. “Bodily injury” or “property damage” arising out of the ownership, maintenance, use, operation, loading or unloading, or entrustment to others, by or on behalf of any Insured of any watercraft.
This exclusion does not apply to:
1) A watercraft while ashore on premises you own or rent; 2) A watercraft you do not own that is:
a) Less than 8 meters long; and
b) Not being used to carry persons or property for a charge.
3) “Bodily injury” to an employee of the Insured on whose behalf contributions are made by or required to be made by the Insured under the provisions of any workers compensation law.
g. 1) “Bodily injury” or “property damage” arising out of the ownership, maintenance, use, operation, loading or unloading, or the entrustment to others, by or on behalf of any insured of:
a) Any aircraft; or
b) Any air cushion vehicle.
2) “Bodily injury” or “property damage” arising out of the ownership, existence, use or operation by or on behalf of any Insured of any premises for the purpose of an airport or aircraft landing area and all operations necessary or incidental thereto. h. “Property damage” to:
1) Property you own, rent, or occupy;
2) Premises you sell, give away or abandon, if the “property damage” arises out of any part of those premises;
4) Personal property in your care, custody or control;
5) That particular part of real property on which you or any contractor or sub-contractor working directly or indirectly on your behalf is performing operations, if the “property damage” arises out of those operations; or
6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
Paragraph 2) of this exclusion does not apply if the premises are “your work” and were never occupied, rented or held for rental by you.
Paragraphs 3), 4), 5) and 6) of this exclusion do not apply to liability assumed under a sidetrack agreement.
Paragraph 6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.
i. “Property damage” to “your product” arising out of it or any part of it.
j. “Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
k. “Property damage” to “impaired property” or property that has not been physically injured, arising out of:
1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or
2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to “your product” or “your work” after it has been put to its intended use.
l. Any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
1) “Your product”;
2) “Your work”; or
3) “Impaired property”;
if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.
m. Pollution Liability – See Common Exclusions. n. Nuclear Liability – See Common Exclusions. o. War Risks – See Common Exclusions. COVERAGE B. PERSONAL INJURY LIABILITY
1. Insuring Agreement
a. We will pay those sums that the Insured becomes legally obligated to pay as compensa-tory damages because of “personal injury” to which this Insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. We will have the right and duty to defend any “action” seeking those compensatory damages but: 1. The amount we will pay for compensatory damages is limited as described in
SECTION III – LIMITS OF INSURANCE;
3) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A, B or D or medical expenses under Coverage C.
b. This Insurance applies to “personal injury” only if caused by an offence: 1) Committed in the “coverage territory” during the policy period; and
2) Arising out of the conduct of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you.
2. Exclusions
This Insurance does not apply to: “Personal injury”:
1) Arising out of oral or written publication of material, if done by or at the direction of the Insured with knowledge of its falsity;
2) Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
3) Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the Insured; or
4) For which the Insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for compensatory damages that the Insured would have in the absence of the contract or agreement.
COVERAGE C. MEDICAL PAYMENTS
1. Insuring Agreement
a. We will pay medical expenses as described below for “bodily injury” caused by an accident:
1) On premises you own or rent;
2) On ways next to premises you own or rent; or 3) Because of your operations;
provided that:
a) The accident takes place in the “coverage territory” and during the policy period; b) The expenses are incurred and reported to us within one year of the date of the
accident; and
c) The injured person submits to examination, at our expense, by physicians of our choice as often as we reasonably require.
b. We will make these payments regardless of fault. These payments will not exceed the applicable limit of insurance. We will pay reasonable expenses for:
1) First aid at the time of an accident;
2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices; and
3) Necessary ambulance, hospital, professional nursing and funeral services. 2. Exclusions
We will not pay expenses for “bodily injury”: a. To any Insured.
b. To a person hired to do work for or on behalf of any Insured or a tenant of any Insured. c. To a person injured on that part of premises you own or rent that the person normally
d. To a person, whether or not an employee of any Insured, who at the time of injury is entitled to benefits under any workers compensation or disability benefits law or a similar law.
e. To a person injured while taking part in athletics. f. The payment of which is prohibited by law.
g. Included within the “products-completed operations hazard”. h. Excluded under Coverage A.
COVERAGE D. TENANTS’ LEGAL LIABILITY
1. Insuring Agreement
We pill pay those sums that the Insured becomes legally obligated to pay as compensatory damages because of “property damage” to which this Insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. This Insurance applies only to “property damage” caused by fire, explosion, smoke or leakage from fire protective equipment to premises rented to you or occupied by you. This Insurance applies only to “property damage” which occurs during the policy period. The “property damage” must be caused by an “occurrence”. The “occurrence” must take place in the “coverage territory”. We will have the right and duty to defend any “action” seeking those compensatory damages but:
a. The amount we will pay for compensatory damages is limited as described in SECTION III – LIMITS OF INSURANCE;
b. We may investigate and settle any claim or “action” at our discretion; and
c. Our right and duty to defend end when we have used up the applicable limit of Insurance in the payment of judgments or settlements under Coverages A, B or D or medical expenses under Coverage C.
2. Exclusions
This insurance does not apply to:
a. “Property damage” expected or intended from the standpoint of the Insured.
b. “Property damage” for which the Insured is obligated to pay by reason of the assumption of liability in a contract or payment. This exclusion does not apply to liability for compensatory damages that the Insured would have in the absence of the contract or agreement.
c. Pollution Liability – See Common Exclusions. d. Nuclear Energy Liability – See Common Exclusions. e. War Risks – See Common Exclusions.
COMMON EXCLUSIONS – COVERAGES A, C AND D This Insurance does not apply to:
1. Pollution Liability
a. “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:
1) At or from premises owned, rented or occupied by an Insured;
2) At or from any site or location used by or for an Insured or others for the handling, storage, disposal, processing or treatment of waste;
3) Which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for an Insured or any person or organization for whom the Insured may be legally responsible; or
4) At or from any site or location on which an Insured or any contractors or subcontrac-tors working directly or indirectly on behalf of an Insured are performing operations: a) If the pollutants are brought on or to the site or location in connection with such
operations; or
b) If the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.
b. Any loss, cost, or expense arising out of any governmental direction or request that an Insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants. “Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Sub-paragraphs 1) and 4)a) of paragraph a. of this exclusion do not apply to “bodily injury” or “property damage” caused by heat, smoke or fumes from a hostile fire. As used in this exclusion, a “hostile fire” means one which becomes uncontrollable or breaks out from where it was intended to be.
2. Nuclear Energy Liability
a. Liability imposed by or arising under the Nuclear Liability Act;
b. “Bodily injury” or “property damage” with respect to which an Insured under this policy is also insured under a contract of nuclear energy liability insurance (whether the Insured is unnamed in such contract and whether or not it is legally enforceable by the Insured) issued by the Nuclear Insurance Association of Canada or any other insurer or group or pool of insurers or would be an Insured under any such policy but for its termination upon exhaustion of its limit of liability;
c. “Bodily injury” or “property damage”
