FAULTY
WORKMANSHIP CLAIMS
GENERAL LIABILITY (CGL) POLICY
Robert Emblem
AND
THE
COMMERCIAL
*
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.
Faulty workmanship and the CGL policy
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Faulty workmanship and the CGL policy
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INTRODUCTION
1
Lawyers are often called upon to advise clients whether claims alleging
1
faulty workmanship trigger insurance coverage. 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
2
the intent of the parties from the language used
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. –
6
THE CGL POLICY AND “BUSINESS RISKS”
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
2
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.
(1996), 17 B.C.L.R. (3d) 201, at 206; 34 C.C.L.I. (2d) 294; 73 B.C.A.C. 72; 120 W.A.C. 72 (C.A.).
Faulty workmanship and the CGL policy
4
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
3
that for which the damaged person bargained.
8
In other words, someone providing a service, performing work or manufacturing 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
4
services and it is not a performance bond. 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
5
carrier the cost of redoing the work it ought to have done in the first place.
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
6
faulty workmanship.
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
7
itself, and for which the insured may be found liable.
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
4
5
6
7
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).
Pier Mac Petroleum v. Axa Pacific (1997), 47 C.C.L.I. (2d) 229 (B.C.S.C.), at 237-238.
Quintette Coal Ltd. v. Bow (1987), 21 B.C.L.R. (2d) 203 (S.C.), at 207.
Aetna Cas. & Sur. Co. v. Deluxe Systems, 711 So. 2d 1293 (Fla. App. 4 Dist. 1998), at 1296.
Weedo v. Stone –E-Brick Inc. (1979), 405 A. 2d 788, at 791; 81 N.J. 233 (quoting Henderson, supra,
note 3, at 441).
Faulty workmanship and the CGL policy
5
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. –
13
CGL “PROPERTY DAMAGE” INSURING AGREEMENT
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:
·
“property damage” as defined;
Faulty workmanship and the CGL policy
·
·
·
·
6
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
8
negligence , 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
9
trigger coverage under the CGL policy. 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
10
In Bird Construction Co. v. Allstate Insurance Co. of Canada it 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
11
where there is no “property damage” or “bodily injury” alleged. 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
12
Pacific Ins. Co. 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
9
10
11
12
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).
Blanchard v. Halifax Insurance Co. (1996), 40 C.C.L.I. (2d) 258 (N.B.Q.B.).
[1995] 1 S.C.R. 85.
Bird Construction Co. v. Allstate Insurance Co. of Canada (1996), 36 C.C.L.I. (2d) 29 (Man. C.A.).
(1999), 242 A.R. 45 (Q.B.).
Faulty workmanship and the CGL policy
7
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
13
seeking damages as a result of the impairment of intangible property rights.
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.
34
Contractual Liability
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.).
Faulty workmanship and the CGL policy
8
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 specifications; 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
14
Harbour Machine v. Guardian Insurance , 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
15
In B.P. v. Comco , 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
15
(1985), 10 C.C.L.I. 72 (B.C.C.A.).
(1990), 49 C.C.L.I. 298, 73 O.R. (2d) 317, [1990] I.L.R. ¶1-1261 (H.C.).
Faulty workmanship and the CGL policy
49
50
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”.
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.
51
9
Damage to Ongoing Work
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
(1999), 12 C.C.L.I. 156 (B.C.S.C.).
Faulty workmanship and the CGL policy
10
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
17
Despite some authority to the contrary from the Newfoundland courts ,
the prevailing view appears to be that paragraph h.4) refers to “personal
18
property” in the legal sense. 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
19
an insured to exercise reasonable care of property. In that case, the insured
was sued for damages resulting from the theft of leather which it had received
17
18
19
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.).
See Heather SANDERSON, Robert EMBLEM and Lyle WOODLEY, Commercial General Liability
Insurance (Toronto and Vancouver: Butterworths, 2000) at p. 161.
Harrison v. Cuirs Sal-Tan Inc., [2000] J.Q. no. 1640 JEL/2000-1558, No. 500-05-005473-911 (under
appeal).
Faulty workmanship and the CGL policy
11
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 replacement, 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,
20
material, construction or design.
20
See Heather SANDERSON, Robert EMBLEM, Lyle WOODLEY, Commercial General Insurance
Liability, (Toronto and Vancouver: Butterworths 2000) at page 163.
Faulty workmanship and the CGL policy
12
85
It has been frequently argued that the exception to this exclusion (i.e.
“damage resulting from such faulty or defective workmanship, material, construction 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
21
at the scope of the faulty workmanship exclusion in Builder’s Risk policies.
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
22
in fact being worked on at the time.
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
23
phrase “that particular part of real property” on which the insured was working.
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
22
23
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.
William Crawford, Inc. v. Travelers Ins. Co., 838 F. Supp. 157 (S.D.N.Y. 1993).
Alverson v. Northwestern Nat. Cas. Co., 559 N.W. 2d 234 (S.D. 1997).
Faulty workmanship and the CGL policy
13
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
24
provided by Economy Lumber Co. v. Ins. Co. of North America. 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
25
Company , 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 exclusions 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 workmanship. 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.
93
Your Products
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
25
204 Cal. Rptr. 135 (Ct. App. 1984)
[1998] I.L.R. ¶1-3546 (Man. Q.B.)
Faulty workmanship and the CGL policy
14
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,
26
Privest Properties Ltd. v. Foundation Co. of Canada ).
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
27
damage is the result of the latter’s faulty workmanship. 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
28
faulty workmanship is not excluded.
106
107
The following illustration may help:
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
27
28
(1991), 57 B.C.L.R. (2d) 88, [1991] I.L.R. ¶1-2731, 6 C.C.L.I. (2d) 23 (S.C.).
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).
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. ¶12644 (S.C.).
Faulty workmanship and the CGL policy
15
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 subcontractor.
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
29
performed” exclusion. 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
30
arising out of the insured’s faulty workmanship. 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
31
be withdrawn from coverage by the “work performed” exclusion.
115
Another issue that often arises is whether the work has been completed.
32
In Conacher Construction Limited v. The Canadian Surety Co. , 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
30
31
32
Collett v. Insurance Co. of the West, 75 Cal. Rptr. 2d 165 (Cal. App. 4 Dist. 1998).
See, for example, Ultramar Can. v. Demik Construction (1987), 27 C.C.L.I. 161 (Ont. H.C.).
See, for example, Jacob v. Russo Builders, 592 N.W. 2d 271 (Wis. App. 1999).
(1964), 47 D.L.R. 237 (Alta. C.A.).
Faulty workmanship and the CGL policy
16
“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)
33
Limited , 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 replacement, 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
34
performed” exclusions.
33
34
[1972] S.C.R. 175.
Privest Properties Ltd. v. Foundation Co. of Canada (1991), 57 B.C.L.R. (2D) 88, [1991] I.L.R. ¶12737, 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.).
Faulty workmanship and the CGL policy
125
Another question which has arisen is whether costs incurred in investigating 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
35
withdrawn from coverage by the “products” or “work performed” exclusions.
E.
126
17
Impaired Property
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
Faulty workmanship and the CGL policy
18
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.
141
37
A similar result was reached in Carwald Concrete v. Gen. Security 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.
Assuming that the property can be restored to use, the exclusion withdraws 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
38
leading case in Canada on this exclusion is BP v. Comco. 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
39
“performance” exclusion. 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
37
38
39
[2000] O.J. No. 1360 (Q.L.) (Sup. Ct.) (under appeal).
(1986), 17 C.C.L.I. 241 (Alta. C.A.).
(1990), 49 C.C.L.I. 298, 73 O.R. (2d) 317, [1990] I.L.R. ¶1-2621 (H.C.).
Modern Agro v. Wellington Inc. (1986), 21 C.C.L.I. 143 (Ont. H.C.)
Faulty workmanship and the CGL policy
F.
144
19
Sistership
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
40
one of its aircraft was found to be defective. 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
41
for costs to prevent the failure of the insured’s products. 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
42
exclusion did not apply to the resulting liability.
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
41
42
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).
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.).
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.).
Faulty workmanship and the CGL policy
20
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 incorporated 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.
Faulty workmanship and the CGL policy
21
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:
Medical Expense Limit:
4. Form of Business
Individual q
Joint Venture q
Partnership q
Organization q
$
$
$
$
$
(Any one premises)
(Any one person)
(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
__________________
8. Minimum Premium: $____________
Rate
___________
Advance Premium
_______________
TOTAL PREMIUM: $_____________
9. Endorsements Attached to this Policy:
COUNTERSIGNED BY:
(Date)
(Authorized Representative)
(Insured’s Signature)
Faulty workmanship and the CGL policy
22
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 compensatory 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:
1) Whether the Insured may be liable as an employer or in any other capacity; and
Faulty workmanship and the CGL policy
23
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;
3) Property loaned to you;
Faulty workmanship and the CGL policy
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j.
k.
l.
m.
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4) Personal property in your care, custody or control;
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
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”.
“Property damage” to “your product” arising out of it or any part of it.
“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.
“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.
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.
Pollution Liability – See Common Exclusions.
Nuclear Liability – See Common Exclusions.
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 compensatory 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;
2. We may investigate and settle any claim or “action” at our discretion; and
Faulty workmanship and the CGL policy
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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
occupies.
Faulty workmanship and the CGL policy
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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
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4) At or from any site or location on which an Insured or any contractors or subcontractors 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” resulting directly or indirectly from the nuclear hazard
arising from:
1) the ownership, maintenance, operation or use of a nuclear facility by or on behalf of
an Insured;
2) the furnishing by an Insured of services, materials, parts or equipment in connection
with the planning, construction, maintenance, operation or use of any nuclear facility;
3) The possession, consumption, use, handling, disposal or transportation of fissionable
substances, or of other radioactive material (except radioactive isotopes, away from a
nuclear facility, which have reached the final stage of fabrication so as to be useable
for any scientific, medical, agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
As used in this policy:
1) The term “nuclear energy hazard” means the radioactive, toxic, explosive, or other
hazardous properties of radioactive material;
2) The term “radioactive material” means uranium, thorium, plutonium, neptunium, their
respective derivatives and compounds, radioactive isotopes of other elements and
any other substances that the Atomic Energy Control Board may, by regulation,
designate as being prescribed substances capable of releasing atomic energy, or as
being requisite for the production, use or application of atomic energy;
3) The term “nuclear facility” means:
a) Any apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction or to contain a critical mass of plutonium, thorium and uranium or
any one or more of them;
b) any equipment or device designed or used for (i) separating the isotopes of
plutonium, thorium and uranium or any one or more of them, (ii) processing or
utilizing spent fuel, or (iii) handling, processing or packaging waste;
Faulty workmanship and the CGL policy
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c) any equipment or device used for the processing, fabricating or alloying of
plutonium, thorium or uranium enriched in the isotope uranium 233 or in the
isotope uranium 235, or any one or more of them if at any time the total amount
of such material in the custody of the Insured at the premises where such
equipment or device is located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more than 250 grams of
uranium 235;
d) any structure, basin, excavation, premises or place prepared or used for the
storage or disposal of waste radioactive material;
and includes the site on which any of the foregoing is located, together with all
operations conducted thereon and all premises used for such operations.
4) The term “fissionable substance” means any prescribed substance that is, or from
which can be obtained, a substance capable of releasing atomic energy by nuclear
fission.
3. War Risks
“Bodily injury” or “property damage” due to war, invasion, act of foreign enemy, hostilities
(whether war be declared or not), civil war, rebellion, revolution, insurrection or military
power.
SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D
We will pay, with respect to any claim or “action” we defend:
a. All expenses we incur.
b. The cost of bonds to release attachments, but only for bond amounts within the applicable
limit of insurance. We do not have to furnish these bonds.
c. All reasonable expenses incurred by the Insured at our request to assist us in the
investigation or defence of the claim or “action”, including actual loss of earnings up to
$100 a day because of time off from work.
d. All costs taxed against the Insured in the “action” and any interest accruing after entry of
judgment upon that part of the judgment which is within the applicable limit of insurance.
These payments will not reduce the limits of insurance.
SECTION II – WHO IS AN INSURED
1. If you are designated in the Declarations as:
a. An individual, you and your spouse are insureds, but only with respect to the conduct of a
business of which you are the sole owner;
b. A partnership or joint venture, you are an Insured. Your members, your partners, and their
spouses are also insureds, but only with respect to the conduct of your business;
c. An organization other than a partnership or joint venture, your are an insured. Your
executive officers and directors are insureds, but only with respect to their duties as your
officers or directors. Your stockholders are also insureds, but only with respect to their
liability as stockholders.
2. Each of the following is also an insured:
a. Your employees, other than your executive officers, but only for acts within the scope of
their employment by you. However, none of these employees is an insured for:
1) “Bodily injury” or “personal injury” to you or to a co-employee while in the course of
his or her employment; or
2) “Bodily injury” or “personal injury” to any person who at the time of injury is entitled to
benefits under any workers compensation or disability benefits law or a similar law; or
Faulty workmanship and the CGL policy
29
3) “Bodily injury” or “personal injury” arising out of his or her providing or failing to
provide professional health care services; or
4) “Property damage” to property owned or occupied by or rented or loaned to that
employee, any of your other employees, or any of your partners or members (if you
are a partnership or joint venture).
b. Any person (other than your employee), or any organization while acting as your real
estate manager.
c. Any person or organization having proper temporary custody of your property if you die,
but only:
1) With respect to liability arising out of the maintenance or use of that property; and
2) Until your legal representative has been appointed.
d. Your legal representative if you die, but only with respect to duties as such. That
representative will have all your rights and duties under this policy.
3. Any organization you newly acquire or form, other than a partnership or joint venture, and over
which you maintain ownership or majority interest, will be deemed to be a Named Insured if
there is no other similar insurance available to that organization. However:
a. Coverage under this provision if afforded only until the 90th day after you acquire or form
the organization or the end of the policy period, whichever is earlier;
b. Coverages A and D do not apply to “bodily injury” or “property damage” that occurred
before you acquired or formed the organization; and
c. Coverage B does not apply to “personal injury” arising out of an offense committed before
you acquired or formed the organization.
No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown as a Named Insured in the Declarations.
SECTION III – LIMITS OF INSURANCE
1. The limits of insurance stated in the Declarations and the rules below fix the most we will pay
regardless of the number of:
a. Insureds;
b. Claims made or “actions” brought; or
c. Persons or organizations making claims or bringing “actions”.
2. The Aggregate Limit is the most we will pay for the sum of:
a. Medical expenses under Coverage C; and
b. Compensatory damages under Coverage A, Coverage B, and Coverage D.
3. Subject to 2. above, the Each Occurrence Limit is the most we will pay for the sum of:
a. Compensatory damages under Coverage A and Coverage D; and
b. Medical expenses under Coverage C:
because of all “bodily injury” and “property damage” arising out of any one “occurrence”.
4. Subject to 2. above, the Personal Injury Limit is the most we will pay under Coverage B for the
sum of all compensatory damages because of all “personal injury” sustained by any one
person or organization.
5. Subject to 3. above, the Tenants’ Legal Liability Limit is the most we will pay under Coverage
D for compensatory damages because of “property damage” to any one premises.
6. Subject to 3. above, the Medical Expense Limit is the most we will pay under Coverage C for
all medical expenses of “bodily injury” sustained by any one person.
The limits of this policy apply separately to each consecutive annual period and to any remaining
period of less than 12 months, starting with the beginning of the policy period shown in the
Declarations, unless the policy period is extended after issuance for an additional period of less
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30
than 12 months. In that case, the additional period will be deemed part of the last preceding period
for purposes of determining the Limits of Insurance.
SECTION IV – COMMERCIAL GENERAL LIABILITY CONDITIONS
1. Bankruptcy.
Bankruptcy or insolvency of the Insured or of the Insured’s estate will not relieve us of our
obligations under this policy.
2. Canadian Currency Clause.
All limits of insurance, premiums and other amounts as expressed in this policy are in
Canadian currency.
3. Cancellation.
a. The first Named Insured shown in the Declarations may cancel this policy by mailing or
delivering to us advance written notice of cancellation.
b. We may cancel this policy by mailing or delivering to the first Named Insured written
notice of cancellation at least:
1) 15 days before the effective date of cancellation if we cancel for nonpayment of
premium; or
2) 30 days before the effective date of cancellation if we cancel for any other reason.
Except in Quebec, if notice is mailed, cancellation takes effect 15 or 30 days after receipt
of the letter by the post office to which it is addressed, depending upon the reason for
cancellation. Proof of mailing will be sufficient proof of notice.
In Quebec, cancellation takes effect either 15 or 30 days after receipt of the notice at the
last known address of the first Named Insured, depending upon the reason for
cancellation.
c. We will mail or deliver our notice to the first Named Insured’s last mailing address known
to us.
d. The policy period will end on the date cancellation takes effect.
e. If this policy is cancelled, we will send the first Named Insured any premium refund due. If
we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may
be less than pro rata. The cancellation will be effective even if we have not made or
offered a refund.
4. Changes.
This policy contains all the agreements between you and us concerning the insurance
afforded. The first Named Insured shown in the Declarations is authorized to make changes in
the terms of this policy with our consent. The policy’s terms can be amended or waived only by
endorsement issued by us and made a part of this policy.
5. Duties in the Event of Occurrence, Claim or Action.
a. You must see to it that we are notified promptly of an “occurrence” which may result in a
claim. Notice should include:
1) How, when and where the “occurrence” took place; and
2) The names and addresses of any injured persons and of witnesses.
b. If a claim is made or “action” is brought against any insured, you must see to it that we
receive prompt written notice of the claim or “action”.
c. You and any other involved Insured must:
1) Immediately send us copies of any demands, notices, summonses or legal papers
received in connection with the claim or “action”;
2) Authorize us to obtain records and other information;
Faulty workmanship and the CGL policy
6.
7.
8.
9.
31
3) Cooperate with us in the investigation, settlement or defence of the claim or “action”;
and
4) Assist us, upon our request, in the enforcement of any right against any person or
organization which may be liable to the Insured because of injury or damage to which
this insurance may also apply.
d. No Insured will, except at their own cost, voluntarily make a payment, assume any
obligation, or incur any expense, other than for first aid, without our consent.
Examination of Your Books and Records.
We may examine and audit your books and records as they relate to this policy at any time
during the policy period and up to three years afterward.
Inspection and Surveys.
We have the right but are not obligated to:
a. Make inspections and surveys at any time;
b. Give you reports on the conditions we find; and
c. Recommend any changes.
Any inspections, surveys, reports or recommendations relate only to insurability and the
premiums to be charged. We do not make safety inspections. We do not undertake to perform
the duty of any person or organization to provide for the health or safety of workers or the
public. And we do not warrant that conditions:
a. Are safe or healthful; or
b. Comply with laws, regulations, codes or standards.
This condition applies not only to us, but also to any rating, advisory, rate service or similar
organization which makes insurance inspections, surveys, reports or recommendations.
Legal Action Against Us.
No person or organization has a right under this policy:
a. To join us as a party or otherwise bring us into an “action” asking for compensatory
damages from an Insured; or
b. To sue us on this policy unless all of its terms have been fully complied with.
A person or organization may sue us to recover on an agreed settlement or on a final
judgment against an Insured obtained after an actual trial; but we will not be liable for
compensatory damages that are not payable under the terms of this policy or that are in
excess of the applicable limit of insurance. An agreed settlement means a settlement and
release of liability signed by us, the Insured and the claimant or the claimant’s legal
representative. Every “action or proceeding against us shall be commenced within one year
next after the date of such judgment or agreed settlement and not afterwards. If this policy is
governed by the law of Quebec every action or proceeding against us shall be commenced
within three years from the time of right of action arises.
Other Insurance.
If other valid and collectible insurance is available to the Insured for a loss we cover under
Coverages A, B or D of this policy our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when b. below applies. If this insurance is primary, our
obligations are not affected unless any of the other insurance is also primary. Then, we
will share with all that other insurance by the method described in c. below.
b. Excess Insurance
This insurance is excess over any of the other insurance, whether primary, excess,
contingent or on any other basis:
Faulty workmanship and the CGL policy
10.
11.
12.
13.
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1) That is Property Insurance such as, but not limited to, Fire, Extended Coverage,
Builder’s Risk, Installation Risk or similar coverage for “your work” or for premises
rented to you; or
2) If the loss arises out of the maintenance or use of watercraft to the extent not subject
to Exclusion f. of Coverage A (Section 1).
When this insurance is excess, we will have no duty under Coverage A, B or D to defend
any claim or “action” that any other insurer has a duty to defend. If not other insurer
defends, we will undertake to do so, but we will be entitled to all the Insured’s rights
against all those other insurers.
When this insurance is excess over other insurance, we will pay only our share of the
amount of the loss, if any, that exceeds the sum of:
1) The total amount that all such other insurance would pay for the loss in the absence
of this insurance; and
2) The total of all deductible and self-insured amounts under all that other insurance.
We will share the remaining loss, if any, with any other insurance that is not described in
this Excess Insurance provision and was not bought specifically to apply in excess of the
Limits of Insurance shown in the Declarations of this policy.
c. Method of Sharing.
If all of the other insurance permits contribution by equal shares, we will follow this
method also. Under this approach each insurer contributes equal amounts until it has paid
its applicable limit of insurance or none of the loss remains, whichever comes first.
If any of the other insurance does not permit contribution by equal shares, we will
contribute by limits. Under this method, each insurer’s shares is based on the ratio of its
applicable limit of insurance to the total applicable limits of insurance of all insurers.
Premium Audit.
a. We will compute all premiums for this policy in accordance with our rules and rates.
b. Premium shown in this policy as advance premium is a deposit premium only. At the close
of each audit period we will compute the earned premium for that period. Audit premiums
are due and payable on notice to the first Named Insured. If the sum of the advance and
audit premiums paid for the policy term is greater than the earned premium, we will return
the excess to the first Named Insured subject to the retention of the minimum premium
shown in the Declarations of this policy.
c. The first Named Insured must keep records of the information we need for premium
computation, and send us copies at such times as we may request.
Premiums.
The first Named Insured shown in the Declarations:
a. Is responsible for the payment of all premiums; and
b. Will be the payee for any return premiums we pay.
Representations.
By accepting this policy, you agree:
a. The statements in the Declarations are accurate and complete;
b. Those statements are based upon representations you made to us; and
c. We have issued this policy in reliance upon your representations.
Separation of Insureds, Cross Liability.
Except with respect to the Limits of Insurance, and any rights or duties specifically assigned to
the first Named Insured, this insurance applies:
a. As of each Named Insured were the only Named Insured; and
b. Separately to each insured against whom claim is made or “action” is brought.
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14. Transfer of Rights of Recovery Against Others to Us.
If the Insured has rights to recover all or part of any payment we have made under this policy,
those rights are transferred to us. The Insured must do nothing after loss to impair them. At
our request, the Insured will bring “action” or transfer those rights to us and help us enforce
them.
15. Transfer of your Rights and Duties Under this Policy.
Your rights and duties under this policy many not be transferred without our written consent
except in the case of death of an individual Named Insured.
If you die, your rights and duties will be transferred to your legal representative buy only while
acting within the scope of duties as your legal representative. Until your legal representative is
appointed, anyone having proper temporary custody of your property will have your rights and
duties buy only with respect to that property.
SECTION V – DEFINITIONS
1. “Action” means a civil proceeding in which compensatory damages because of “bodily injury”,
“property damage” or “personal injury” to which this insurance applies are alleged. “Action”
includes an arbitration proceeding alleging such damages to which you must submit or submit
with our consent.
2. “Automobile” means any self-propelled land motor vehicle, trailer or semi-trailer (including
machinery, apparatus, or equipment attached thereto) which is principally designed and is
being used for transportation of persons or property on public roads.
3. “Bodily injury” means bodily injury, sickness or disease sustained by a person, including death
resulting from any of these at any time.
4. “Coverage territory” means:
a. Canada and the United States of America (including its territories and possessions);
b. International wasters or airspace, provided the injury or damage does not occur in the
course of travel or transportation to or from any place not included in a. above; or
c. All parts of the world if:
1) The injury or damage arises out of:
a) Goods or products made or sold by you in the territory described in a. above; or
b) The activities of a person whose home is in the territory described in a. above,
but is away for a short time on your business; and
2) The Insured’s responsibility to pay compensatory damages is determined in an
“action” on the merits, in the territory described in a. above or in a settlement we
agree to in writing.
5. “Impaired property” means tangible property, other than “your product” or “your work”, that
cannot be used or is less useful because:
a. It incorporates “your product” or “your work” that is known or thought to be defective,
deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment or removal of “your product” or “your work”; or
b. Your fulfilling the terms of the contract or agreement.
6. “Insured contract” means:
a. A lease of premises;
b. A sidetrack agreement;
c. An easement or license agreement in connection with vehicle or pedestrian private
railroad crossings at grade;
Faulty workmanship and the CGL policy
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d. Any other easement agreement;
e. An indemnification of a municipality as required by ordinance, except in connection with
work for a municipality;
f. An elevator maintenance agreement;
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 liability that
would be imposed by law in the absence of any contract or agreement;
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:
1) Preparing, approving or failing to prepare or approve maps, drawings, opinions,
reports, surveys, change orders, designs or specifications; or
2) Giving directions or instructions, or failing to give them, if that is the primary cause of
the injury or damage;
7. “Occurrence” means an accident, including continuous or repeated exposure to substantially
the same general harmful conditions.
8. “Personal injury” means injury, other than “bodily injury”, arising out of one or more of the
following offences:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. Wrongful entry into, or eviction of a person from a room, dwelling or premises that the
person occupies;
d. Oral or written publication of material that slanders or libels a person or organization or
disparages a person’s or organization’s goods, products or services; or
e. Oral or written publication of material that violates a person’s right or privacy.
9. a. “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:
1) Products that are still in your physical possession; or
2) Work that has not yet been completed or abandoned.
b. “Your work” will be deemed completed at the earliest of the following times:
1) When all of the work called for in your contract has been completed;
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;
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.
Work that may need service, maintenance, correction, repair or replacement, but which is
otherwise complete, will be treated as completed.
c. This hazard does not include “bodily injury” or “property damage” arising out of the
existence of tools, uninstalled equipment or abandoned or unused materials.
10. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property;
or
b. Loss of use of tangible property that is not physically injured.
11. “Your product” means:
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a. Any goods or products, other than real property, manufactured, sold, handled,
distributed or disposed by:
1) You;
2) Others trading under your name; or
3) A person or organization whose business or assets you have acquired; and
b. Containers (other than vehicles), materials, parts or equipment furnished in
connection with such goods or products.
“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.
“Your product” does not include vending machines or other property rented to or located
for the use of others but not sold.
12. “Your work” means:
a. Work or operations performed by you or on your behalf; and
b. Materials, parts or equipment furnished in connection with such work or operations.
“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.
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