The recent case of Surespan Structures Ltd. vs. Lloyds Underwriters presents a cautionary note to subscribers.
Subscribers will want to take into account the principles expressed in this case. Among them, if limits on coverage are contemplated, then clear limits should be expressed for each grant of coverage.
As in statutory interpretation, there is a principle called “failure to follow an express reference pattern”. Once a model is established, such as express reference to limits for other hedging grants, it is assumed that variations are desired. This applies to exclusions as well as to grants of coverage. As noted, these subscription issues are particularly important in manuscript fonts.
What happened to Surespan?
The dispute concerned the interpretation of an insurance policy for a construction project drawn up by a knowledgeable insurer with long experience in such policies. It was decided that one of the coverages, the “Loss Mitigation” cover, contained no limit to that cover. This was so, even though the policy provided for a standard overall limit of $ 10 million for any “claim”, including fees and expenses.
Essentially, the underwriter argued that the insurer did not intend to provide unlimited coverage. But in this case, the specific wording of the policy outweighed the likely intent of the insurance. As usual in such litigation, the devil is in the details, and court decisions have considered those details in a total of 279 paragraphs.
The insured was a design-build contractor specializing in the design, manufacture and erection of precast concrete projects. The litigation involved a parking lot that was part of a larger construction project involving an acute care facility for the Vancouver Health Authority. During the course of the project, defects were discovered in the prefabricated elements of the parking lot and the contractor was required to carry out remediation works to alleviate the delay of the project. In doing so, they incurred more than $ 9.9 million in remediation expenses, as well as financing costs.
The insurance policy in question had been taken out by one of the prime contractors and covered all parties providing professional services. The insurer denied that the contractor was an insured and they had to get a judgment which ruled that they were in fact an insured.
The policy provided for four types of coverage: damage coverage, loss mitigation coverage, defense expense coverage, and supplemental payment coverage. Each type of coverage, except loss mitigation, referenced and applied a liability limit.
The insurer argued that the “preamble to the limit requirement” – insurance is only provided for coverages for which a specific insurance limit is indicated – should be interpreted as limiting the coverage. Taken to its logical conclusion, this argument would mean that there was no cover for loss mitigation. This argument could not be sustained.
The insurer then argued that the language limiting reporting – expressing a limit of $ 10 million for a claim and the set including costs and expenses – should be interpreted as creating a limit for all coverages. However, loss coverage mitigation did not require any claims. The limitation of liability only applied to coverages that were in fact “claims made”.
The insurer also argued that unlimited policies led to commercially unrealistic results which could not have been within the reasonable expectations of the parties and were certainly not the insurer’s intention.
The trial judge suspected that the failure to include limiting language to loss mitigation coverage may well have been the result of an omission on the part of the insurer. However, this was handwritten language that was negotiated individually by the parties.
As stated, the wording of the policy took precedence over the intention of the insurer and that is the law. The insurer may also have erred in adding all design professionals as insured under the policy, but this results from the policy wording chosen by the insurer.
When it came to commercial reality, there were some natural limitations. The underwriter carefully considered the scope and cost of the project. Thus, the underwriter would have experienced the potential worst-case scenario of a complete rebuild. They were aware of the costs of the whole project and of the parking lots. In addition, the trial judge referred to several cases in which insurers issued policies in which there were no limits to certain aspects of coverage, a common example of which is defense costs.
In a unanimous judgment, the British Columbia Court of Appeal ruled in favor of the trial judge on all matters of importance. Coverage was unlimited in the absence of an express limit applicable to such coverage.
In addition, the Court of Appeal upheld the first instance ruling on the special charges against the insurer for improper conduct in the conduct of the litigation, including being generally rowdy and not comply with certain court orders.
Harmon C. Hayden of Harmon Hayden Law is currently Vice Chairman of the International Insurance and Reinsurance and Professional Liability Committees of the International Association of Criminal Defense Lawyers (IADC). He has published extensively and lectured extensively and was an adjunct professor of insurance law in the Law School of Thompson Rivers University. He can be reached at [email protected]