Contracts provide an ideal opportunity for the efficient allocation of risk, and insurance clauses can cover much of this ground, often with no concessions from your client. This opportunity can be lost when the clause does not really fit the particular transaction, or where the coverage is not available when later required. Even a carefully drafted clause may be worthless, if the parties do not turn their minds to how it will apply to the specific circumstances and avoid some common traps, as discussed below. For a more thorough discussion, please sign up for our upcoming CBA webinar "Negotiating and Drafting Effective Risk Allocation: Integrated Liability and Insurance Clauses" (Fall 2015).
B.C. Supreme Court Finds Workmanship/Design Exclusion Does Not Exclude Costs To Remedy Damage Caused By Defective Workmanship
The British Columbia Supreme Court recently released its decision in Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, which considered for the first time in Canada the LEG 2/96 clause, a workmanship/design exclusion clause. The Court also re-affirmed a number of insurance interpretation principles, particularly in relation to Course of Construction (COC) policies, including the definition of "damage to insured property" and whether a loss must be fortuitous in order to trigger coverage
The Ontario Court of Appeal recently held that a broad contributing cause exclusion does not apply simply because an excluded peril was included in the chain of causation. In O'Byrne v. Farmers' Mutual Insurance Co., negligence of the insured's tenant set in motion a chain of events ultimately leading to an oil spill after a furnace broke down. The "all risks" policy included an exclusion for "loss or damage directly or indirectly caused by, resulting from, contributed to or aggravated by: ...e) centrifugal force, mechanical or electrical breakdown or derangement..." The insurer argued that since the furnace broke down, the loss was due to multiple causes including "mechanical derangement" of the furnace. The Court disagreed and looked at the evidence to determine the real cause of the loss.