In Construction Placo inc. c. Kingspan Insulated Panels Ltd., 2021 QCCS 1230, rendered on March 18, 2021, Construction Placo inc. [Placo], as cross-defendant, sought an order from the Court requesting Société d’assurance générale Northbridge [Northbridge] to assume its defence and to pay all costs associated with its defence within the scope of the cross-claim.

In April 2016 within the scope of the construction of the aquatic complex at Havre-Saint-Pierre, Cégerco inc., as general contractor, retained the services of Placo, as subcontractor, for the installation of the exterior cladding. The subcontract awarded to Placo provided that the exterior cladding would be comprised of metallic insulated panels manufactured by Kingspan Insulated Panels Ltd. [Kingspan]. In virtue of the contract, the work had to be carried out between October 15, 2016, and December 15, 2016. According to Cégerco, Placo failed to respect its obligations and failed to follow the schedule, which caused lengthy delays. Given that Placo advised Cégerco that it was not in a position to deliver the panels before January 2017, Cégerco took temporary measures to protect the work including closing the exterior envelope of the building. In January 2017, when the panels were delivered by Placo, Cégerco maintained that the panels delivered did not meet the specified requirements and, consequently, refused them. This led to different steps being taken to try to find a solution to the problem although without success. On May 24, 2017, Cégerco proceeded to the resiliation of Placo’s contract. It obtained the panels directly from Kingspan and hired a third party to finish the work.

Placo instituted legal proceedings against Kingspan to recover the deposit for the manufacturing of the panels and then against Cégerco for damages flowing from the resiliation of the contract. In its defence, Kingspan took a cross-claim for transportation costs. In October 2019, Cégerco also took a cross-claim against Placo requesting $1,783,252 corresponding to the damages allegedly sustained as a result of Placo’s faulty execution, which caused numerous delays and additional costs.

Northbridge concluded that there were no covered material damages within the meaning of the liability policy, given that the allegations were essentially related to the inexecution of contractual obligations or redoing work as well as the delays resulting from same.

The Court’s analysis

The Court analyzed the principles applicable to a Wellington motion and noted that, as a general rule, liability policies provide three cumulative conditions for the insured to benefit from the insurance, namely:

• the occurrence of material or bodily injuries within the meaning of the policy;
• the fact that material damages result from a covered loss;
• the fact that the material damages occur within the period of coverage.

The Court noted that the insured did not benefit from coverage if the claim was solely for costs related to the poor execution of the work whereas no covered loss occurred.

The Court underlined that in order to determine whether Placo benefitted from insurance coverage, it had to assess if, during the period of the policy, the proceedings and the exhibits establish a possibility of an occurrence of material or bodily damages resulting from a loss within the meaning of the policy. In the affirmative, the Court had to address whether the exclusions apply.

To respond to these questions, the Court had to analyze the true recourse of the cross-claims. First, the cross-claim of Kingspan against Placo to recuperate an amount of $25,986.36 for transport fees could not be covered in the absence of material damages and of a covered loss.

With respect to the cross-claim of Cégerco, the Court reviewed the proceedings and noted that Placo had to provide materials and labour for the execution of the subcontract. Cégerco alleged that the exterior wall panels were finally installed one year later than provided for, and that the default and inexecution of Placo caused numerous delays and additional costs to Cégerco. The cross-claim of $1,783,252 was essentially a claim for loss of productivity for which Placo was allegedly responsible.

Were there any material damages?

The Court concluded that the damages claimed were not material damages within the meaning of the policy. There was no deterioration or destruction of a corporal property. The panels were not installed with the exception of a few and could not cause deterioration or destruction. Furthermore, given that the construction was not completed there was no loss of enjoyment which resulted; besides, only the owner of the building could invoke a loss of enjoyment. It is the delays of Placo in its execution of the contract which provoked the claim in compensation from Cégerco. Pure economic damages which flow from inadequate performance of the product of the insured are not a consequence of the loss. They result from normal and foreseeable incidents which could occur in the normal course of the activities of all enterprises.

The Court underlined that this case is distinguished from Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245 in that Placo did not execute the essence of its contract towards Cégerco. The panels were not installed, with the exception of a few and were not the cause of deterioration.

The Court concluded that Northbridge was under no duty to assume Placo’s defence.