Statutory Liability Under New Home Warranty Legislation Triggers Liability Insurance Coverage

In Bridgewood Building Corp. v. Lombard General Insurance Co. and Beige Valley Developments Ltd. v. Lombard General Insurance Co. (Ontario Superior Court of Justice, Justice Elizabeth Stewart, April 1, 2005), a court held for the first time in Canada that statutory liability under new home warranty legislation triggers liability insurance coverage in the absence of a lawsuit for damages.

Bridgewood and Beige Valley were insured under separate CGL policies issued by Lombard General Insurance. Although there was no corporate relationship between Bridgewood and Beige Valley, they were both insured under the same policy form issued by the same insurer. They also happened to build residential homes in the spring and summer of 2002 that incorporated defective concrete supplied by a subcontractor, Dominion Concrete.

A number of builders had used Dominion Concrete to supply concrete for approximately 75 homes in the Toronto area during that time. Many lawsuits have been commenced by the homeowners and builders against Dominion Concrete, other potentially responsible parties, and insurers. The various proceedings involve dozens of lawyers and are being case managed by Master Dash.
In the first of these cases to come to court, Justice Stewart held in favour of Bridgewood and Beige Valley. She noted that even though Bridgewood and Beige Valley were not responsible for the faulty concrete, they quickly repaired the major structural defects in compliance with the Ontario New Home Warranties Plan Act (now known as Tarion Warranty Corp.) at a cost of approximately $2 million. Justice Stewart held that the statutory liability, even in the absence of a lawsuit for damages, constituted a “legal obligation to pay damages” within the meaning of the Commercial General Liability insurance policies. This is the first time in Canada that a court has found coverage for such liability under a CGL policy.

Justice Stewart also held that the contractual liability exclusion did not apply and that there was no breach of the voluntary payments condition. She declared that Lombard was required to indemnify the builders fully for all of the repair costs and expenses of the owners, and ordered the quantum to be fixed at trial.

The judgment is currently under appeal.

Paul Bates and Thomas Donnelly (advocacy) of Cassels Brock & Blackwell LLP acted for the applicants, Bridgewood and Beige Valley. Hillel David and Eleni Maroudas of McCague Peacock Borlack McInnis & Lloyd LLP acted for the respondent, Lombard General. Neil Abbott of Gowling Lafleur Henderson LLP represented the intervener, Tarion Warranty.