2004 SKQB 19 Q.B.G. A.D. 2003 No. 2102 J.C. R. IN THE QUEEN’S BENCH JUDICIAL CENTRE OF REGINA BETWEEN: WESTRIDGE CONSTRUCTION LTD. and ZURICH INSURANCE COMPANY and SOVEREIGN GENERAL INSURANCE COMPANY RESPONDENTS Gary G. W. Semenchuck, Q.C. for the applicant Richard W. Danyliuk for Zurich Insurance Company C. Dean Clackson for Sovereign General Insurance Company JUDGMENT McLELLAN J. January 23, 2004 [1] The applicant (“Westridge”) applies by originating motion for a declaration that the respondents (“Zurich” and “Sovereign”) are obligated to pay a proportionate share of defence costs to defend a claim brought against Westridge and others by Genex Swine Group Inc. (the “underlying action”). [2] In the action Genex claims damages from Westridge with respect to the construction of hog barn to house genetic nucleus herd of swine near Balcarres Saskatchewan (the “hog barn”). Westridge was the general contractor. [3] Each of the respondents issued comprehensive general liability policies in favour of Westridge. The respondents take the position that under the policies they issued they are not obligated to defend (and to pay defence costs) for the claims brought against Westridge in the underlying action. [4] The law is well established that the pleadings determine whether or not the respondents have duty to defend. It matters not whether Genex may or may not succeed in the action. If the claim alleges state of facts which, if proven, would fall within the coverages provided for under the policy, the obligation of the insurer to defend is triggered, regardless of the truth or falsity of those allegations. This principle was reiterated by the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 (CanLII); [2001] S.C.R. 699 at para. 28, in the following terms: 28 The starting premise for assessing whether an insurer’s duty to defend has been triggered rests in the traditional “pleadings rule”. Whether an insurer is bound to defend particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of statement of claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide defence. This remains so even though the actual facts may differ from the allegations pleaded. The “pleadings rule” was articulated by the British Columbia Supreme Court in Bacon v. McBride (1984), 1984 CanLII 692 (BC SC), C.C.L.I. 146, where Wallace J. stated, at p. 151: The pleadings govern the duty to defend—not the insurer’s view of the validity or nature of the claim or by the possible outcome of the litigation. If the claim alleges state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation. [5] The onus of establishing that the terms of the policy obligate the insurer to defend rests with the applicant. If the applicant satisfies that onus then the onus shifts to the insurer to establish that the claim is not covered by reason of an exclusion under the policy. [6] This principle was summarized by the Ontario Court of Appeal in Alie v. Bertrand Frère Construction Co. (2002), 2002 CanLII 31835 (ON CA), 222 D.L.R. (4th) 687; (2002), 62 O.R. (3d) 345 at para. 22, as follows: [22] The trial judge correctly noted that there is two‑step process in the interpretation of an insurance policy. First, it is for the insured to demonstrate that the claim advanced comes within the insuring agreement. If the insured satisfies this burden, then it is for the insurer to establish that claim that would otherwise be covered is excluded by some term in the policy. [7] The relevant portions of the statement of claim setting forth the claim made by Genex against Westridge are the following: 27. It was expressly indicated on the instructions to tenderers, inter alia, that: (a) the project was for the construction of the “Tullymet Nucleus Unit”, which would have been known and understood to be barn for the housing of swine.... 28. On November 26, 1993, Westridge delivered its tender for the construction of the Tullymet Nucleus Unit, in accordance with the Invitation to Tender and the Specifications, by which it offered to furnish all material, plant and labour necessary for the proper completion of the Tullymet Nucleus Unit. 29. By letter dated December 2, 1993, Westridge provided to Genex list of modifications that it represented could be implemented by Genex in order to achieve cost savings. Among the modifications was proposal by Westridge to delete the Painted Sheet Steel Roof and use and substitute instead “Galvalume” steel cladding (the “Galvalume alternate”). 30. Westridge represented to Genex, expressly or by implication, that: (a) it had carefully examined all of the tender documents, including the tendering and contract requirements, the formal agreement, the general conditions of the contract, the general requirements, specifications, drawings and addenda; (b) it had the qualifications, expertise and ability to furnish all material, plans and labour necessary for the proper completion of the entire work as described in the tender and contract documents; (c) it had the qualifications and expertise to recommend the use of alternative products and construction methods; (d) the use of alternative products and construction methods, would not compromise the performance or longevity of the Tullymet Nucleus Unit unless expressly identified, and in particular that the use of the Galvalume alternate, would not compromise the performance or longevity of the building, or the building’s roof; (e) it could and would bring to bear due and proper expertise, skill, care and diligence in respect of all aspects of the construction of the Tullymet Nucleus Unit undertaken by it; and (f) if retained by Genex, it could and would carry out all aspects of the work in respect of the construction of the Tullymet Nucleus Unit with the result that the Tullymet Nucleus Unit would be fit and sufficient for the purpose for which it was intended and be of good material, design and workmanship and free of defects and be of reasonable durability having regard to similar structures built for similar purposes. 31. Both BBK and UMA were aware of the terms of the Westridge Tender, and the proposal by Westridge to use the Galvalume alternate. 32. In reliance upon the representations of Westridge referred to in paragraph 30, and the purported expertise of BBK, UMA and Westridge, Genex entered into contract with Westridge, made as of January 7, 1994, for Westridge to build the Tullymet Nucleus Unit (the “Westridge Contract”), which contract also included the Galvalume alternate. 33. Among the express terms of the Westridge Contract were the following: (a) Westridge would perform all work required by the contract documents (which include, inter alia, the tender documents, including the Specifications and Conditions of Contract); (b) Westridge would furnish all material, plant and labour necessary for the proper completion of the entire Tullymet Nucleus Unit; (c) Westridge would correct promptly, at its own expense, defects or deficiencies in its work which appear prior to and during the period of one year from the date of substantial performance of the work; (d) Westridge would review the contract documents and promptly report to Genex’s consultant any error, inconsistency or omission it may discover and not proceed with the work affected until it had received corrected or missing information from the consultant; (e) defective material and workmanship whenever found would be rejected regardless whether the defect was present but undetected during previous inspections; (f) defective material and workmanship would be removed and replaced by Westridge at its own expense; (g) work of Westridge and all subcontractors would be fabricated and installed in accordance with the best practice by craftsmen skilled in the work; (h) unless otherwise specified, the manufacturers latest printed instructions would be rigidly complied with in the methods and materials to be used in the installation of the work; and (i) Genex was to be notified in writing if the Specifications and/or any drawings conflict in any way with any manufacturers instructions. 34. It was further express term of the Contract that the duties and obligations imposed on Westridge by the Contract Documents and the rights and remedies available thereunder shall be in addition to and not limitation of any duties, obligations, rights and remedies otherwise imposed or available by law. 35. In all of the circumstances, including those referred to above, Westridge, and its servants, agents and employees owed to Genex, inter alia: (a) duty of care, skill and diligence in respect of the construction of the Tullymet Nucleus Unit; (b) duty to warn Genex of any aspect of the Specifications, or change thereto, that would or might affect the use, maintenance, durability and/or longevity of the Tullymet Nucleus Unit; and (c) duty to make recommendations and to provide advice with respect to the Tullymet Nucleus Unit generally. ... The Completion of the Tullymet Nucleus Unit 39. The Tullymet Nucleus Unit was constructed at its intended location, near Balcarres, Saskatchewan, beginning in or about January, with “Galvalume” as the roof cladding material and using Foil Backed Insulation and the Heat Recovery System, in accordance with the Specifications. 40. Substantial Performance of the Westridge Contract was achieved on or about October 5, 1994. The Problems with the Tullymet Nucleus Unit Roof and the Breaches of Duties 41. Unknown to Genex at the time that it awarded the Westridge Contract, and allowed the construction of the Tullymet Nucleus Unit to proceed: (a) the Galvalume alternate was unsuitable for use in swine barn and its use would materially affect the maintenance, durability and longevity of the roof of the Tullymet Nucleus Unit and the use of the barn itself; (b) manufacturers of Galvalume had issued instructions with respect to the use of Galvalume which included warnings against the use of Galvalume in swine building applications; (c) the use of the Heat Recovery System as specified by UMA was unsuitable for use in swine building applications; and (d) the use of Foil Backed Insulation was unsuitable for swine building applications. 42. At no point in time did any of the Defendants warn Genex with respect to the matters referred to in paragraph 41 above, or that constructing the Tullymet Nucleus Unit in accordance with the Specifications, including with the Galvalume alternate, the Heat Recovery System and Foil Backed Insulation, would or might affect the use, maintenance, durability and/or longevity of the Tullymet Nucleus Unit and its roof. 43. Subsequent to the completion of the Tullymet Nucleus Unit, Genex discovered that the roof at the Tullymet Nucleus Unit was experiencing rusting. By May, 2001, severe corrosion had developed to the extent that the roof of the Tullymet Nucleus Unit had become perforated in areas, in the absence of intervention, extensive and catastrophic failure of the roof cladding system was to be expected within three to five years. 44. Each of BBK, UMA, Westridge, Van Alstine and Robertson were negligent and breached the contractual and other duties owed by them to Genex, particulars of which breaches include, inter alia, the following: ... (c) on the part of Westridge, it: (i) lacked the expertise and knowledge of, alternatively failed to apply the expertise and knowledge that it did have relating to: A. the limits and correct use and application of the material proposed by it to be used in the construction of the roof of the Tullymet Nucleus Unit, and in particular the Galvalume alternate; B. the limits and correct use and application of Foil Backed Insulation systems; (ii) failed to properly research the appropriateness of the material proposed by it to be used in the construction of the roof of the Tullymet Nucleus Unit, and in particular the Galvalume alternate; (iii) failed to warn Genex that the material proposed by it to be used in the construction of the roof of the Tullymet Nucleus Unit, and in particular the Galvalume alternate, was not recommended for use in swine building, and/or was not reasonably fit for use in swine building or that such use would or could affect the use, maintenance, durability and longevity of the Tullymet Nucleus Unit; (iv) failed to warn Genex that the proposed Foil Backed Insulation was not suitable for use in and was not reasonably fit for use in swine building or that such use would or could affect the use, maintenance, durability and longevity of the Tullymet Nucleus Unit; (v) failed to correct promptly, at its own expense, defects or deficiencies in its work which appeared prior to and during the date of substantial performance of the work; (vi) failed to review the contract documents and failed to promptly report to Genex’s consultant errors, inconsistencies or omissions it discovered or should have discovered if in fact it had reviewed the said contract documents; (vii) failed to reject defective or unsuitable material; (viii) failed to remove and replace defective or unsuitable material and workmanship at its own expense; (ix) failed to fabricate and install its work (and/or that of its subcontractors) in accordance with the best practice by craftsmen skilled in the work; (x) failed to comply rigidly with the manufacturers latest printed instructions in the methods and materials to be used in the installation of the work; and/or (xi) failed to notify Genex in writing that the specifications, as modified by its tender (and in particular, the use of the Galvalume alternate), conflicted manufacturers’ instructions. [Emphasis added] [8] The policies provide Westridge with the following coverage. Zurich Policy [9] The pertinent provisions of the police issued by Zurich are as follows: SECTION I—COVERAGES COVERAGE A. ... 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, 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”.... 1) The amount we will pay for compensatory damages is limited as described in SECTION III—LIMITS OF INSURANCE; Exclusions This insurance does not apply to: b. “Bodily injury” or “property damage” for which the insured is obligated to pay compensatory damages by reason of the assumption of liability in contract or agreement. This exclusion does not apply to liability for compensatory damages: 1) Assumed in contract or agreement that is an “insured contract”; or 2) That the insured would have in the absence of the contract or agreement. h. “Property damage” to: 6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it. i. “Property damage” to “your product” arising out of it or any part of it. ... SECTION V—DEFINITIONS 8. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. 10. “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. 11. “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. 12. “Your product” means: a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by: 1) You; 2) Others trading under your name; or 3) person or organization whose business or assets you have acquired .... 13. “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. [Emphasis added] The Soverign Policy [10] The pertinent provisions of the policy issued by Sovereign are as follows: 1. INSURING AGREEMENT To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay by reason of the liability imposed by law upon the Insured or assumed by the Insured under contract (as defined herein) for damages because of: (a) bodily injury (as defined herein) sustained by any person or persons; (b) person injury (as defined herein); (c) property damage which shall mean: (i) physical injury to or destruction of tangible property, caused by an accident or occurrence during The Policy Period including the loss of use thereof at any time resulting therefrom; or (ii) loss of use of tangible property which has not been physically injured or destroyed, providing such loss of use is caused by an accident or occurrence during The Policy Period. subject to the limits of liability, exclusions, conditions and other terms contained herein. 5. EXCLUSIONS: 3. This insurance does not apply to: (1) Property damage to: ... (b) except with respect to liability under written sidetrack agreement or the use of elevators, to ... (iii) property in the custody of the Insured which is to be installed, erected or used in construction by the Insured; (iv) that particular part of any property, not on premises owned by or rented to the Insured; 1. upon which operations are being performed by or on behalf of the Insured at the time of the property damage arising out of such operation, or 2. out of which any property damage arises, or 3. the restoration, repair or replacement of which has been made necessary by reason of faulty workmanship thereon by or on behalf of the Insured; (2) with respect to the completed operations hazard, to property damage to that particular part of work performed by the Named Insured out of which such injury, destruction or loss of use arises. (3) expenses incurred for the withdrawal inspection, repair, replacement, or amounts claims [sic] for loss of use of the Insured’s products or work completed by or for the insured or of any property of which such products or work form part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein. (4) claims for loss of use of tangible property which has not been physically injured or destroyed resulting from: (i) delay in or lack of performance by or on behalf of the Named Insured of any contract or agreement, or (ii) the failure of the Named Insured’s products or work performed by or on behalf of the Named Insured to meet the level of performance, quality, fitness or durability warranted or represented by the Named Insured; but this exclusion does not apply to loss of the use of other tangible property resulting from the sudden and accidental physical injury to or the destruction of the Named Insured’s products or work performed by or on behalf of the Named Insured after such products or work have been put to use by any person or organization other than an Insured. 6. DEFINITIONS: 4. Occurrence “Occurrence” includes continuous or repeated exposure to conditions which result in loss neither expected nor intended from the standpoint of the Insured. [11] The respondents argue that must carefully examine the statement of claim to determine the true nature of the claim being brought against Westridge. [12] In Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 (CanLII); [2000] S.C.R. 551 the allegations in the underlying action were of sexual battery, negligence, and breach of fiduciary duty. The insurance policies in that case covered negligence but did not cover intentional torts such as sexual battery. In determining the true nature of the claim Iacobucci J. outlined three step process to be followed by courts: 50 Determining whether or not given claim could trigger indemnity is three‑step process. First, court should determine which of the plaintiff’s legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. plaintiff cannot change an intentional tort into negligent one simply by choice of words, or vice versa. Therefore, when ascertaining the scope of the duty to defend, court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all court must do is decide, based on the pleadings, the true nature of the claims. 51 At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries. 52 Finally, at the third stage the court must decide whether any of the properly pleaded, non‑derivative claims could potentially trigger the insurer’s duty to defend. [13] The mere fact that Genex alleges both negligence and breach of contract is of no moment. Iacobucci J. points out: 79 The appellant notes that the plaintiff’s statement of claim alleged the non‑intentional torts of negligence and breach of fiduciary duty. He therefore argues that the respondent has duty to defend because the exclusion clause does not apply to these claims. However, these bare assertions alone cannot be determinative. Otherwise, the parties to an insurance contract would always be at the mercy of the third‑party pleader. What really matters is not the labels used by the plaintiff, but the true nature of the claim. [Emphasis added] [para. 79] And again at para. 82 In my view, the correct approach in the circumstances of this case is to ask if the allegations, properly construed, sound in intentional tort. If they do, the plaintiff’s use of the word “negligence” will not be controlling.... [14] The court applied the same reasoning in the case of Sansalone v. Wawanesa Mutual Insurance Co., 2000 SCC 25 (CanLII); [2000] S.C.R. 627, judgment released concurrently with Scalera. In that case Iacobucci J. concluded: 23 The allegations of negligent battery and breach of fiduciary duty are subsumed into the sexual battery claim. These claims are based on the same facts, and resulted in the same harm to the plaintiff. The mere fact that they are pleaded as negligence does not, for the purpose of this appeal, change the intentional nature of the acts.... [15] The court revisited the issue of an insurer’s duty to defend in Monenco, supra. In that case Iacobucci J. points out: 28 The starting premise for assessing whether an insurer’s duty to defend has been triggered rests in the traditional “pleadings rule”. Whether an insurer is bound to defend particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of statement of claim.... [16] Iacobucci J. also discussed at para. 31, the general principles to be applied when construing insurance policies: 31 Where pleadings are not framed with sufficient precision to determine whether the claims are covered by policy, the insurer’s obligation to defend will be triggered where, on reasonable reading of the pleadings, claim within coverage can be inferred. This principle is congruent with the broader tenets underlying the construction of insurance contracts, namely the contra proferentem rule, and the principle that coverage provisions should be construed broadly, while exclusion clauses should receive narrow interpretation.... [17] However, he also points out: 32 As G. Hilliker writes in Liability Insurance Law in Canada (3rd ed. 2001), at p. 72, some courts have interpreted the foregoing passage as saying that if there is any possibility that the claim falls within liability coverage, the insurer must defend. However, Hilliker also maintains that courts must not engage in “a fanciful reading of the statement of claim merely for the purpose of requiring the insurer to defend”. He notes that it is only where there is genuine ambiguity or doubt that the duty to defend must be resolved in favour of the insured party.... [Emphasis added] [18] agree with the respondents that the statement of claim is the primary document on which the duty to defend is to be determined. do not consider it necessary to examine the statements of defence filed by the respondents and the other defendants in the action. [19] The essence of the claim by Genex is that the roof of the barn has failed prematurely. It alleges that the reason for the failure is due to the fact that the Galvalume recommended and supplied by Westridge is unsuitable for use in swine barn. It is of no consequence, in this application, that Westridge subcontracted with Van Alstine who, in turn, subcontracted with Robertson with respect to the supply and installation of the Galvalume roof. [20] Bearing in mind that these are only allegations in the statement of claim: (a) Westridge was the general contractor and it was responsible for the construction of the entire building; (b) Westridge covenanted to furnish all materials, plans and labour necessary for the proper completion of the hog barn; (c) Westridge represented that the roof set out in the specifications could be replaced by the Galvalume roof and that it would not compromise the performance or longevity of the structure; (d) Westridge agreed to use due and proper expertise, skill, care and diligence in all aspects in the construction of the hog barn; (e) Westridge covenanted that when the construction was completed the hog barn would be fit and sufficient for the purpose for which it was intended and that the hog barn would be constructed of good material, design and workmanship, free of defects and be of reasonable durability; (f) Westridge agreed that any defective material and workmanship would be removed and replaced by Westridge at its own expense. [21] Genex alleges that Westridge was negligent and breached the contractual and other duties owed by it to Genex, particulars of which include: (a) Lacking expertise and knowledge as to the correct use and installation of the Galvalume roofing and the Foil Backed insulation; (b) Failing to properly research the uses for Galvalume roofing; (c) Failing to warn the plaintiff that the Galvalume roofing and Foil Backed Insulation were not recommended for use in swine buildings; (d) Failing to promptly correct these deficiencies; (e) Failing to reject defective and unsuitable material; (f) Failing to remove and replace defective material; (g) Failing to fabricate and install its work in accordance with the best practices of craftsmen skilled in the work; and (h) Failing to comply with the manufacturer’s recommendations. [22] Genex does not allege any property damage other than damage to the hog barn itself. The very property that Westridge agreed to build. [23] In my view, a careful reading of the statement of claim leads to the inescapable conclusion that, the true nature of the claim by Genex is that Westridge failed in its contractual duty. Contrary to the terms of the contract it did not construct and deliver to Genex a hog barn that was suitable for the purposes intended. [24] It is fundamental principle of insurance law that Comprehensive General Liability policy (“CGL”) is not intended to be means for contractor (or supplier of goods) to cover the expenses to correct its own faulty or defective workmanship or materials. In other words CGL policies are not intended to be performance bonds. [25] This was pointed out in the recent decision from the Ontario Court of Appeal in Alie v. Bertrand, supra at paras. 23 and 24, as follows: [23] The material provisions were very similar in all of the insurance policies. Under each policy, the insurer agreed to pay those sums that the insured would become legally obligated to pay as compensatory damages because of property damage occurring during the policy period. “Property damage” was defined as “physical injury to or destruction of tangible property” in most policies and as “injury to or destruction of tangible property” in some others. The different wording is not significant in the result in this case. Property damage in the various policies also included the “loss of use of tangible property that is not physically injured”. [24] It is common ground between the parties that CGL policies are not performance bonds. They are not intended to cover the costs of repairing or replacing the insured’s defective work or product. They are intended, rather, to cover tort liability for injury to other persons or damage to their property. This general intent is expressed in the language used in the various policies to define both the coverage and the exclusions. [26] The court went on to state at para. [27] As indicated, the CGL policies are generally intended to cover an insured’s tortious liability to third parties, but not including the cost of repairing or replacing the insured’s own defective work or product. This intent is manifest by the language usually found in CGL policies and the interpretation generally given by the courts to such policies. The policy reason underlying this interpretation is set out succinctly in Privest Properties Ltd. v. Foundation Co. of Canada Ltd. (1991), 1991 CanLII 2346 (BC SC), 57 B.C.L.R. (2d) 88 (S.C.) at 131, as follows: If the insurance proceeds could be used to pay for the repairing or replacing of defective work and products, contractor or subcontractor could receive initial payment for its work and then receive further payment from the insurer to repair or replace it. Equally repugnant on policy grounds is the notion that the presence of insurance obviates the obligation to perform the job initially in good and workmanlike manner [citation omitted]. [27] The matter was also considered by Roy J. of the Ontario Court of Justice, General Division in Carelton Iron Works Ltd. v. Ellis Don Construction Ltd., [1996] O.J. No. 2427 (QL). In that case the plaintiff brought an action against its insurer to be indemnified for repairs and reinstallation of cladding. Pieces of exterior cladding fell from building and damaged an automobile. The cause of the accident was found to be faulty welding of the support brackets by the plaintiff’s employees. The insurers did not dispute their liability to pay for the damage to the car. The plaintiff made no claim for the $250,000.00 it cost to correct its faulty workmanship. It claimed $467,000.00 which it cost to remove and reinstall the cladding. [28] Roy J. stated as follows: ¶15 Most of the authorities cited by both parties, except for number of American authorities, are in agreement that comprehensive general liability policies are intended to protect the insured from liability for injury or damage to persons or property of others. They are not intended to pay the cost associated with repairing or replacing the insured’s defective work or products, which are purely economic losses. ¶19 ... Basically, these authorities conclude that comprehensive general liability policies are intended to protect the insured from liability to injury or damage to persons, and property of others. They are not intended to pay the cost associated with repairing or replacing the insured defective work and products. ¶20 Two of the leading authorities on this issue are the case of Privest v. Foundation Company of Canada (1992) 1992 CanLII 32 (SCC), I.L.R. 1‑2737 (B.C.S.C.) at 1370 and more recently our Court in Tsubaki of Canada v. Standard Tube Canada [1993] O.J. No. 1855. ¶21 Clearly these two cases follow most Canadian cases which restrict “property damage” to physical damage to the property of third parties. There is no coverage when what is claimed basically are the costs associated with repairing or replacing the insured’s defective work and products. ¶26 They are unanimous in concluding that when the loss is for the cost of repairing defective work, that’s not “property damage” within the terms of the policy. ¶27 Also Courts should not interpret words such as “property damage” or “accident” and give them meaning which go far beyond their ordinary meaning. The cost associated with repairing the defective work cannot be interpreted to be property damage in these circumstances. ¶28 Further, when the loss suffered is the cost of remedying the defect which arises out of faulty workmanship, this cannot be interpreted to be an accident or an occurrence within the terms of the policy. [paras. 15, 19-21 and 26-28]. [29] agree with counsel for the respondents that while Genex may, in addition to the cost of repairing the roof, incur loss of profits due to potential disruption of its operation during repairs, that loss is also cost arising from the repair or replacement of Westridge’s defective work and thus is an economic loss, not property damage. [30] As noted earlier, the true nature and substance of the plaintiff’s claim against Westridge is for breach of construction contract. The claims by Genex that Westridge owed duties of care and was negligent, would necessarily arise only as direct result of its having entered into the construction contract. There is no suggestion in the pleadings that any duty of care was owed by Westridge to Genex as the result of any other relationship or proximity between the parties, other than that that arose as result of the parties entering into the contract. [31] Insofar as the claim relies on alleged negligence, this claim is derivative of the contract claim. As the Supreme Court stated in Scalera, supra, the claims in negligence are not sufficiently disparate to render the two claims unrelated and they arise from the same actions and cause the same harm. [32] The claims in negligence are inseparable from the claims in contract and do not exist but for the contractual relationship. [33] The applicant argues that, rather than follow the cases cited by the respondents, should adopt the reasoning in the case of Alsthom Canada Inc. v. PCL Constructors Eastern Inc. [2001] O.J. No. 3862 (QL) (Ont. Sup. Ct.). [34] The facts of that case are summarized in the applicant’s brief as follows: ... In that case, PowerTel agreed to design, supply, and install power transmission facilities, including steel anchors, pursuant to its subcontract with PCL. Sometime after this was completed, the owner of the facilities sued PCL for costs incurred to repair steel anchors that had become corroded, and PCL—in turn—sued PowerTel for the same. 18. PowerTel’s insurers refused to defend the claim against it, firstly on the basis that the claim did not come under the insuring agreement since it was for faulty workmanship or for warranty work assumed by contract. Although the Court noted that the insurer’s position might be supported if it were to look at certain of the allegations against PowerTel in isolation, other allegations indicated that PowerTel’s work was completed in accordance with contractual specifications. 19. The totality of the pleadings instead suggested that the corrosion of the steel anchors was caused by reaction with nearby pipeline’s cathodic protection system. Accordingly, the Court in Alsthom found that the costs of the remedial work to repair these corroded steel anchors could be properly characterized as “compensatory damages because of property damage.” [35] In Alsthom, Del Frate J. stated at paras. 22, 37 and 40: ¶22 The pleadings, in their totality, however, would indicate that the work performed by PowerTel had been completed in accordance with the contract specifications, the industry practice and the Ontario Hydro requirements. ¶37 The Respondent’s position is that the Policy is not intended to pay for the costs associated with repairing or replacing the insured’s defective work and products. fully agree that that is the intent of comprehensive general liability policy. However, this is not what is alleged in the pleadings. reiterate that the allegation is that the work that was required of PowerTel, pursuant to the contracts, had been completed in satisfactory and acceptable manner and according to the terms of the contract. ¶40 ... In this case, the allegations are that the damages result not by defective work, but rather by reaction by the cathodic protection system in the TransCanada PipeLines system. [36] Unlike the pleadings before Del Frate J., the whole of the statement of claim in this case does not indicate that the physical injury to the roof of the Tullymet Nucleus Unit was (or could have been) caused by external factors or reaction with external factors and not by Westridge’s faulty or defective work or product. There is no suggestion that some force outside of the building constructed by Westridge may have caused the injury to the roof. Further, find nothing in the pleadings which suggests that Westridge completed the work in satisfactory and acceptable manner. This case is clearly distinguishable from Alsthom. [37] Again, the essence of the pleadings by Genex is that Westridge failed to provide the work or product bargained for under the contract. IX [38] The insuring agreement between Westridge and Zurich provided for the payment of all sums Westridge might become legally obligated to pay as compensatory damages because of property damage caused by an occurrence which was defined to mean an accident. [39] The insuring agreement between Sovereign likewise provided that the coverage was for compensatory damage to property caused by an accident or occurrence. [40] What is alleged by Genex cannot be interpreted to be an accident or occurrence. Furthermore, the mere presence of defective roof in an otherwise sound building does not amount to property damage within the policies. [41] The applicant has failed to meet the onus of establishing that the claims in the underlying action would fall within the insuring agreements contained in the CGL policies issued by Zurich and Sovereign. [42] Further I am satisfied that the work/product exclusion clauses found in the policies would relieve the respondents from any duty to defend. [43] In the result, the application is dismissed with costs.
The applicant applied by originating motion for a declaration that the respondents, Zurich and Sovereign, were obligated to pay a proportionate share of defence costs to defend a claim brought against the applicant. The underlying action claims damages from the applicant with respect to the construction of a hog barn. The applicant was the general contractor. Each of the respondents issued a comprehensive general liability policy to the applicant. The law is clear that the pleadings determine whether or not the respondents have a duty to defend. If the claim alleges a state of facts, which would fall within the coverage provided by the policy, the obligation of the insurer to defend is triggered. The Court reviewed the claim and concluded that the true nature of the claim was that the applicant failed in its contractual duty to construct and deliver a hog barn suitable for the purposes intended. HELD: The application was dismissed with costs.  1) It is a fundamental principle of insurance law that a comprehensive general liability policy is not intended to be a means for a contractor to cover the expenses to correct its own faulty or defective workmanship. They are not performance bonds. 2) The claims in negligence are inseparable from the claims in contract and do not exist but for the contractual relationship. 3) The insuring agreement provided for the payment of all sums the applicant might become legally obligated to pay as compensatory damages because of property damage caused by an occurrence, which was defined to mean an accident. What is alleged in the underlying action was not an accident or occurrence. Further, the work/product exclusion clauses in the policies relieve the respondents from any duty to defend.