Failed to Obtain a Wrap-Up Policy? The Court May Read One In.
By Samah Rahman
A wrap-up insurance policy is an owner or contractor’s insulation against liability in case the project goes south. These policies protect the team involved on a construction project against third-party and general liability exposure. Many contractors will stipulate that this insurance be obtained before undertaking a project. This was the case in Ashcroft Homes Inc. v. Aviva Insurance Co. of Canada[1] where Dufresne Piling Company (“Dufresne”), a subcontractor, bid on the Richmond Towers construction project with a stipulation that a wrap-up insurance policy be obtained for the project. Ashcroft Construction (“Ashcroft”), the general contractor, accepted the bid and represented that this coverage would be secured. In fact, Ashcroft never did obtain this policy despite its contractual obligation to do so.
Sometime during the course of the project, the owner of the Richmond property brought an action against Dufresne for damages in negligence while performing land clearing services. Dufresne expected to rely on the wrap-up policy to cover the cost of its defence. When Dufresne discovered that Ashcroft failed to secure the policy, it brought a third-party claim seeking an order that Ashcroft be liable for Dufresne’s defence costs.
First, the court found that there was no genuine issue requiring trial because Ashcroft breached the term of its contract which called for a wrap-up insurance policy. Next, the court considered whether the owner’s claims fell within the coverage under a wrap-up policy. Of course, no policy existed to make this determination, so the court read one in.
Using expert reports, the court conceptualized what a typical wrap-insurance policy would cover, and concluded that the claims brought by the owner, would fall within the ambit of a policy, if such a policy existed. The court reasoned that even if “some” but not all claims were covered by a policy, the insurer would be required to pay all reasonable costs associated with the defence. In this case, the court was satisfied that at least some of the allegations in the statement of claim triggered a duty to defend. The mere possibility that a claim may fall within the wrap-up policy that should have been obtained, was also sufficient to trigger the duty. The court ordered that Ashcroft reimburse Dufresne for legal costs incurred in defending the proceeding.
Evidently, getting too wrapped up to secure a wrap-up policy when a party ought to have, will not absolve a party from liability; the law will hold the party accountable as if the policy existed.