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November 18, 2015

Covenant to Insure Did Not Bar Crossclaim

A recent decision looked at whether a contractor could crossclaim against a subcontractor or whether the crossclaim was barred as a result of the covenant to insure between the parties.  In William Osler Health Centre v Compass Construction Resources Ltd., 2015 ONSC 3959 (S.C.J.), the contractor, Compass, was hired by the plaintiff to do kitchen renovations at the Hospital and subcontracted part of the project to Black Creek.  The contract between the Hospital and Compass contained a covenant to insure which required Compass to obtain all risks property insurance.  The covenant to insure contained reference to the terms and conditions of IBC 4042.  IBC 4042 contains language that defines the “Project Site” as the “property in the course of construction”.
Black Creek argued that under the principle of tort immunity, when one party to a contract covenants to obtain insurance for another party, this signifies an assumption of the risk and the party obtaining the insurance cannot sue the other party for the losses which are insured. Compass accepted that under the principle of tort immunity, it could not crossclaim for damages to the kitchen, but argued that it could maintain a crossclaim for damages to the rest of the hospital. 
The Court found that Compass’ covenant to insure did not extend to the entire Hospital and only covered the Project Site (namely, the kitchen). Thus, the Court held that Compass could crossclaim against Black Creek for damages to the Hospital outside of the kitchen, and was not barred by the covenant to insure.  If Compass’ insurance were intended to cover the entire hospital, the premiums and coverage limits would be much higher and closely resemble that of the Hospital’s; Justice Firestone held that it stood to reason that the covenant to insure only covered the Project Site and not damage done to the entire hospital.

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