Collapsing soil and collapsing coverage

A project damage exclusion precluded coverage for an excavation contractor after part of a construction project collapsed.

Insurance law – Liability insurance – Wrap-up policies – Exclusions – Duty to defend

Kelly Panteluk Construction Ltd. v. Lloyd’s Underwriters, [2024] S.J. No. 94, Saskatchewan Court of Appeal, April 18, 2024, N.W. Caldwell, J.D. Kalmakoff and J.M. Drennan JJ.A.

The insured excavation contractor sought a declaration that its insurer owed a duty to defend under a course of construction wrap-up liability policy. The insured was sued after an embankment and its foundation soils collapsed during construction. The insurer denied coverage based on an exclusion for “that particular part of any property … upon which operations are being performed by or on behalf of the Insured at the time of the damage thereto or destruction thereof, arising out of such operation”. An endorsement provided an exception to the exclusion, for property damage to the principal’s existing surrounding property not forming part of the project works but maintained “no coverage shall be provided for property damage to that part of property being worked upon when such property damage arises out of such work that is or would normally be considered as being covered by a Builders Risk/Course of Construction Insurance Policy”.

The insured argued that the foundation soils were not part of its construction work on the embankment, and that the pleadings raised at least a possibility of coverage. The insured’s summary judgment application for coverage was dismissed by the chambers judge, who found that the foundation soils were an integral part of the construction of the embankment and fell under the exclusion. The insured’s appeal was dismissed. The plaintiff’s claim was made on the basis that the foundation soils were part of the embankment. Although the chambers judge had made findings of fact, and the determination of whether a duty to defend exists should not involve specific findings of fact, the court is permitted to examine extrinsic evidence to illuminate the substance of the pleadings.

This case was digested by Joe Antifaev and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].