Feels like the first time: defending under an occurrence-based policy for damage that could have happened anytime

Insurance law – Commercial general liability insurance – Duty to defend – Occurrence vs. claims based policy – Interpretation of policy – Practice – Appeals

Forest Hill Fine Homes Inc. v. Heartland Farm Mutual Insurance Co., [2023] O.J. No. 1211, 2023 ONCA 171, Ontario Court of Appeal, March 15, 2023, S.E. Pepall, A.L. Harvison Young and J.C. George JJ.A.

The insurer appealed a declaration that it owed the insured builder a duty to defend a claim relating to building deficiencies. Between 2004 and 2007, the builder constructed a boathouse and cottage for the plaintiff property owners in the underlying claim. In late 2013 or early 2014, the property owners notified the builder of leaks in the boathouse, which the builder repaired while denying that the leaks were the builder’s fault. In February 2016, the subject commercial general liability policy was in place. The property owners subsequently commenced the underlying action, alleging that they discovered for the first time in September 2018 that there were numerous deficiencies in the construction and repairs performed by the builder.

The policy provided that it applied to property damage only if the property damage occurs during the policy period. The application judge determined that a duty to defend was owed because the property owners did not believe that the 2013/2014 leaks were the builder’s fault, and they became aware for the first time in 2018 of the deficiencies. On appeal, the insurer argued that the application judge erred in essentially converting the occurrence-based policy into a claims-based policy, and that discoverability should not apply. The Court of Appeal dismissed the appeal, noting that in order to engage the duty to defend, it is sufficient that the pleadings be drafted in such a way as to raise the mere possibility that damage occurred during the policy period. There was no evidence as to the nature or extent of the repairs in 2013/2014, and no evidence that the damage repaired in 2013/2014 was the same damage being claimed to have been discovered in 2018. As such, there was a possibility that damage occurred after 2016.

This case was digested by Joe Antifaev, 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 contact Joe Antifaev at [email protected].

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