No policy limit for mitigation of loss coverage

Insurance law – Liability insurance – Errors and omissions policy – Coverage – Limit on liability – Interpretation of policy – Costs – Special or increased costs – Practice – Appeal – Summary judgments

Surespan Structures Ltd. v. Lloyds Underwriters, [2021] B.C.J. No. 243, 2021 BCCA 65, British Columbia Court of Appeal, February 12, 2021, P.M. Willcock, L.A. Fenlon and P.G. Voith JJ.A.

The policy was taken out by the design-builder in the context of the construction of a new hospital and parkade structures. The policy provided coverage for all parties providing provisional services for the project, including the insured who was retained to provide services relating to the parkade structures. During the project, the design-builder discovered defects in the construction of one of the parkades and asked the insured to investigate. The remediation costs exceeded the $10,000,000 aggregate policy limit. However, the summary trial judge concluded that the mitigation of loss coverage, which applied to the remediation costs, was outside the scope of any limit stated in the policy. The insurer appealed.

On appeal, the insurer argued that the trial judge focused on the mitigation of loss language in the policy without sufficient attention to the policy as a whole, and that the trial judge failed to identify a commercial explanation for why the parties would expect to receive an unlimited coverage grant in return for a fixed policy premium.

In dismissing the appeal, the court was satisfied that the language of the policy as a whole demonstrated no limit applied to the mitigation of loss coverage because, among other reasons, the mitigation of loss coverage was additional to the other forms of coverage in that it was not triggered by a claim, it was not based on damages arising out of a claim, it did not explicitly reference the limits of liability clause, and, while the limits of liability clause mentioned the other three types of coverage under the policy, it did not make any reference to the mitigation of loss coverage. The other portions of the policy, including the language used in the declaration pages and the schedule, supported the conclusion that no limit applied to the mitigation of loss coverage. Instead, for example, language relied on by the insurer on the declaration page, including reference to “aggregate”, referred to claims made against the insured. The court noted there was no such claim in the context of the insured requesting consent for indemnity against the costs of remedying defects in work.

The court also rejected the insurer’s argument concerning commercial expectations as they are only considered if the policy is ambiguous, which it was not. Although the insurer argued the result was a “commercial absurdity”, the court reiterated that the language of the policy, read as a whole, governs the relationship of the parties and noted that the insurer had not advanced a plea of mistake and rectification, despite what the trial judge suspected may have been an underwriting error.

This case was digested by Michael J. Robinson, 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 Michael J. Robinson at [email protected].

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