An insurance contract may be changed to accord with the agreement reached by the parties at the time that the contract was created

The Defendant Temple Insurance Company sought a rectification of the insurance contract it entered into with Concord Pacific regarding a mixed residential and commercial building complex. Temple was successful in that application.

Concord Pacific Group Inc. v. Temple Insurance Co., [2009] B.C.J. No. 1141, June 9, 2009, British Columbia Supreme Court, V. Gray J.

Concord, a development company, purchased a large parcel of land on the old Expo 86 fairgrounds in Vancouver. Concord’s intention was to build and develop residential and commercial space throughout the following 20 years. In 1992, Concord appointed Willis as its insurance broker, and in 1993 Willis approached Encon seeking insurance for Concord construction projects. Encon is a national insurance manager which administers insurance projects for insurance companies.

Temple issued a Builders Risk Construction Policy to Concord which included an endorsement insuring against delayed opening losses. These losses would include such things as interests Concord would be required to pay during delays in completing sales of units, and rent which Concord lost because units were not available for rent during the period of delay. A formula was calculated for covering such losses, and a letter was sent stating the insurers’ intent that no claim for delay would be paid with respect to loss resulting from non-completion of the insured project prior to a “scheduled date of completion” which corresponds to the contracted date for completion according to the construction contract, and which should correspond to the expiry date of the policy or project certificate.

Since Concord managed its own construction through an associated company, it did not have a contracted date for completion or a substantial completion date for any other projects. The insurance Concord obtained however did have an expiry date for the Builders Risk Policy or for the particular project certificate.

On November 17, 1999 Concord provided Willis with a document estimating the construction period for the project would be 24 months ending November 15, 2001. On November 19, Concord completed a form entitled Builders Risk Information Form and wrote that the construction period would be from November 15, 1999 to April 15, 2002, a 29-month period. Concord provided the Builders Risk Information Form to Willis for the purpose of obtaining coverage for the project.

There were two water incursion incidents at the site during excavation, one on April 18, and one on June 7, 2000. The combined effect of the two water incidents would potentially delay the project by about three months resulting in a 27-month construction period. When Willis learned of the incursion, it contacted Concord asking whether they needed to extend the Builders Risk coverage beyond April 15, 2002. Concord replied that it was not necessary since they expected to finish before that time.  All parties agreed that the project was complete and tenantable on January 12, 2002.

Concord’s position was that the November 15, 2001 date should be the scheduled date of completion as this was the date referred to originally as the 24-month construction period. It is seeking to collect on the delayed opening coverage, and block Temple’s application for rectification of the contract. Temple argued that Concord would not be prejudiced by rectification since it always knew April 15, 2002 was the scheduled completion date, and that rectification would simply permit the policy to reflect the terms and conditions agreeable to both parties.

Section 12 of the Insurance Act provides:

12(1)  A term or condition of the contract which is not set out in full in the policy or in the document in writing attached to it, when issued, is not valid or admissible in evidence to the prejudice of the insured or a beneficiary.

12(2) This section does not apply to an alteration of the contract agreed on in writing between the Insurer and the Insured after the issue of the policy.

Concord argued that Section 12(2) does not apply and Temple argues that Section 12(1) does not apply, but that in the alternative Section 12(2) could apply as the amended project certificate was agreed on in writing between the parties and issued October 2000.

The Judge held that Temple was not attempting to introduce a term or condition into the policy that would impose additional obligations on the Insured. The scheduled completion date was an essential term of the contract and the omission of that date in the contract was through an inadvertence. Rectification would enable the policy to reflect the party’s bargain at the time the policy was negotiated, and that Section 12 of the Insurance Act did not bar Temple’s claim to rectification to include an essential term. The judge dismissed Concord’s claim for the delayed opening losses, and entitled Temple to an order rectifying the project certificate to show the scheduled date of completion being April 15, 2002.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

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