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Builders’ Risk Insurance: Is Demolition Work Covered?

By Sarah Bouzo, from our Insurance Law Practice Group

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September 17, 2021 — On June 7, 2021, the Superior Court dismissed the action in L’Unique assurances générales inc. c. Intact Compagnie d’assurance, 2021 QCCS 2916, in concluding that the Builder’s Risk issued in favor of Intact’s insured did not apply.

L’Unique (acting in continuance of suit for Groupe Ledor inc., Mutuelle d’assurance) insured Mr. Frédéric Boivin’s property located in Saint-Antoine-de-Tilly in virtue of a Homeowner’s policy.

Defendant Intact insured the activities of Les constructions Gagnon (1980) Inc. [Gagnon] as a contractor under an extended form Builder’s Risk policy.

The dispute between the parties related to the contents and interpretation of the policy issued by Intact favour to its insured.

The facts

On June 21, 2016, a fire broke out and Gagnon was hired by Ledor to carry out selective demolition work for the purpose of assessing the damage – but not to repair, rebuild, renovate, enlarge, or transform the building. In fact, its services were retained to allow the insurer to ascertain the condition of the premises to decide whether the building was a total loss and also to allow the claims adjuster to identify the cause and origin of the fire.

On July 4, a second fire broke out, but this time the building was a total loss. Only the sections of the building that existed before the Intact policy came into effect and before the demolition work was carried out by Gagnon were damaged.

Ledor indemnified its insured, Mr. Boivin, in excess of $500,000 and sought reimbursement from Intact for the indemnity paid.

Builder’s Risk Policy

Intact’s policy covered four situations, including the one applicable to this case, the “Global Worksite”. This coverage is described as follows: “Insured Property – building under construction including renovation, extension and transformation.”

The “Insured Property” is defined as “property […] under construction or installation and intended for the designated work […]. Non-recoverable materials and supplies necessary for said work are also covered […]” [All policy translations are ours]. Finally, the policy contained an exclusion for existing buildings, namely, “fixed structures that existed before the insurance took effect”.

Superior Court decision

The Court concluded that the policy did not cover the loss:

  • The Builder’s Risk policy covered Gagnon’s property to be incorporated into a building’s construction, renovation, extension or transformation and the materials necessary for this;
  • Given the nature of the policy and the terms used, such as “in the course of construction or installation”, “enter into the designated work”, “necessary for said work”, construction work was clearly required;
  • However, the work performed by Gagnon was demolition work and no material had been incorporated into the building;
  • The Plaintiff did not meet its burden of proof, which was to show that the damaged property met the description of the insured property.

Exclusion for existing structures

On the exclusion for fixed structures that existed before the insurance took effect, the Court reviewed a number of recent decisions from the common law provinces that dealt with this type of clause. The exclusion applied; furthermore, the parties admitted that the claim applied to the destruction of a structure that existed before the insurance took effect.

Thus, the Court accepted the position of the Defendant Intact that the Builder’s Risk policy did not apply in this case and dismissed the action.