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A Reminder of the Basic Differences Between a Builder’s Risk Policy and a Liability Policy

In the recent case of Bridor inc. c. 90784497 Québec inc., 2022 QCCS 2496, the Superior Court ruled on the fundamental distinctions between a Builder’s Risk policy and a liability insurance policy.

Bridor inc. [Bridor] had retained the services of Construction Milkado [Mikado] as a construction manager to oversee the expansion of its plant. In the main claim, Bridor alleged that Mikado had committed three faults in its management of the construction, one of which consisted of damages caused to architectural panels that made up the outside walls of the expansion. The project and the parties were insured under two policies issued by Starr Insurance & Reinsurance Limited [Starr]: a Wrap-Up liability insurance policy and a Builder’s Risk insurance policy.

In a Wellington type application, Mikado asked the Court to order Starr to take up its interest, and defend it for the damage caused to the panels in virtue of the Builder’s Risk policy

The Court first noted that the Civil Code of Québec provides for two types of damage insurance: liability, and property. Justice Andres C. Garin observed that the legal obligation to take up an insured’s defence, expressed in article 2503 CCQ, is in subdivision III.3 of the chapter of the Code that applies exclusively to liability insurance.

Justice Garin then observed that Builder’s Risk policies are usually property insurance policies . After examining Starr’s policy, the Court concluded that it was in fact a property insurance policy that did not provide for the insurer’s obligation to take up its insured’s interest in case of a claim or lawsuit.

Since Mikado was only raising the Builder’s Risk policy, the Wellington application was dismissed.

Takeaway

  • Builder’s Risk policies are generally property insurance.
  • The object of the insurance must be determined through an analysis of the warranty clause, that defines the scope and nature of the protection provided;
  • In all cases, it is essential to examine all of the clauses in the policy since its designation may sometimes fail to reflect accurately all the coverage that it in fact provides;
  • An insurer is not required to take up its insured’s interest under a Builder’s Risk insurance.

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