Every insurer who develops a product must have a good understanding of case law and the Civil Code; otherwise, they will better understand that by tangling with the courts, they can incur costly stings.
Work on construction sites frequently gives rise to legal disputes. Thus, a construction contractor agrees to build and sell a "turnkey" building with four apartments to a potential buyer, with the transfer of ownership to the buyer only to take place once construction is completed.
The contractor takes out construction site insurance, which covers certain property on the site. On the day before the building is to be delivered, the contractor's "superintendent" goes to the site to carry out last-minute checks and adjustments, including turning on the water supply, which he does before leaving the premises. The next morning, a significant water damage is discovered in an upstairs apartment. The flooding was caused by a poorly tightened ring connecting two sections of plumbing pipe.
The insurer who issued the construction site insurance policy sues the plumber to recover the damages paid, arguing that it is subrogated to the rights of its insured. Relying on the Civil Code and jurisprudence, the Court* recalls, firstly, "that property insurance can be taken out for the benefit of a known or potential beneficiary", secondly, that construction site insurance specifically aims to prevent "the parties involved on the same site from having to sue each other" and, above all, to "allow for prompt reconstruction" in the event of a loss, and finally, that the insurance covers the property belonging to the insured, but also the property intended to be incorporated into the building and located on the site.
Therefore, the court rejects the insurer's claim since the plumber is an unnamed insured and despite the terms of the policy, "the intention to insure subcontractors arises from the needs of the construction industry (...) and the terms of the policy."
Any insurer who develops a product must have a good understanding of jurisprudence and the Civil Code; otherwise, they will come to realize that by tangling with the courts, one may receive costly stings.
*C.A. (Montréal) 500-09-017700-071
