Insurance policy’s limits of liability clause inapplicable to mitigation of loss coverage: B.C. case

The British Columbia Court of Appeal has upheld a lower court’s finding that an insurance policy’s mitigation of loss coverage was not subject to the stated limits and has agreed with the conclusion that the policy’s language was unambiguous.

In Surespan Structures Ltd. v. Lloyds Underwriters, 2021 BCCA 65, the respondent, a design‑build contractor, was subcontracted by Graham Design Builders LP in relation to the construction of two new acute care facilities and associated parkades. The respondent, who undertook to provide services for the parkade structures, subcontracted HGS Limited for professional design services.

Graham, noticing defects in elements of the parkades, asked the respondent to perform remediation work. The respondent spent more than $9.9 million, borrowed funds and incurred financing charges for these remediation efforts. The respondent sought reimbursement from the insurers, who are the appellants in the present case.

The insurers denied coverage on the ground that the respondent was not a named insured under the professional liability insurance policy. The respondent successfully obtained a court order in June 2018 declaring that it was an insured under the policy, and initiated an action in September 2018 to enforce the court order and to obtain the reimbursement it was seeking.

The Supreme Court of British Columbia, ruling in the respondent’s favour, found that no policy limit applied to the mitigation of loss coverage, which applied to the remediation costs the respondent had incurred, under the policy. The summary trial judge said that the language of the policy was unambiguous and was not overwhelmed by other considerations.

On appeal, the insurers contended that the trial judge focused only on the language of the mitigation of loss coverage language, failed to adequately address the policy’s language as a whole and failed to identify a commercial explanation for why the parties would expect to receive unlimited coverage in exchange for paying a fixed policy premium.

The B.C. Court of Appeal, dismissing the appeal, found no basis to interfere with the trial judge’s interpretation of the policy or his determination that the policy’s terms were unambiguous. The mitigation of loss coverage was not beyond the scope of the policy’s stated limits, the appellate court ruled.

Michael Robinson, lawyer at Harper Grey LLP, wrote about the findings of the B.C. Court of Appeal in a case summary. Robinson explained that the appellate court ruled that the policy’s language, when read as a whole, showed no limit applicable to the mitigation of loss coverage, on the basis of a number of reasons, including that the mitigation of loss coverage was additional to the policy’s other types of coverage and was not triggered by a claim, that such coverage was also not based on damages arising from a claim, that such coverage did not specifically mention the limits of liability clause and that the limits of liability clause did not specifically reference the mitigation of loss coverage, even though it referenced the policy’s three other forms of coverage.

Robinson then explained that the appellate court’s finding on this issue was further supported by certain other parts of the policy, such as the declaration pages’ language and the schedule. Robinson also said that the appellate court emphasized that commercial expectations would only be addressed if the policy is ambiguous, and in this case the policy was not ambiguous, and noted that the insurers did not submit that there was a drafting mistake that called for rectification.