Pointing the finger at everyone else when everything goes up in flames backfires

The additional insured on a CGL policy was not entitled to coverage because the loss did not arise from the named insured’s operations. The additional insured also failed to establish bad faith against the insurer, negligence against the broker, and bad faith against the broker.

Insurance law – Commercial general liability insurance – Interpretation of policy – Good faith – Agents and brokers – Duties and liabilities of agent

Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Co., [2019] O.J. No. 3641, 2019 ONSC 4165, Ontario Superior Court of Justice, July 9, 2019, P.J. Cavanagh J.

An additional insured sought coverage from its installation contractor’s CGL policy. The installation contractor was the named insured. The additional insured was the developer of a solar energy project. A transformer installed by the named insured failed, causing a fire and necessitating a shut down of the solar energy site. The additional insured indemnified the purchaser of the project. As the additional insured made the decision to use the transformer in question and the named insured had only ordered and installed it, there was insufficient proximity to prove that the additional insured’s liability to the purchaser of the project arose out of the named insured’s operations and fell within the grant of coverage. Even if there had been coverage, the additional insured had forfeited it by admitting liability to the purchaser, settling the claim, and voluntarily paying the claim without the consent of the insurer. The additional insured was not entitled to relief from forfeiture.

The court rejected the additional insured’s claim that the insurer had acted in bad faith. The insurer’s initial failure to accept the additional insured as an insured on the policy was not bad faith. The court accepted evidence that the broker did not always send certificates of insurance to the insurer. The insurer’s failure to retain an adjuster to investigate the additional insured’s claim was not a breach of the duty of good faith as there was already an objectively reasonable basis for denial of coverage on the basis that the transformers had been selected by the additional insured and not the named insured. It was not bad faith to deny coverage to the additional insured but grant coverage to the named insured as the coverage for each was different. The insurer’s pursuit of recovery of costs of arbitration between the named insured and the additional insured from the additional insured as a subrogated claim is not evidence of bad faith.

The additional insured also sought to recover from the broker for negligence in handling the additional insured’s insurance needs. The court held that the broker provided accurate information in the certificate of insurance issued to the additional insured and that was the extent of the broker’s duty. The broker did not undertake to take steps to investigate the additional insured’s insurance needs or to inform the additional insured of any particular exclusions or conditions in the policy. In any event, there was no gap in coverage as the additional insured only requested coverage with respect to liability arising out of the operations of the named insured, which is what the additional insured endorsement provided. The broker’s failure to provide the insurer with the certificates of insurance would not have had any effect on the insurer’s decision to deny coverage.

The court also rejected the additional insured’s bad faith claim against the broker.

This case was digested by Dionne H. Liu, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dionne H. Liu at dliu@harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.