Does an Insurance Clause Preclude The Contractor From Being Sued?


Insurance - Contractors - Subcontractors - Construction Law

An insurance clause in a building contract usually provides that one of the parties will obtain insurance for the project, and that some or all of the other parties engaged on the project will be covered under that insurance. The issue raised by such a clause is whether the party that agreed to take out that insurance, or that party's insurer, may sue another party which was to be covered by that insurance.

In Greater Toronto Airport Authority Association v. Foster Wheeler, the Ontario Superior Court recently held that the insurance clause did preclude such an action against the contractor. In the course of its decision the Ontario court set out some useful principles.

The fact that these liability/insurance issues are still being debated is remarkable. In 1976, the Supreme Court of Canada established the general principle relating to the issue, and there have been many decisions applying the principle since then. Yet parties to building contracts continue to insert into those contracts provisions which are contradictory and do not clearly apply the principles set out in the decided cases.

This judgment has not been appealed, and is a helpful guide to resolving the various clauses relating to liability, indemnity and insurance in a building contract.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Heintzman, Arbitration Place | Attorney Advertising

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