Construction Deficiency Claims & The CGL Policy: Life Before and After A.R.G & Swagger

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Questions concerning the CGL initial coverage grant clauses arose occasionally in the past but until recently the construction deficiency cases have mainly centered on the "work" and "product" exclusions. Judges assumed or found, often without much analysis, that an insured's liability for its own construction deficiencies and resulting damage fell within the grant and the real task lay in determining how much coverage survived the exclusions.

More recently, the focus has shifted back to the initial coverage grant. In the 2004 Ontario case of A.R.G. Construction Corp. v. Allstate Insurance Co. of Canada3 and three Brirish Columbia cases beginning with the 2005 British Columbia decision in Swagger Construction Ltd. v. ING Insurance Company of Canada et al.4, several lower court judges ruled the grant provided no coverage to general contractors and developers for construction deficiencies and resulting damage to their projects. However, in the 2005 Saskatchewan case of Westridge Construction Ltd. v. Zurich Insurance Co.5 and the jointly decided 2006 Ontario cases of Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Company of Canada and Beige Valley Developments Ltd. v. Lombard General Insurance Company of Canada6, the appeal courts have gone the other way, finding coverage under the grant and looking to the exclusions and exceptions to determine the ultimate result.

This paper will address the decisions and the rationale that led us to this point. We begin with a crash course on the purpose of the CGL and its structure followed by a quick review of judge made rules for interpreting insurance policies and proving coverage. We next examine the evolution of the CGL and look at the state of the law before and after the A.R.G., Swagger, Westridge, and Bridgewood/Beige Valley cases. Finally, we try to predict what lays ahead.

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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.

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