In a recent decision, Surespan Structures Ltd. v. Lloyd’s Underwriters, 2018 BCSC 1058, the British Columbia Supreme Court (the “Court”) had to determine whether a Design-Builder and an Engineer were “Insureds” for the purposes of a project-specific professional liability insurance policy. This is an important decision for insurers, insureds and professionals providing coverage advice, as the Court provided a comprehensive and detailed summary of the law on the interpretation of insurance policy contracts.
The Design-Builder and Engineer sought a declaration that they were Insureds under a project-specific professional liability insurance policy that had been obtained by a third party, the Registered Professional of Record for the Project. Neither the Design-Builder nor the Engineer were identified by name in the Policy. The definition of “Insured(s)” in the Policy included, without limitation, the following:
- “Any other firm(s) which have or will provide PROFESSIONAL SERVICES in regard to the PROJECT.” (Clause 3)
- “Any other firm(s) which have or will provide professional services in regard to the Project provided that such additional firms are reported and accepted by the Insurer.” (Clause 5)
The Design-Builder and Engineer submitted that they were Insureds based on the wording of Clause 3, and that Clauses 3 and 5 could be read harmoniously. The Insurer took the position that Clause 3 had been included in the Policy in error, and since the Insurer had not accepted the Design-Builder and Engineer as Insureds (as required by Clause 5), they were not covered by the Policy.
The Court summarized the following principles regarding the interpretation of insurance policies:
- When the language of the policy is unambiguous, the court should give effect to that language, reading the contract as a whole.
- When the language of the policy is ambiguous, the court should rely on general rules of contractual interpretation (for example, favoring interpretations consistent with the parties’ reasonable expectations, if such interpretations can be supported by the policy language, and interpretations that construe similar policies in a consistent manner).
- When the above rules fail to resolve ambiguity, the policy should be construed against the drafter, generally the insurer (as such, coverage provisions should generally be interpreted broadly and exclusions should generally be interpreted narrowly).
- The court should not search for or create ambiguity where there is none, looking at the policy as a whole.
- The circumstances surrounding a policy contract (such as the commercial purpose and objectives of the contract, the nature of the relevant industry and the objective intentions of the parties), can be considered in interpreting the policy even in the absence of ambiguity in its wording, but cannot be used to deviate from the text of the policy.
The Court held that the Design-Builder and Engineer were Insureds under the Policy. The Court noted that both their scopes of work fell within the “Professional Services” defined term used in Clause 3 discussed above (the Policy defined “Professional Services” as those professional services included on the Policy Application Form).
Further, the Court rejected the Insurer’s argument that Clause 3 had been included in the Policy in error. On this, the Court found the language of the Policy generally, and of Clause 3, in particular, unambiguous. As a result, it concluded that it was required to give effect to the ordinary meaning of the Policy language, including that of Clause 3.
Lastly, the Court found that Clauses 3 and 5 could be read harmoniously. Specifically, it found that while the professional services referred to in Clause 3 were limited to those included on the Application Form, Clause 5 related to professional services that were not contemplated in the Application Form (given that Clause 5 did not use “professional services” as a defined term).
Takeaway from the decision
The Surespan Structures decision provides a comprehensive summary of the guiding principles for the interpretation of insurance policies that all stakeholders involved in coverage disputes should be familiar with. Specifically, it serves as a reminder that courts are generally reluctant to find ambiguity in policy language and, as a result, policy language should be carefully drafted and reviewed.
*The decision of the British Columbia Supreme Court is currently under appeal. As such, those involved in coverage disputes should refer to the Court’s specific findings in the case at hand with caution.
For more information about this case, or the law on the interpretation of insurance policy contracts in general, please contact Stephen Coyle, Gabrielle Trahan or another member of our Insurance Practice.