In a short decision, Jacobs v. Leboeuf Properties Inc., 2018 ONSC 4795, the Ontario Superior Court of Justice dismissed an Owner’s claim against a General Contractor on the basis that the Owner’s contractual obligation to obtain insurance for the project and include the General Contractor as named insured (the covenant to insure) relieved the General Contractor from liability for faulty workmanship.
The Owner alleged that the General Contractor negligently, and in breach of the contract between the parties, performed work that caused damage to project property. The Owner sought to recover from the General Contractor the cost to correct and complete the allegedly negligent work.
The General Contractor successfully argued that the Owner’s obligation to purchase and maintain property and third party liability insurance for the project, and include the General Contractor as named insured, was a bar to the Owner’s action against the General Contractor. Notably, the covenant to insure expressly covered “damage resulting from defective design, workmanship or material”.
The Court relied on the principle that covenants to insure (subject to exclusions noted within the covenant to insure), relieve named insureds from liability for losses, even if those losses are caused by their own negligence or breach of contract. In the case at hand, the Court found no applicable exclusion that would permit the Owner’s claim against the General Contractor.
Further, the Court found that it did not need to inquire as to whether the Owner did in fact obtain the insurance required as per the covenant to insure – the Owner’s commitment to obtain insurance was enough to constitute a “voluntary assumption of risks” of losses or damage to project property.
As the Jacobs decision illustrates, covenants to insure need to be carefully drafted and reviewed keeping in mind which, if any claims, the parties wish to preserve and making sure that the underlying insurance policy is consistent with the scope of the covenant to insure.