Recently, the Court of Appeal ruled that insurance coverage was available to a professional engineer who was liable for delay damages, where that delay was caused by negligence.
The facts in Hollowcore Incorporated v. Visocchi, 2016 ONCA 600, were relatively straightforward. Visocchi, a professional engineer and principal of Visco Engineering Inc. was retained to produce engineering drawings for an addition to an existing commercial parking garage. The contract stated that time was ‘of the essence’ as the parties wanted to minimize the downtime and loss of revenues associated with construction.
Unfortunately, Visocchi was not able to provide accurate and timely drawings. The drawings submitted were replete with errors that needed numerous revisions, and a number of identified errors were not corrected when resubmitted. Ultimately, Visocchi withdrew from the project, which was delayed, and for which Visocchi was sued for damages. At trial, the Judge held that Visocchi was negligent in the performance of his professional duties. However, the trial Judge (improperly) apportioned liability between Visocchi and his insurers, to which both parties appealed.
To determine whether Visocchi was himself responsible for paying any portion of the damages, it was necessary for the Court of Appeal to consider the scope of his insurance coverage, as set forth by his policy. Visocchi’s insurance policy provided the following coverage:
THE INSURER will pay on YOUR behalf all sums which YOU become liable to pay as DAMAGES arising out of a CLAIM providing YOUR liability is the result of an error, omission or negligent act in the performance of professional services for others.
However, that coverage was limited by an exclusion which provided:
THE INSURER will not cover YOU, pay DAMAGES, provide YOU with a defence or make supplementary payments for CLAIMS arising out of YOUR failure to complete drawings, plans, specifications, reports, or schedules on time or YOUR failure to act upon shop drawings on time, unless such failure is the result of an error or inaccuracy in the preparation of these documents.
In interpreting the interplay between coverage and the exclusionary clause, the Court restated the established law that a “clause in the policy providing coverage will be broadly interpreted in favour of the insured. An exclusion clause limiting coverage will be strictly interpreted.”
Accordingly, the Court held that the reason for the policy was to “pay damages arising from a breach of contract or from negligence in the performance of professional services.” With that being the case, the Insurers then had the onus of establishing, on a balance of probabilities, that the damages arose out of a lack of timeliness (the policy exclusion) and not from delays caused by having to correct errors or omissions in the drawings. The Court held that the Insurers failed to discharge that burden. In so ruling, the Court held that no damages were caused by pure delay, and that based on the Judge’s findings, all of the delay (and resulting damages) were caused by the engineer’s negligence. As such, the insurers (alone) were responsible for paying all of the damages, which totaled more than half a million dollars.
This case should serve as a reminder to submit all material professional negligence claims to any applicable insurers, and to get a second opinion from an insurance coverage lawyer before relying upon any denial of insurance coverage.
If your insurer has denied coverage for a breach of contract or professional negligence claim against you or your company, call the law office of Michael Lesage at 647-495-8995 for a free consultation with an experienced Toronto and Hamilton insurance lawyer today.