



COURT OF APPEAL FOR ONTARIO

CITATION: Mason Homes Limited v. Lombard General Insurance
    Company of Canada, 2017 ONCA 289

DATE: 20170510

DOCKET: C62659

Feldman, Brown and Roberts JJ.A.

BETWEEN

Mason Homes Limited

Plaintiff (Appellant)

and

Lombard
    General Insurance Co. of Canada

Defendant (
Respondent in Appeal
)

Paul Gemmink, for the appellant

Fatima M. Vieira, for the respondent

Heard: March 29, 2017

On appeal from the order of Justice Carole J. Brown of
    the Superior Court of Justice, dated August 9, 2016, with reasons reported at
    2016 ONSC 4846.

ENDORSEMENT

[1]

The appellant homebuilder appeals the dismissal of its action against
    the respondent insurer. The appellant submits that the motion judge erred in
    determining that the respondent had no duty to defend or indemnify the
    appellant under its Commercial General Liability (CGL) insurance policy in
    relation to a claim arising out of the appellants sale of a lot and a home to
    be constructed on the lot.

[2]

The appellant is a property development company. In order to build a
    home on a lot with a very steep slope that exceeded the maximum municipal
    standards, the appellant was required to seek approval from the Town of
    Uxbridge. The Town and the appellant entered into an additional Subdivision
    Agreement which acknowledged that the grades in the rear yard of the property
    exceeded the maximum standards. Importantly, the additional Subdivision Agreement
    required the appellant to include a warning in the agreement of purchase of
    sale of the property with the homeowners. The appellant failed to do so.

[3]

The homeowners sued the appellant for breach of the agreement of
    purchase and sale, which included a rendering showing a level lot. The claim
    stated that the lot was improperly graded, was not safe, and could not be used
    as a residential property. In particular, the homeowners asserted that the
    appellant had deliberately failed to include the warning about the property
    grading in the agreement of purchase and sale and that the appellant was
    grossly negligent in having submitted to the Town plans providing for the
    overly steep property grading.

[4]

The appellant paid the homeowners an amount to settle their action, and pursued
    its claim against its insurer, the respondent, for a declaration that the
    respondent had a duty to defend the homeowners action before trial and to
    indemnify the appellant for costs and damages.

[5]

The motion judge dismissed the appellants action on the basis that
    there was no coverage for the homeowners claims under the CGL policy with the
    respondent on two bases: first, the substance of the homeowners claims as
    pleaded was based on intentional conduct, not an accident, so that there was no
    coverage. Second, even if the homeowners claims could be read as including a
    claim for negligent, non-intentional conduct that could be an accidental
    occurrence, the exclusions under Part III of the CGL policy in paragraphs 2 a.,
    2 h. (5) and (6), and 2 k. expressly precluded coverage.

[6]

The appellant submits that its failure to disclose amounts to a
    negligent misrepresentation, which the respondent concedes would be covered
    under the Insuring Agreement of the CGL policy if not otherwise excluded.

[7]

The appellant argues that the motion judge erred in not looking beyond
    the homeowners choice of labels in their statement of claim, and thus not
    appreciating that it was or could have been negligence, rather than deliberate
    conduct on the part of the appellant in failing to disclose the warning as
    required by the Town, and that any such negligence was not derivative of the
    deliberate conduct that was pleaded.

[8]

We disagree with the appellants submissions. As the motion judge
    correctly found, even if the homeowners underlying claim could be read to include
    a negligent, accidental act of not warning the homeowners about the steep grading
    that was not a derivative claim, such a claim was clearly excluded under Part
    III of the CGL policy, as follows:

i.             Paragraph
    2 a. excludes from coverage property damage expected or intended from the
    standpoint of the insured. Property damage includes loss of use of tangible
    property that is not physically injured. There is no dispute that the
    appellant intended to create the steep grading of the property, which resulted
    in the homeowners loss of their use of the property.

ii.            Paragraph
    2 h. (5) excludes property damage to the property where the appellant carried
    out its work or operations and (6) excludes property damage to property that
    must be restored, repaired or replaced because the appellants work was
    incorrectly performed on it. The appellants work is defined under paragraph
    26 of the CGL policy to mean work or operations performed by the appellant or
    on its behalf, and includes [t]he providing of or failure to provide warnings
    or instructions.  The exclusions under paragraph 2 h. (5) and (6) cover the
    steep grading of the property performed by the appellant, as well as the
    appellants failure to include a warning about the grading in the agreement of
    purchase and sale.

iii.            Paragraph
    2 k. provides for the exclusion from coverage of the appellants steep grading
    of the property and its failure to include the requisite warning in the
    agreement of purchase and sale:

Damage To Impaired Property or Property Not Physically Injured

property damage to impaired property or property that has
    not been physically injured, arising out of:

(1)      A defect, deficiency, inadequacy or dangerous
    condition in your product or your work, or

(2)      A delay or failure by you or anyone acting on your
    behalf to perform a contract or agreement in accordance with its terms.

[9]

The appellant admits that it intentionally graded the steepness of the
    property beyond the maximum municipal standards and that it failed to provide
    the requisite warning to the homeowners. As the motion judge found, these acts
    are clearly excluded under the CGL policy. We therefore see no error in the
    dismissal of the appellants action. Accordingly the appeal is dismissed.

[10]

The appellant shall pay $9,500 to the respondent for partial indemnity
    costs of the appeal, inclusive of disbursements and taxes.

K. Feldman J.A.

David Brown J.A.

L.B. Roberts
    J.A.


