An important issue in construction projects is the identity of the persons covered by the insurance coverage which applies to the project. If one of the parties– say the owner or the contractor – takes out the insurance, does it cover subcontractors or suppliers? Typically the courts have been reluctant to find that the project insurance covers suppliers. And in Sable Offshore Energy Inc. v. Ameron International Corp., the Nova Scotia Supreme Court recently held that the construction insurance did not cover suppliers.
Ameron was a supplier to the construction project. The Lloyds’ project insurance policy taken out for the project stated as follows with respect to “additional insureds”:
“Any other company…. including, but not limited to, project managers, contractors, sub-contractors of any tier or with whom the Insured(s) in (a), (b), or this paragraph (c) have issued a Letter of Intent or with whom the Insured(s) have entered into written agreement(s) or contract(s) in connection with the subject matters of Insurance, and/or any works, activities, preparations connected therewith which are included in the Insured values hereunder.
Also to include vendors and suppliers, in respect of contracts solely for supply of raw materials, but only in respect of physical loss or physical damage as may be covered under Section1 of policy wording relating to cargo transits covered hereunder.”
Ameron argued that as a supplier it had “entered into a written agreement or contract” with the insureds and therefore was an additional insured.
The application judge disagreed, for three reasons:
First, that submission would render the second part of the Additional Insured provision redundant: all suppliers would be covered by the first paragraph. Accordingly, suppliers were only entitled to the more limited insurance referred to in the second paragraph.
Second, a review of the decided cases led the application judge to the view that suppliers are not generally covered by project-related construction insurance policies. The court said:
“The purpose of project insurance in cases such as these is to provide coverage to those who work on the project. In my view, vendors and suppliers are not in the same position. They do not work on the project and are not participants in the construction of the project. This is recognized, I conclude, in the decisions to which I have just referred.”
Third, the background facts persuaded the application judge that suppliers were not intended to be covered by the facts. In addition, the contra proferentem rule was not useful since that rule has a “limited role” and was not applicable when the parties had actually negotiated the provision and when there was no ambiguity in the clause. In any event, Ameron was a stranger to the insurance contract and had no standing to apply the rule.
This decision underlines how important it is to negotiate project insurance that each parties wants. This is especially so in the case of suppliers. The court will be reluctant to hold that project insurance is intended to cover suppliers unless that coverage is clear. If a supplier wants to be included within the insurance umbrella, it should ensure that that coverage is explicit.
The finding that Ameron did not have standing to submit that the contra proferentem rule applied seems rather odd. That rule is a rule of construction of contracts. It is used to interpret the contract whoever is relying on it. In particular, if it applies, then it applies against the person who prepared the contract, in this case the insurer. There does not seem to be a good reason why any party relying upon the contract should be precluded from relying upon that rule against the insurer, if the provision in question is ambiguous and the rule is otherwise applicable.
See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.) at chapter 14, part 3
Sable Offshore Energy Inc. v. Ameron International Corp., (2013), 337 N.S.R. (2d) 10, 2013 CarswellNS 878 (N.S.S.C.)
Building Contracts – Suppliers – Insurance- Additional Insureds
Thomas G. Heintzman O.C., Q.C. FCIArb May 3, 2015