In 2000, Foster Wheeler contracted with the Greater Toronto
Airports Authority Association Inc. ("GTAA") to supply
and install four steam boilers in one of its facilities (the
"Supply Contract"). During installation, one of the steam
boilers exploded damaging the boiler and other GTAA property. GTAA
was fully compensated for the damage by its insurer who proceeded
to commence a subrogated claim against Foster Wheeler and its
Foster Wheeler moved for summary judgment on the basis that even
if it was negligent, the GTAA action could not succeed in light of
its covenant to insure in the Supply Contract. The Supply Contract
obligated GTAA to maintain "All Risks" Course of
Construction Insurance naming Foster Wheeler as an additional
G.C. 42.1: Without restricting any
other responsibility of the Supplier under the Contract, the GTAA
shall provide, maintain and pay for insurance ... Coverage under
these policies extends only to the activities of the insureds in
relation to the project. ... [T]hese policies will ... include as
additional insured ...[Foster Wheeler] ...
The Supply Contract also obligated Foster Wheeler to place
"All Risks" insurance on machinery owned or used by it or
its sub-contractors, that contained a "waiver of
subrogation" in favour of the GTAA. GTAA's covenant to
insure Foster Wheeler under G.C. 42.1 did not contain such a
The other contractual provision that played a major role in the
interpretation of the Supply Contract was as follows:
G.C. 42.14: [Foster Wheeler] shall
protect the project [and] the GTAA's property ... from damage.
The Supplier is responsible for damage that occurs as the result of
the Supplier's operations under the Contract ... If [Foster
Wheeler] ... damages the work [or] the GTAA's property ....
[Foster Wheeler] is responsible for making good that damage at its
expense. This does not apply to injury, loss or damage to the
extent that GTAA receives proceeds of insurance ... but [Foster
Wheeler] is responsible for ... any uninsured portion of GTAA's
loss. [emphasis added]
Justice Sproat prefaced her judgment with the following
"telling "quote from Canadian Contractual Interpretation
Covenants to insure have been given a
specific interpretation in the case law. They not only obligate one
party to obtain insurance ... but also relieve the other party for
losses subject to the covenant, even if such losses are caused by
its own negligence. [emphasis in original].
Justice Sproat held that where (commercially sophisticated)
parties intend depart from an accepted interpretation, clearer
language ought to be used. In addition, the Supreme Court of Canada
has previously recognized the utility of "Course of
Construction" insurance barring rights of subrogation in
construction projects, including the avoidance of duplicative
insurance coverage and the cost and time associated with coverage
litigation. While Justice Sproat did not consider "Course of
Construction" insurance to have a fixed definition, it is not
expected that parties would use this phrase to mean a different
type of coverage altogether.
The clearest evidence that Foster Wheeler was not liable for its
own negligence was the exception in G.C. 42.14. This provision, in
effect, operated as a waiver of subrogation since it relieved
Foster Wheeler of its obligation to compensate GTAA for a loss
where GTAA received insurance proceeds. This exception was as good
as the express waiver of subrogation found in Foster Wheeler's
covenant to insure GTAA.
The contractual terms on which the GTAA sought to rely were
considered ambiguous, equivocal or explicable. Considering the
Supply Contract as a whole and in light of the accepted
interpretation of covenants to insure and "course of
construction" insurance, Justice Sproat held that the
"proper and only reasonable interpretation is that the GTAA,
by reason of its covenant to insure, agreed to relieve Foster
Wheeler of liability for damages caused by its own negligence.
If the GTAA has no right to claim against Foster Wheeler,
neither can its insurer.
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