In the recent case of 1642279 Ontario Inc. v. SCE
Construction Management Inc.1, the Court considered
the issue of whether, in a construction contract dispute, the
defendant ought to be permitted, on the eve of trial, to amend its
pleading to rely on a covenant to insure as a bar to the
Construction and commercial contracts typically include a
covenant to insure, obliging one party to obtain insurance on all
or part of the subject matter of the contract. The law in Ontario
is clear that when one party to a construction contract contracts
with another party to provide insurance to cover damage to a
project, the party which is obliged to purchase insurance fully
assumes the risk of damage to the project.
In this particular case, 1642279 Ontario Inc. (the
"Owner") contracted with SCE Construction Management
Inc. ("SCE") for the construction of a medical
clinic. The applicable contract called for the Owner to maintain
insurance protecting the interest of and indemnifying SCE against
any liability which the owner might incur as a result of damage to,
or injury sustained by, any portion of the project. The Owner
brought an action against SCE and others in connection with alleged
negligence in the selection and installation of cladding on the
medical clinic. On the eve of trial, SCE brought a motion to amend
its statement of defence to plead that the Owner's action was
barred as a result of the covenant to insure contained in the
contract. Moreover, as the Owner had failed to purchase the
required insurance, SCE claimed indemnity from the Owner for its
defence costs and any damages which may be apportioned against it
in the action.
Master Short ultimately granted leave to SCE to amend its
statement of defence. None of the arguments of prejudice put
forward by the Owner were accepted. Regarding an allegation that
the amended pleading would increase damages and remedial costs, the
Court held that any additional cost for replacing the
building's cladding could be mitigated by undertaking immediate
repairs, and that the damages of $4 million claimed in the
statement of claim would more than cover any excess damages
incurred. Master Short also held that any prejudice as a result of
the delay in the scheduled trial date could be compensated through
costs and was thus not sufficient to merit refusing an amendment to
The Owner further alleged that prejudice would arise from its
resulting inability to sue SCE's principal, Ross Gilmore, who
had previously been released from the action. However, looking to
past precedent, the Court held that this alleged loss did not
result in prejudice as "the inability to pursue a claim
against a defendant against whom the claim had previously been
discontinued has been held to not be prejudice to a plaintiff in a
motion by a defendant to amend its statement of defence to plead a
potentially fatal defence".2 Moreover, looking to
the terms of the contract between the Owner and SCE, the Court
noted that Ross Gilmore was an agent of the contracting party, SCE,
and was thus entitled to the same protection as
In a final attempt to demonstrate prejudice, the Owner asserted
that an amendment to SCE's pleadings to include reliance on a
covenant to insure would compromise its ability to sue a third
party, principally, their legal counsel. According to the Owner,
SCE's proposed defence would restrict the remaining defendants,
and one way to recover such a loss would be by an action against
their original counsel for responsibility in drafting the
agreement, especially as it relates to the language dealing with
insurance.4 Master Short, however, found that the Owner
knew of the possibility of a change in defence and continued to
work with its lawyer after that event. As Master Short noted,
"[the] Owner then had the opportunity to investigate further
and to turn their minds to the issues that the covenant to insure
might present for them".5
This case highlights the importance of a covenant to insure in
the context of a construction contract. Such covenants essentially
bar the insured from recovering damage or loss from third parties
in connection with the subject matter undertaken to be insured. Not
only do these covenants protect the covenantee, but they may also
extend to other parties whose activities are related to the assumed
risk. Parties to commercial contracts will be wise to keep this in
mind in their future dealings.
 1642279 Ontario Inc. v. SCE Construction
Management Inc., 2015 ONSC 638.
 Ibid, at para 62.
 Ibid, at para 68.
 Ibid, at para 73.
 Ibid, at para 78.
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guide to the subject matter. Specialist advice should be sought
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