Canada: Case Commentary: Himark Homes Ltd. V Janas, 2017 BCSC 1719 And Subrogated Warranty Claims Against Building Consultants

Last Updated: January 5 2018
Article by Karen L. Weslowski

Introduction

All new homes constructed in British Columbia are required to be protected by home warranty insurance obtained by the builder. Generally, pursuant to the terms and conditions of the warranty insurance, the builder is required to remediate any deficiencies in the home which fall within coverage. Should the builder fail to honour the warranty and perform the repairs, the warranty insurance provider undertakes the repairs or compensates the homeowner for the cost of the repairs.

Once repairs are performed or a payment made, the warranty provider typically subrogates against the builder, as well as other consultants and trades involved in the original construction. Architect and engineers are often also named in these subrogated claims, either as defendants or third parties.

A recent decision of the British Columbia Supreme Court illustrates a novel approach taken by a builder in the defence of such a warranty claim.

Facts of the Case

The homeowners, Mr. and Ms. Janas purchased a new home built by Himark Homes Ltd. ("Himark"). The home was protected under a new home warranty offered by Pacific Home Warranty Insurance Services Ltd. ("Pacific") and Echelon General Insurance Company ("Echelon"). Mr. and Ms. Janas made two separate claims under the warranty in connection with alleged construction deficiencies. Pacific and Echelon settled the deficiency claims, paying out $84,789.60 to Mr. and Ms. Janas. Under the terms of its contract with Pacific and Echelon, Himark then owed Pacific and Echelon a debt equal to the amount of the claim plus an 18% penalty on account of the deficiencies.

Himark filed a Notice of Civil Claim against Pacific, Echelon and Mr. and Ms. Janas alleging that Pacific and Echelon breached their contract with Himark by improperly settling the deficiency claims, without first allowing HImark the opportunity to remedy the deficiencies. Himark alleged that Mr. and Ms. Janas, in refusing to allow Himark to enter the property to address the deficiencies, induced Pacific and Echelon to breach their contract with Himark.

Mr. and Ms. Janas applied for summary dismissal of Himark's claim. Without commenting upon the strength or likelihood of success of Himark's case against Mr. and Ms. Janas, the court concluded that the claim did raise triable issues. As a result, Mr. and Ms. Janas' application was dismissed.

Mr. and Ms. Janas argued that Himark's action was bound to fail because there was no hope of establishing that they engaged in any conduct that could be said to have induced Pacific and Echelon to breach their contract with Himark. However, the court noted that the evidence might reasonably be interpreted to support a different conclusion. Mr. and Ms. Janas made claims under the new home warranty, the terms of which provided that the "insured" (i.e. Mr. and Mrs. Janas) must permit the warranty provider and the "member" (i.e. Himark) to enter the subject property "at all reasonable times", on "reasonable notice" to investigate claims or undertake repairs under the warranty. Having made claims under the warranty, Mr. and Ms. Janas refused to allow Himark's representative to enter the property. Further, despite their refusal to allow Himark entry to the property, Mr. and Ms. Janas negotiated a settlement of their claims with the warranty providers. The court concluded that these facts raised a triable issue as to whether Mr. and Ms. Janas engaged in conduct that induced a breach of contract.

The court also acknowledged that Himark suffered damages, including being denied the opportunity to remedy the deficiencies that were the subject of the warranty claims. Himark claimed it would have been able to remedy the deficiencies for a "fraction" of the amount paid to settle the claims.

While the court noted that the evidence was "general and somewhat conclusory" at this stage, there was a triable issue on the question of whether the conduct of Mr. and Ms. Janas induced a breach of contract causing Himark to suffer damages.

Implications for Subrogated Claims against Building Consultants

Leaving aside the merits of a claim, there are few "technical" defences available for building consultants to defend claims made by warranty providers.

In The Owners, Strata Plan 4249 v. Travelers Insurance Company of Canada, 2015 BCSC 172, the court acknowledged that, although historically, the case law was unclear as to whether an insurer must first pay out under its policy before it could bring a subrogated claim, most modern Canadian rules of civil procedure, and resulting cases, suggest that payment under a policy is not necessary before the subrogated third party proceedings may be brought.

The Himark case does not provide building consultants with any new technical or substantive defences to warranty claims, but it may suggest an avenue by which to explore a reduction of damages.

In this case, the builder argued that it could have remedied the deficiencies for a fraction of the amount paid by the warranty provider to settle the claims. When assessing damages in a subrogated warranty claim against building consultants, it may be worthwhile to investigate whether the builder performed the repairs, and, if not, whether the builder was prepared to do so and whether those repairs could have been completed at a reduced rate. If so, it may be possible to reduce the warranty provider's subrogated claim for damages on this ground.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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