2003BCSC1161

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:	*Kingsway General Insurance Company v. Lougheed Enterprises Ltd., et al*,
	2003 BCSC 1161

Date: 20030723

Docket: L023867

Registry: Vancouver

Between:

Kingsway General Insurance Company

Petitioner

And

Lougheed Enterprises Ltd. and

Vine Enterprises Ltd.

Respondents

And

Dawson & Dawson Consultants Ltd.

Intervenor

Before: The Honourable Mr. Justice Melnick

Reasons for Judgment

Counsel for petitioner	E.A. Dolden
Counsel for respondents	P.R. Miller
Counsel for intervenor	J. Lamb
Date and Place of Hearing:	June 17 and 18, 2003
	Vancouver, B.C.

[1] Kingsway General Insurance Company (“Kingsway”) petitions the court to declare that it is not required to defend Lougheed Enterprises Ltd. (“Lougheed”) and Vine Enterprises Ltd. (“Vine”) against actions brought against them by the owners of a condominium complex. Kingsway insures Lougheed and Vine under a policy of liability insurance but asserts that the subject matter of the claims is not within the scope of coverage of the policy.

I. THE POLICY OF INSURANCE

[2] Lougheed and Vine are named insureds on policy number CLP1030K (“the policy”) under which Kingsway provides them certain liability coverage. In 2002, an action was commenced against Lougheed and Vine and others, and another action against Lougheed and others, by the owners of a condominium complex that had been constructed in part by Lougheed and Vine, but as participants in a partnership, Blundell Place Partnership (“Blundell”). The actions allege negligence on the part of Lougheed and Vine and concern matters which would be within the scope of coverage of the policy if not for what Kingsway alleges is a bar to indemnity. That is, the definition of “insured” in the policy states:

No person or organization is an insured with respect to the conduct of any current or past partnerships or joint venture that is not shown as a Named Insured in the Declarations. (the “clause restricting coverage”)

[3] It is not disputed that Blundell is not a named insured in the policy. Nor is it disputed that the design and construction work done by Lougheed and Vine on the condominium complex that is claimed to have given rise to the loss was done as part of the partnership in Blundell (except possibly with respect to the allegation in one action that Lougheed acted as a design consultant). However, Lougheed and Vine point out that they are each alleged to have individually committed acts of negligence and that there is no express plea in the claims against them that they are liable solely as partners in a partnership.

[4] In the policy, the word “insured” is defined to include “Named Insured” as well as (from clause 2 of the policy):

(a) any partner … with respect to acts performed on behalf of the Named Insured in that capacity

(b) any owner, person, firm, organization, trustee, estate or governmental entity to whom or to which the Named Insured has contracted to effect insurance by virtue of a contract of agreement or by the issuance or existence of a permit. But the insurance provided for such additional insured is restricted to apply solely to liability arising out of operations performed under said contract and only to the extent required by such contract:

It is understood and agreed however that the above extension (b) does not apply to subcontractors or contractors working on behalf of the Named Insured

(c) co-owners, joint ventures or partners having a non-operating interest with the Named Insured in the operations insured hereunder.

(d) all employee social clubs which manage, operate, control or supervise recreational activities under the auspices of the Named Insured.

(e) any organization you newly acquire or form other than a partnership or joint venture and over which you maintain ownership or majority interest will be deemed an Insured

[5] Lougheed and Vine argue that if Kingsway is correct in its position, then clause 2(c) has no meaning. That is, if Blundell was a named insured, then all members of the joint venture would be insured, which would mean there would be no need to extend coverage to them in that clause. Thus, on a true construction of the policy, argues Lougheed and Vine, the clause restricting coverage upon which Kingsway relies must mean that while coverage is not extended to Lougheed and Vine for liability arising out of the acts of other partners, it does provide coverage for their own negligent acts. As they have both been sued for their own negligent acts, they have coverage and Kingsway is bound to defend.

[6] During the course of the hearing, I gave leave for Dawson & Dawson Consultants Ltd. (“Dawson”) to intervene. Dawson is the insurance broker that arranged for the policy. It is Dawson’s position that, as named insureds, Lougheed and Vine are “insureds” under the policy for all purposes unless the exclusions section of the policy states a circumstance in which they are not covered (the clause relied on by Kingsway is found in the definition section, not the exclusion section, of the policy). A definition section of a policy gives meaning to words used in the policy but is not designed to create or limit coverage, Dawson submits. In any event, says Dawson, echoing Lougheed and Vine, the restriction relied on by Kingsway only makes sense, in the context of the entire definition of insured, if it is taken to mean that only the partnership with which Lougheed and Vine were associated is not afforded coverage.

[7] In the alternative, Dawson suggests that the allegations against Lougheed and Vine are not clear with respect to the conduct of Blundell. That is, the pleadings allege negligence against Lougheed and against Vine and, even if those allegations against Lougheed and Vine in their own right are groundless, Kingsway has a duty to defend them.

II. PRINCIPLES OF INTERPRETATION

[8] I must examine the clause restricting coverage in the context of its place within the policy, and the policy as a whole (Jacobsen et al v. Bergman et al, 2002 BCCA 102 per Lambert J.A. at paras. 3 and 4). I must also search for an interpretation from the whole of the policy which reflects the true intent of the parties at the time they entered into the policy (Brissette Estate v. Westburg Life Insurance Co. (1992), 96 D.L.R. (4^th) 609 at 611 (S.C.C.)). If I find the policy to be clear and unambiguous, extrinsic evidence as to the subjective intentions of the parties is inadmissible (Eli Lilly & Co. v. Novopharm Ltd. (1998), 161 D.L.R. (4^th) 1 (S.C.C.) per Iacobucci J. at para. 55).

[9] In Eli Lilly, Mr. Justice Iacobucci, at para. 52, referred to the judgment of Mr. Justice Estey in Consolidated-Bathurst Export v. Mutual Boiler Ins. (1979), 112 D.L.R. (3d) 49 (S.C.C.) as follows:

In order to ascertain whether the supply agreement conferred or had the effect of conferring a sublicence upon Apotex, it is first necessary to consider the proper approach to the interpretation of such a contract, and, in particular, the evidence which may be considered in this respect. In Consolidated-Bathurst, supra, at p. 901, Estey J., writing for himself and Pigeon, Dickson, and Beetz JJ., offered the following analysis:

Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objectives in entering into the commercial transaction in the first place should be discarded in favour of an interpretation … which promotes a sensible commercial result.

And at para. 56:

When there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst that the interpretation which produces a “fair result” or a “sensible commercial result” should be adopted is not determinative. Admittedly, it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractual intent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it is presumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, in Joy Oil Co. v. The King, [1951] S.C.R. 624, at p. 641:

…in construing a written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, but the meaning of the words as used by the writer.

III. DISCUSSION

[10] Dawson objected to my considering an affidavit of a Mr. R. Scott Brearley which provided certain extrinsic, or background, evidence. However, Kingsway argued that, even if I do not consider Mr. Brearley’s affidavit, I am at liberty to consider, and should consider, the statements of defence of Lougheed and Vine in the underlying tort actions which assert, by way of defence, that the condominium complex was developed and owned by Blundell. However, in my view, I am bound to look first at the policy as a whole to determine whether its plain meaning reflects the intent of the parties.

[11] In that regard, I have no doubt that the intent of the parties was that Kingsway would provide liability coverage to Lougheed and to Vine but not if they carried out an otherwise insured activity as part of a partnership with a third party who was not a named insured. It may be that placing the clause restricting coverage in the exclusion section of the policy would have emphasized that point. However, it is no less unambiguous in the section that defines who is an insured.

[12] I take a measure of comfort in this from two cases from the United States in each of which the same clause, in the same (definition) section of a liability policy, was found to exclude coverage and relieve the insurer of a duty to defend (see Geoffrey H. Palmer et al v. Truck Insurance Exchange et al, 78 Cal. Rptr. (2d) 389 (Cal.C.A. 1998) and Hardeman v. Commonwealth Lloyds Ins. Co., 1999 Tex. App. LEXIS 151, No. 04-98-00487 (Tex. App. Dist. 4 01/13/1999) [unpublished].

[13] I do not accept that the words used in the policy were intended to reflect that Lougheed and Vine would be covered for their own participation in the partnership activities as distinct from the activities of the third party partner(s) or the partnership itself. The policy reflected the contractual agreement between Kingsway and Lougheed and Vine at the time of writing the policy (which surely was material to the risk assumed by Kingsway) that Lougheed and Vine would be engaging in development and construction, but not as part of a partnership unless on the terms defined in the policy, including the clause restricting coverage. Neither does the material before me support my concluding that Lougheed is covered for the design consulting it did as part of its contribution to this project. The clause restricting coverage is clear and is a bar to coverage.

IV. CONCLUSION

[14] The petition of Kingsway is granted. There is a declaration that it is not required to defend Lougheed or Vine in Actions S011712 and S003744.

[15] Kingsway is entitled to its costs against Lougheed and Vine on Scale 3.

[16] I indicated when I allowed Dawson to intervene that it would be on the basis that there would be no order for costs in its favour if it was successful, and no order against it if not, unless its counsel did no more than echo the submission already advanced by counsel for Lougheed and Vine. I am satisfied that Ms. Lamb for Dawson made a useful contribution beyond that provided by counsel for Lougheed and Vine. Therefore, I make no award of costs against Dawson.

“T.J. Melnick, J.”
The Honourable Mr. Justice T.J. Melnick