2006 BCSC 219 MWH International, Inc. v. Lumbermens Mutual Casualty Company

Before: The Honourable Mr. Justice Masuhara

Reasons for Judgment

Counsel for the Plaintiff:	J.R. Singleton, Q.C. and B. Cornish
Counsel for the Defendant:	J.M. Shore and J.P. Samson
Date and Place of Trial/Hearing:	October 25 and 27, 2005
	Vancouver, B.C.

Introduction

[1] This application proceeded by way of summary trial pursuant to Rule 18A. The plaintiff, MWH International, Inc. (“MWHI”), seeks a declaration that the defendant, Lumbermens Mutual Casualty Company (“Lumbermens”), is obliged to extend coverage to it under a professional liability insurance policy in respect of a potential claim arising out of the failure of the approach channel to the Keenleyside 170 megawatt power plant in Castlegar, British Columbia on or about April 30, 2004. The plaintiff provided design and engineering services for the design and construction of the power plant, including the approach channel (the “Project”). On or about the said date, a section of the approach channel’s concrete liner was damaged which necessitated the shut down of the power plant. To date the power plant has not returned to its normal generating operations.

[2] The defendant provided professional liability insurance coverage for various parties involved in the design and construction of the Project under a policy effective February 12, 1999 (the “Policy”). Harza Engineering Company, International LP (“Harza LP”) was responsible for the design of the approach channel and was a named insured under the Policy. Harza LP was later converted to the plaintiff corporation, MWHI.

[3] The plaintiff has requested coverage under the Policy. The plaintiff argues that the defendant has a duty to defend the plaintiff upon the reporting of a “CIRCUMSTANCE”. A “CIRCUMSTANCE” is included under the definition of “CLAIM” in the Policy and is defined as “an event reported during the Policy Period from which the insured reasonably expects that a claim could be made”. The plaintiff claims that a CIRCUMSTANCE was reported to the defendant on May 5, 2004.

[4] The defendant argues that it is not the reporting of a CIRCUMSTANCE but the reporting of a “CLAIM against the INSURED seeking DAMAGES” that triggers the duty to defend under the Policy.

[5] Further, the defendant argues that it has no obligation to extend coverage under the Policy to the plaintiff for acts, errors, or omissions made by it subsequent to December 30, 2003, on the basis that MWHI was not a named insured under the Policy nor was it in existence during the period covered by the Policy.

THE ISSUES

[6] The issues that arise are as follows:

(a) Has the duty to defend the plaintiff been triggered under the Policy? If so, from what date did the duty to defend arise?

(b) Is the plaintiff entitled to coverage as an insured under the Policy for any acts, errors or omissions relating to its provision of professional services after December 2003, when it was first created?

[7] Both parties agree that a summary trial is appropriate to resolve this dispute and I agree that the issues are well suited for this type of proceeding.

BACKGROUND AND CHRONOLOGY

The Construction Contract

[8] On December 31, 1998, Arrow Lakes Power Company (“ALPC”) entered into a Design-Build Contract with Peter Kiewit & Sons Co. Ltd. (“PKS”) for the design and construction of the Project (the “Contract”).

[9] The Contract required ALPC to procure and maintain specific coverage, including professional errors and omissions insurance for the Project.

[10] On December 31, 1998, PKS entered into a subcontract with Harza LP, a Delaware limited partnership, pursuant to which Harza LP agreed to provide design and engineering services to the Project.

The Insurance Policy

[11] In accordance with the Contract, ALPC obtained a professional errors and omissions contract of insurance with the defendant: Policy No. 4LS000098, effective February 12, 1999 to January 1, 2003.

[12] Item VI of the Declarations states:

COVERED PROFESSIONAL SERVICES: All professional services of the Named Insured for the design and construction of the Keenleyside Powerplant Project consisting of a 170 megawatt Hydroelectric powerplant to be constructed in the vicinity of Castlegar, British Columbia, and including approach channel, tailrace, 49 kilometre transmission line, and all related infrastructure.

[13] Endorsement No. 10 to the Policy extended the Policy period from January 1, 1999 to January 1, 2005.

[14] Endorsement No. 11 to the Policy added Harza LP as an Additional Named Insured, effective February 12, 1999.

[15] The definition of “CLAIM” in the Policy states:

CLAIM means a demand received by the INSURED for money or services, including the service of suit or institution of arbitration proceedings against an INSURED.

[16] Endorsement 6 modifies the definition of “CLAIM” and states:

The definition of Claim shall include a CIRCUMSTANCE.

CIRCUMSTANCE means an event reported during the Policy Period from which the insured reasonably expects that a claim could be made.

[17] The section VIII “NOTICE” provisions state:

A. As a condition precedent to the coverage hereunder, in the event of a CLAIM, written notice containing particulars sufficient to identify the INSURED and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of available witnesses, shall be given by or for the INSURED to the Company as soon as practicable.

[...]

C. If the INSURED becomes aware of a circumstance for which this Policy may apply, and if during the POLICY PERIOD the INSURED gives written notice containing the following to the Company:

1. details of the suspected act, error or omission or POLLUTION CONDITIONS and the respective PROFESSIONAL SERVICES or COVERED OPERATIONS rendered by or on behalf of the INSURED, and

2. the specific nature and extent of the DAMAGES suspected, and

3. how the INSURED first became aware of such circumstances,

then any CLAIM that may subsequently be made against the INSURED arising out of such circumstances shall be deemed to have been made on the date first written notice of the circumstances was received by the Company in accordance with these conditions. The right conferred upon the INSURED herein shall not apply during the Automatic Extended Reporting Period.

[18] The insurer’s duty to defend the insured is found in section VII, ”DEFENSE, SETTLEMENT AND COOPERATION”, which states:

A. With respect to the insurance afforded by this Policy, the Company shall defend any CLAIM against the INSURED seeking DAMAGES to which this insurance applies, even if any of the allegations are groundless, false, or fraudulent. It is further agreed that the Company may make such investigation of any CLAIM as it deems expedient, but the Company shall not be obligated to pay DAMAGES or to defend or to continue to defend any CLAIM after the applicable limits of the Company’s liability have been exhausted by payment of DAMAGES and/or CLAIMS EXPENSE.

The Approach Channel Failure

[19] The power plant was designed and constructed between 1998 and 2002. It commenced operations in early 2002.

[20] On or about April 30, 2004, anomalous water levels were detected at the intake. Shortly after, damage was discovered to a section of the approach channel’s concrete liner (the “Channel Failure”). The cause of the Channel Failure was not immediately apparent. As a result of the Channel Failure, the power plant was shut down and notice was given to the appropriate regulatory authorities.

[21] In the first few days of May 2004, various meetings were held between ALPC, PKS, and MWHI in the course of which ALPC requested that MWHI and PKS investigate the possible causes of the Channel Failure and implement contingency plans to reduce piezometric levels. It is during this period that ALPC representatives alleged that defects in design and/or construction were potentially a cause of the Channel Failure.

[22] By letter dated May 7, 2004, Land and Water British Columbia Inc. imposed rigorous conditions on ALPC (as licensee of the power plant) related to the Channel Failure and any future resumption of the power plant’s operations. To date, the power plant has not returned to its normal generating operations.

Correspondence Between the Parties Following the Channel Failure

[23] On May 5, 2004 the insurance broker responsible for placing the Policy, Willis Canada Inc. (“Willis”), notified the defendant of a potential claim arising out of the Channel Failure. This notice, entitled “Report of Loss or Accident”, sets out various details such as the policy number, the date of the loss, the location of the loss, and the name of the insured as “Klohn Cripper/SNC et al. c/o Columbia Power Corp”.

[24] On May 6, 2004, ALPC wrote to PKS to request that PKS and MWHI advise of all possible causes of the Channel Failure on a priority basis.

[25] On May 17, 2004, the defendant wrote to PKS and to Willis and acknowledged receipt on May 6, 2004 of the May 5, 2004 notice from Willis under the Policy. In its letter, the defendant stated its assumption that the notice had been provided on behalf of PKS and requested that it be advised otherwise. The defendant also stated that the information provided did not describe the problem and how it related to the services or work performed by PKS. The defendant then specified further information and documentation it required.

[26] On May 26, 2004, PKS wrote to the defendant to further advise it as to the circumstances of the Channel Failure and to provide available information and documentation. The May 26, 2004 letter and its enclosures were delivered to the defendant on May 27, 2004. The letter states that “Kiewit and its designer, Harza, have denied any responsibility for the incident, but in the interest of safety, we have instituted emergency repairs to help the owner prevent any consequential damage.” It further states that “Kiewit and Harza are currently discussing the advisability and creation of a Joint Defense Agreement to protect and facilitate the transmittal of information between the parties.”

[27] By letter dated June 10, 2004, Mr. Singleton wrote to the defendant and advised it that he was representing MWHI in a potential claim against MWHI and others by ALPC. He advised that:

Although no formal proceedings or formal claim has yet been advanced against MWH, both ALPC and Peter Kiewit Sons Co. Ltd. (“PKS”) have intimated that a claim may well be made depending on the outcome of the current investigation into the cause of the failure of the concrete approach channel to the Keenleyside Powerhouse.

He also advised the defendant as to the nature of the problem as follows:

A sizeable portion of the concrete floor of the channel failed on April 30, 2004. The powerplant has been out of operation since that date, emergency repairs have been carried out and more permanent repairs are in the course of being planned. The maximum estimated claim is in excess of $50 million (Canadian) broken down approximately equally between repair costs and loss of income.

[28] On June 11, 2004, ALPC advised PKS that:

It is critical that the Approach Channel Invert Damage be repaired as soon as possible so that power generation can resume to mitigate damages that ALPC is suffering and for which others may ultimately be liable.

[...]

Given everyone’s recognition of the need to minimize loss of power generation, ALPC respectfully requests that PKS/Harza now wait to submit their preferred option but, instead, immediately submit a summary of all options being considered together with a brief technical description of each option so that ALPC and the Owners’ Consultant can being to familiarize themselves with them.

[29] Between June and November 2004, further information was provided to the defendant, who was asked to extend coverage. In particular, Mr. Singleton provided considerable detail in a letter dated August 11, 2004.

[30] Despite these communications, the defendant declined to extend coverage and this action was commenced on November 17, 2004.

[31] By letter dated March 31, 2005, ALPC advised PKS in part as follows:

Arrows Lake Power Corporation (“ALPC”) hereby gives notice to Peter Kiewit Sons Co (“PKS”) that ALPC holds PKS and its subcontractors solely responsible for all damage that occurred to the approach channel on or about 30 April 2004 (the “Approach Channel Damage”) and ALPC requires PKS, at its cost, to implement permanent repairs and to take such measures as are reasonable to prevent a reoccurrence of such damage.

ALPC also hereby confirms that ALPC holds PKS responsible and demands reimbursement for all expenses, loss and damage incurred by ALPC and/or to be incurred by ALPC in relation to the Approach Channel Damage.

[…]

The Approach Channel Damage occurred as a result of PKS’ breach of its obligations under the design-build Contract, negligence, and failure of its duty to warn ALPC of the potential for development of hydraulic conditions that could result in failure of either or both the facility and the existing Hugh Keenleyside Dam, including among others in some or all of the following aspects:

1. failing to design, engineer, procure, construct, commission, performance test and provide on a turnkey basis a complete, operational and safe facility that was suitable and fit for the purposes intended under the Contract;

2. failing to design, engineer and provide an approach channel that prevented unbalanced uplift pressures acting on the approach channel concrete lining under all operating conditions contemplated under the Contract;

3. failing to design, engineer and provide an approach channel with the approach channel capacity limits in the Contract;

[…]

ALPC also hereby gives notice to PKS pursuant to Section 5 of the Appendix 19-2 of the Contract that PKS is required to perform Availability Remedial Works as required to correct the cause of the Approach Channel Damage and to minimize the probability of a reoccurrence of such damage and increased future outages.

Within twenty-one (21) days of the date of this letter ALPC requires PKS to submit to ALPC, for ALPC’s review and approval, a plan and schedule for PKS’ proposed design and construction of a permanent repair of the Approach Channel Damage, all at PKS’ expense. If a detailed plan and schedule can not be prepared within than (sic) time, ALPC requires PKS’ written commitment that PKS will provide the detailed work plan and schedule and undertake the permanent repairs, all at PKS’ expense.

[32] PKS provided the March 31, 2005 letter to the defendant on April 27, 2005. The plaintiff provided a copy of this letter to the defendant on June 7, 2005.

[33] On April 6, 2005, the plaintiff provided a List of Documents with respect to this action which included inter alia:

(a) The names and contact information for any available witnesses.

(b) All documents received from the Owner of the Power Plant relating to the Channel Failure including details of the Owner’s demands for services, or allegations of acts, error, or omissions of professional services against MWH.

(c) In addition to documents noted in (a) and (b) above, information concerning the circumstances surrounding the Channel Failure and subsequent events including to but not limited to interim repair work surrounding the Channel Failure.

HAS THE DUTY TO DEFEND BEEN TRIGGERED?

The Positions of the Parties

[34] The plaintiff argues that since ENDORSEMENT No. 6 expands the definition of “CLAIM” to include a “CIRCUMSTANCE”, it follows that a CLAIM under the Policy includes “an event reported during the Policy Period from which the insured reasonably expects that a claim could be made”, which is the definition of “CIRCUMSTANCE”. The plaintiff submits that the Channel Failure constituted an event from which the plaintiff reasonably expected that a claim could be made.

[35] The plaintiff submits that a CIRCUMSTANCE was reported to the defendant pursuant to the section VII notice provisions by means of the May 5, 2004 letter from Willis to the defendant. In that letter, Sandra Sherrard of Willis advised the defendant of the Channel Failure. Ms. Sherrard deposed that in providing notice to the defendant, she did so on behalf of Harza LP. She stated the following:

5. I was involved in noting the details of loss, among other tasks and responsibilities, for the “Willis Canada Inc. Report of Loss or Accident” dated May 5, 2004 (“Report of Loss”) and caused the same to be sent to Kemper Environmental Claims Department by way of fax cover of the same date.

6. In the Report of Loss, the Insured was listed as “Klohn Crippen/SNC et al c/o Columbia Power Corp”. This description was intended to include all the named insured listed in the Kemper Policy, including Harza Engineering Company International (“Harza). It is my understanding that Harza is listed as an additional named insured in the Kemper Policy by way of Endorsement No. 11. The use of the language “et al” in this description was therefore intended to cover all other named insured, in addition to the First Named Insured, “Klohn - Crippen Consultants Ltd. and SNC-Lavalin Inc. c/o Columbia Power Corporation”.

[36] The plaintiff also refers to the affidavit of Karen Lubovinsky, a lawyer and the defendant’s Claims Director during the relevant time, in which she deposed she was aware that a CIRCUMSTANCE had been reported on behalf of the plaintiff prior to September 20, 2004. She deposed as follows:

7. On or about May 6, 2004, Sandra M. Sherrard, on behalf of Willis Canada Inc., the insurance broker on behalf of the Owners and all insureds under the Policy, provided initial notice to Lumbermens of the Incident. At the time, I understood that his notice was being given on behalf of PKS.

8. After it became apparent that this circumstance was also being reported to Lumbermens on behalf of MWH International, Inc., I retained Lawson Lundell LLP as British Columbia coverage counsel, and ultimately sent a letter dated September 20, 2004 to John Singleton, counsel for MWH, requesting further information. A copy of my letter to Mr. Singleton is attached as Exhibit “U” to Ms. Araiza-Kasama’s affidavit.

[37] Therefore, the plaintiff submits, the defendant’s obligations under the Policy were triggered as of May 6, 2004. These obligations include: (a) the obligation to pay out, on behalf of the plaintiff, any amount up to the Policy limit relating to the plaintiff’s liability; and (b) the obligation to defend and investigate the reported CIRCUMSTANCE.

[38] The defendant says that the purpose of ENDORSEMENT No. 6 was to define “circumstance” in the context of section VIII C. Moreover, the defendant argues that ENDORSEMENT No. 6 was included in the Policy to clarify a potential ambiguity arising out of the last sentence of section VIII C. The defendant submits that ENDORSEMENT No. 6 confirms that a CLAIM reported during the Automatic Extended Reporting Period pursuant to section V would be deemed to have been made when the defendant first received written notice of the circumstance giving rise to the CLAIM, providing that the circumstance had been reported during the period covered by the Policy. However, the defendant submits, if a circumstance had not been reported until the Automatic Extended Reporting Period, and a CLAIM had not been reported until after that period, the Policy’s notice requirements would not be met.

[39] The defendant argues that, notwithstanding ENDORSEMENT No. 6, it is not simply the reporting of a CLAIM that triggers coverage and the duty to defend under the Policy. The defendant argues that the duty to defend is only triggered once a CLAIM is made “against the INSURED seeking DAMAGES to which this insurance applies”.

[40] The defendant submits that it is inherent under a Claims-Made and Reported Policy that a claim must in fact be made before it can be determined whether that claim will be covered. The defendant relies on Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 (S.C.C.) for the proposition that the determination of whether the duty to defend has been triggered usually involves an analysis of the pleadings giving rise to the claim to determine if the claims advanced fall within the scope of coverage. However, citing Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252 (S.C.C.), the defendant concedes that subject to the wording of a policy, it may not be necessary for a claim to have been advanced by way of pleadings, but some clear communication from a third party holding the insured responsible for the damages suffered is required.

[41] The defendant says that prior to a CLAIM having been articulated by a claimant, it is not possible to determine whether a CIRCUMSTANCE might fall within the scope of coverage provided by the Policy. The defendant submits that none of the letters relied upon by the plaintiff provide sufficient information to conduct an assessment of coverage or to trigger the duty to defend since:

(a) there was no reference to a specific threat or demand or assertion of liability having been made by ALPC or PKS to the Plaintiff and/or Harza LP, to suggest that it would be seeking to recover damages or costs or services from the plaintiff and/or Harza LP; and

(b) the competing suspected theories of liability were not linked to any professional service rendered by the plaintiff and/or Harza LP.

The defendant cites Wright Engineers Ltd. v. U.S. Fire Ins. Co. (1986), 19 C.C.L.I. 74 (B.C.C.A.) for support.

[42] As an alternative, the defendant submits that the notice requirements of the Policy were not met until it received the March 31, 2005 letter, which was included as part of the plaintiff’s document disclosure, on June 7, 2005. As a further alternative argument, the defendant submits that the notice requirements were not met until Mr. Singleton first referred to the March 31, 2005 letter in oral argument on this motion.

Principles of Interpretation

[43] General principles relating to the interpretation of insurance policies are set out in Non-Marine Underwriters, Lloyd’s of London v. Scalera, [2000] 1 S.C.R. 551 at ¶ 71 (S.C.C.):

(1) where a contract is unambiguous, a court shall give effect to the clear language, reading the contract as a whole;

(2) since insurance contracts are essentially adhesionary, the standard practice is to construe ambiguities against the insurer; and that “coverage provisions should be construed broadly and exclusionary clauses narrowly”; and

(3) where there is ambiguity, it is desirable to give effect to the reasonable expectations of the parties.

[44] In Scalera, the Supreme Court of Canada also cites a passage from Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co. (1979), 112 D.L.R. (3d) 49 at 58-59 (S.C.C.):

[L]iteral 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 objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result [...]. Said another way, the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract.

[45] I also note the comments of McLachlin J. (as she then was) in Reid Crowther at ¶14:

The essential is not the label one places on the policy, but what the policy says. The courts must in each case look to the particular wording of the particular policy, rather than simply attempt to pigeonhole the policy at issue into one category or the other. Construction of policies at issue in these kinds of cases depends much more on the specific wording of the policy at issue then on a general categorizing of the policy.

Interpretation of ENDORSEMENT No. 6

[46] In my view, the defendant’s interpretation of ENDORSEMENT No. 6 is too narrow. Although this endorsement may have the effect of clarifying section VIII C, its plain and clear language in the context of the Policy as a whole leads me to conclude that a broad interpretation of the term “CLAIM” as modified by ENDORSEMENT No. 6 applies in the manner argued by the plaintiff.

[47] There is nothing in the wording of ENDORSEMENT No. 6 to limit its application or scope. I note that the endorsement does not simply define “CIRCUMSTANCE”; but also modifies the definition of “CLAIM”. The title of ENDORSEMENT No. 6, “DEFINITION OF A CLAIM”, strengthens the view that a CIRCUMSTANCE is to be included as part of the definition of “CLAIM” throughout the Policy. The language is inclusive as opposed to restrictive.

[48] Nowhere in the endorsement is there language to suggest that its purpose is to clarify an ambiguity. Nowhere in the endorsement is there language that limits its effect to section VIII C. In fact, it is unclear to me how section VIII C is even ambiguous.

[49] To the extent that any ambiguity arises, this is a situation where the maxim contra preferentem applies as the insurer drafted the endorsement. Coverage should be construed broadly.

[50] The term “CLAIM” is one of the most significant terms in the Policy; it is used throughout. The cover page of the Policy states: “This is a Claims-Made and Reported Policy”. If the defendant intended ENDORSEMENT No. 6 to have the narrow construction it suggests, the defendant should have drafted this endorsement much more precisely.

[51] I note that several other endorsements amend or modify the Policy; specific provisions are deleted and substituted with others. In my view, the clarification suggested by the defendant could have been more reasonably achieved by amending the wording of section VIII C. This would have been more consistent with the defendant’s approach to other changes to the Policy.

[52] My finding does not bring about an unrealistic result or one beyond the reasonable contemplation of the parties. Claims-Made and Reported policies were devised by insurance companies in order to better manage their risk by limiting coverage to claims made during the coverage period. In the context of this type of insurance, it is realistic that an insured would seek to broaden the scope of coverage by expanding the definition of a claim. Given the complexity of this project, the number of parties involved, the likelihood that problems would arise, and the variables underlying any such problems, it is reasonable that coverage could be triggered upon the reporting of a CIRCUMSTANCE.

Does Notice of a CIRCUMSTANCE Trigger the Duty to Defend?

[53] Pursuant to section VII, the defendant has a duty to defend the plaintiff once a CLAIM has been advanced “against the INSURED seeking DAMAGES to which this insurance applies”. Given my finding that a CLAIM includes a CIRCUMSTANCE, all the plaintiff must establish is that an event has been reported to the defendant from which the plaintiff reasonably expects that a claim for damages could be made to which the Policy applies.

When was the Defendant Given Notice of a CIRCUMSTANCE Sufficient to Trigger the Duty to Defend?

[54] By virtue of ENDORSEMENT No. 6, the notice requirement relevant to the Channel Failure is paragraph A of section VIII. It appears to me that ENDORSEMENT No. 6 rendered the notice provision under paragraph C superfluous. Nevertheless, I find below that the plaintiff has met the conditions set out in paragraph C as well as paragraph A.

[55] A review of the section VIII notice provisions reveals the following:

With respect to paragraph A, the requisite notice has to:

(a) be in writing;

(b) contain particulars sufficient to identify the insured;

(c) provide reasonably obtainable information with respect to the time, place, and circumstances of the claim and the names and address of available witnesses; and

(d) be given by or for the insured.

With respect to paragraph C, the requisite notice has to:

(a) be in writing;

(b) be given by the insured;

(d) provide the specific nature and extent of the damages suspected; and

(e) advise the insurer how the insured first became aware of the circumstance.

In addition to these requirements, the notice provided to the defendant must establish that the plaintiff reasonably expected ALPC to make a demand for “DAMAGES” as defined in the Policy.

[56] It appears that the May 6, 2004 letter the plaintiff refers to did not clearly identify the plaintiff as an insured. Therefore, it fails to meet the section VII notice requirements.

[57] In a June 10, 2004 letter, Mr. Singleton advised the defendant that he represented MWHI in relation to “a potential claim against [MWHI] and others by Arrow Lakes Power Company (“ALPC”)”. He also advised the defendant that:

Although no formal proceedings or formal claim has yet been advanced against MWH, both ALPC and Peter Kiewit Sons Co. Ltd (“PKS”) have intimated that a claim may well be made depending on the outcome of the current investigation into the cause of the failure of the concrete approach channel to the Keenleyside Powerhouse. A sizeable portion of the concrete floor of the channel failed on April 30, 2004. The powerplant has been out of operation since that date, emergency repairs have been carried out and more permanent repairs are in the course of being planned. The maximum estimated claim is in excess of $50 million (Canadian) broken down approximately equally between repair costs and loss of income.

[58] In this letter, Mr. Singleton clearly identifies his client, MWHI. He also sets out reasonably obtainable information with respect to the time, place and circumstances of the Channel Failure. He names the Project, the claimant, the name of the insurer, and the Policy number. It is clear the Policy is for professional liability insurance. He gives a description of the circumstance and sets out a basis from which the insured could reasonably expect that a CLAIM for DAMAGES could be made. Specifically, between repair costs and loss of income, he suggests that the CLAIM is likely to be in excess of $50 million.

[59] From Ms. Lubovinsky’s affidavit, it is clear the insurer understood a circumstance was being reported for MWHI and that it was as a result of the June 10, 2004 letter, as shortly thereafter, Mr. Singleton appears to have been advised that Mr. Weatherill had been retained to represent the defendant.

[60] On an objective assessment of the material, there is no question and no dispute from counsel that the plaintiff reasonably expected that a claim was likely to arise out of the Channel Failure.

[61] I conclude that the plaintiff provided notice of a CIRCUMSTANCE and therefore a CLAIM under both paragraphs A and C when Mr. Singleton’s June 10, 2004 letter was provided to the defendant. At this time, the duty to defend was triggered and the defendant had an obligation to extend coverage.

IS MWHI A NAMED INSURED UNDER THE POLICY?

[62] On December 30, 2003, Harza LP was converted, pursuant to Delaware law, from a limited partnership to a corporation and its name changed to MWHI. On the same day, MWHI was merged with Harza Engineering Company International LLC (“Harza LLC”), a Delaware limited liability company (and the former general partner of Harza LP), also pursuant to Delaware law (the “Corporate Re-organization”). The merged corporation carried on as MWHI.

[63] The defendant submits that there is no obligation to extend coverage under the Policy to the plaintiff for acts, errors, or omissions made by it after the 2003 conversion and merger on the basis that:

(a) no claims against the Plaintiff seeking damages have been asserted by a claimant nor reported to Lumbermens, as the plaintiff is not a subcontractor or subconsultant of PKS;

(b) any work carried out by the Plaintiff after the Conversion and 2003 Merger fell outside of the scope of coverage afforded by the Policy, as the design and construction of the Project was completed before the Plaintiff was created;

(d) the Conversion and 2003 Merger resulted in a material change in risk to Lumbermens, without the knowledge or consent of Lumbermens, contrary to law principles.

[64] The parties do not dispute that the Policy relates to the design and construction of the Project. There is no dispute that Harza LP (now MWHI) is a named insured and that its design work at issue was performed prior to the conversion and merger.

[65] Having determined that there is coverage and that the duty to defend has been triggered in respect of the work provided by Harza LP, this issue need not be determined at this stage. The parties have requested leave to bring this matter before me should it later require determination.

WHAT FORM SHOULD THE DECLARATION OF COVERAGE TAKE?

[66] The defendant submits that a declaration of coverage should be made expressly subject to the terms, conditions, exclusions, and provisions of the Policy, and in particular, subject to stacking and sharing issues with other available insurance, and subject to satisfaction of all conditions precedent to coverage.

[67] The defendant argues that some aspects of the claim may fall outside the scope of coverage and, in some cases, may be expressly excluded by the Policy. The defendant submits that its duty to defend arises only with respect to those claims that may be covered.

[68] The defendant submits that the Policy is an excess policy and that the defendant may be entitled to contributions from other insurers. The defendant argues that stacking would require the plaintiff to exhaust its primary coverage before it could seek excess coverage from the defendant. The defendant complains that the plaintiff has not disclosed potentially relevant policies of insurance and correspondence.

[69] The defendant also says it has not received:

(a) reasonably obtainable information with respect to the circumstances of the claim;

(b) the names and addresses of any available witnesses;

(d) details of the acts, errors or omissions of professional services alleged against the Plaintiff and/or Harza LP.

[70] The plaintiff submits that unless and until the defendant acknowledges that the duty to defend has been triggered under the Policy, the defendant has no right to argue that the plaintiff has failed to make proper disclosure. Nevertheless, on April 6, 2005, the plaintiff provided the defendant with a List of Documents that contained much of the requested information. Furthermore, the plaintiff agrees that any declaration of coverage should be subject to the terms, conditions, exclusions, and provisions of the Policy, and in particular, subject to stacking and sharing issues with other available insurance, and subject to satisfaction of all conditions precedent to coverage.

[71] The plaintiff says it has advised the defendant that the only other professional liability policy carried by Harza LP was specifically written to be in excess of the Policy. A copy of this Lloyds policy was provided to the defendant. The plaintiff points to Exclusion M of the said policy which states:

This policy does not provide coverage and the Company will not pay Claim Expenses or Damages for:

M. any Claim based upon or arising out of Professional Services rendered by the Insured in connection with any project where the Insured has procured a professional liability insurance policy purporting to apply to such specific project.

[72] Given the positions of the parties, I make the declaration in the form requested by the defendant.

CONCLUSION

[73] The plaintiff provided the defendant with notice of a CLAIM on June 10 2004. I find that coverage obligations arose from that date and that the duty to defend was triggered at that time.

[74] This declaration is subject to the terms, conditions, exclusions and provisions of the Policy, and in particular, subject to stacking and sharing with other available insurance.

[75] The parties are at liberty to apply for any further directions that may be required to give effect to this order.

“D. Masuhara, J.”
The Honourable Mr. Justice D. Masuhara

Citation:	*MWH International, Inc. v. Lumbermens Mutual Casualty Company,*
	2006 BCSC 219