Why Lloyd’s has to defend a progressive property damage case

Lloyd’s of London has a duty to defend the City of Timmins in a negligence lawsuit, in which homeowners are suing the city for failing to prevent progressive land erosion that led to an order to remove, relocate or demolish their home along the Mattagami River.

Karine Forget-Briand and Marcel Forget bought vacant land in Timmins, Ont., in 2012. The city is responsible for issuing building permits for the construction of homes within city limits. Granted a building permit by the city, the Forgets built a home on their property and moved into it in December 2013.

However, a slope on the adjoining property started to fail in September 2016. Since then, ongoing erosion affected the stability of the Forgets’ property. Finally, in December 2019, the city issued an order requiring the Forgets to remove, relocate or demolish their home.

The Forgets have sued the City of Timmins for negligence, arguing it did not properly address the drainage and erosion issues that affected the adjoining property, which progressively caused damage to their own property. The city denies the allegations. The statements contained in the lawsuit have not been proven in court.

AIG Insurance Company of Canada insured the city in 2016 and 2017, while Lloyd’s insured the city in 2018 and 2019. AIG is defending the claim and brought a motion that Lloyd’s should have to defend the claim as well.

But Lloyd’s denied its duty to defend, saying the ‘occurrence’ of property damage happened before the time of its policy coverage period. Also, Lloyd’s argued, an exclusion in its policy denied coverage for “property damage expected or intended from the standpoint of the insured.”

In making its case before the court, Lloyd’s said any ‘occurrence’ of property damage was clearly present before the time of a report prepared in May 2017. At that time, the City of Timmins commissioned the geotechnical firm Amec Foster Wheeler Environment & Infrastructure to prepare a report [the AMEC report], which found drainage and erosion issues on the property adjacent to the Forgets’ plot of land.

The report recommended some remediation methods to improve drainage and prevent further erosion.

Lloyd’s further argued that, since these issues had been identified in the AMEC report in 2017, any further property damage should have been ‘expected’ or ‘intended’ from that point forward. And so, its policy exclusion would apply.

The trial judge rejected Lloyd’s arguments, and so did the Appeal Court.

Basically, the Appeal Court found Lloyd’s placed too much emphasis on the 2017 AMEC report, which was not part of the pleadings, and was really just ‘preliminary’ in nature.

For example, the Appeal Court found the contents of the AMEC report would have to be assumed to be true, in order to determine whether the insurer had a duty to defend. However, one caveat is that the evidence in the report should not be assumed to be true if it contained ‘premature’ statements of fact. In other words, it could not be assumed to be true if some of its statements required a “trial within a trial” to determine their truth.

“The application judge concluded that…the AMEC Report was ‘not sufficiently robust in its analysis and conclusions to bear the weight and force Lloyd’s purports to accord it,’” the Appeal Court ruled in a decision released Friday. “Due to its preliminary nature and qualifying language, the application judge found the AMEC Report could not fairly be construed as a ‘crystallizing event’ after which ongoing damage to the property could no longer be seen as accidental and had to be seen as ‘expected or intended.’

“To the contrary, he found…the evidence confirmed there were ongoing investigations and discussions of potential remediation and that the pending trial would determine what steps were the right ones, who had responsibility for them, and whether the investigation and remediation in which the City was involved met the required standard.”

Feature photo courtesy of iStock.com/Andrey Bryzgalov