Crosslinx Transit Solutions Constructors v. Capital Sewer Serving Inc., 2021 ONSC 1091.
On February 21st, 2018, Capital Sewer Serving Inc, (the Respondent) was doing subcontracting work on a sewer line for the Crosstown LRT project in Toronto. That evening a sewage backup damaged two properties in the area where the Respondent was working. The property owners brought a claim against the Respondent and the contractor, Crosslinx Transit Solutions Constructors (the Applicant). Pursuant to the subcontract, the Applicant requested an order which would require the Respondent to indemnify and hold the Applicant harmless. In response, the Respondent brought a cross application with the intent of receiving a declaration that they had no obligation to indemnify the Applicant.
The Applicant had a project agreement and a construction contract to do construction work for the Crosstown LRT project in Toronto. The Applicant subcontracted the Respondent to carry out the sewer lining work. This subcontract required that the Respondent be covered under a “wrap up” policy for the project. This meant that the Respondent would indemnify and hold harmless the Applicant for all claims arising out of the performance of their subcontract.
The Respondent relied on a trilogy of cases to argue that the they had no obligation to indemnify or defend the Applicant. These cases exhibited that a contractual covenant by one party to secure insurance operates as an assumption by that party of the risk of loss or damage caused by the peril to be insured against. Justice Koehnen had to determine if there was a conflict between the Applicant’s Crosstown LRT construction project contract and the sewer lining subcontract between the Applicant and the Respondent. The more specific issue was whether the contractual indemnity clause between the Applicant and the Respondent overrode the more general contract’s covenant on “wrap up” commercial liability policy.
The court observed that the terms between both contracts were almost identical. The court noted at paragraph 27:
“ … section 2.1 of the Subcontract incorporates by reference the terms of the Construction Contract it does so “with the changes necessary to give full effect to the intent of the parties as set out in this Subcontract, and subject to the express terms and conditions hereof”.
Justice Koehnen then concluded that the provision of the subcontract took precedence over the provisions of the construction contract which are incorporated by reference.
The court referred to the important rule of law that they must interpret contracts in a way that gives meaning to all its terms and avoid interpretations that render one or more terms ineffective. Justice Koehnen concluded that the interpretation given by the Respondent was correct. The terms of the subcontract took precedence over the more general construction contract.
The Court held that the Respondent owed a duty to defend the contractor under the subcontract because the true nature of the claim related to property damage alleged to have been caused by the negligence of the subcontractor. In arriving at this decision, Justice Koehnen ruled in favor of the Applicant and dismissed the Respondent’s cross application.
You can read Crosslinx Transit Solutions Constructors v. Capital Sewer Serving Inc., 2021 ONSC 1091 in its entirety here.
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