Ipsofactoj.com: International Cases [2002] Part 1 Case 12 [SCC]


SUPREME COURT OF CANADA

Coram

Monenco Ltd

- vs -

Commonwealth Insurance Co

McLACHLIN CJ

ARBOUR J

BASTARACHE J

BINNIE J

GONTHIER J

IACOBUCCI J

LEBEL J

13 SEPTEMBER 2001


Judgment

Iacobucci J

I. INTRODUCTION

  1. This appeal raises the general issue of the scope of an insurer's duty to defend in the presence of two exclusionary provisions within the insured party's comprehensive general liability policy.

    • The first exclusion at issue is a "turnkey exclusion", which applied to claims arising out of a project for which the insured performed professional architectural and/or engineering services, as well as construction or manufacturing services.

    • The second exclusion is a "professional services exclusion", which covered claims based on the insured's rendering or failure to render professional services.

    Pursuant to the terms of the policy involved in the present appeal, if a claim against the insured fell within either of these exceptions, the insurer's duty to defend would not be triggered.

  2. For the reasons that follow, I am of the view that the claims alleged against the insured in the main liability action fell squarely within the terms of the turnkey exclusion. Consequently, I find that the courts below correctly held that the insurer was not obliged to defend the insured in this action. Accordingly, I would dismiss the appeal.

    II. FACTUAL BACKGROUND

  3. Between 1978 and 1987, the appellant Monenco Ltd ("Monenco"), through its subsidiary, the appellant 67669 Alberta Inc. ("67669"), participated in an expansion project of a tar sands plant in Alberta owned and operated by Suncor Inc. ("Suncor"). The involvement of 67669 in the expansion occurred through a joint venture involving 67669, Bechtel Canada Ltd and Associated Engineers Services Ltd. (collectively the "ABM Engineers" or "the joint venture"). On October 7, 1981, Suncor entered into a contract with the ABM Engineers "for the management, engineering, procurement and construction of an expansion of the synthetic crude production capacity of Suncor's then existing plant and facilities." Part of the services performed by the ABM Engineers included the design and construction of the power and electrical system for the Suncor plant. To carry out this role, the ABM Engineers purchased and used electrical cables, known as polyvinyl chloride jacketed cables ("PVC cables").

  4. On October 11, 1987, a substantial portion of Suncor's tar sands plant was destroyed by fire. Suncor alleged that a significant factor in the extensiveness of the destruction was the way in which the fire travelled along the PVC cables from its source to other parts of the plant. It was this travelling of the fire, rather than its origin, that was the basis of the suit initiated by Suncor against the appellants and many other defendants. In its Amended Statement of Claim, Suncor alleged that the ABM Engineers breached its contract with Suncor by specifying the PVC cables, installing the cables and constructing and delivering a plant with an undisclosed danger, namely, the propensity of PVC cables when laid in grouped configurations to spread fire, to emit gases, and to produce dense smoke during burning. Suncor further maintained that the joint venture owed a duty of care to Suncor to design and construct a plant without concealed dangers and, in addition to all duties of care owed by engineers, the joint venture owed a general duty to warn Suncor of all undisclosed dangers and advise it of effective measures to protect the plant.

  5. At the time of Suncor's suit ("the Suncor action"), Monenco was a substantial consulting engineering firm with about 40 subsidiaries and associated firms. 67669 was one such subsidiary, and had been formed for the purposes of Suncor's tar sands plant expansion project. By the time of the Suncor action, counsel for the appellants pointed out that 67669 was "long gone", as the purpose for its existence was completed. Suncor thus focussed upon the parent corporation, Monenco, and alleged that it was in a relationship of proximity with Suncor giving rise to a duty to warn of the dangers of the PVC cables. Suncor also claimed that Monenco exercised effective control, supervision and management of 67669, such that it was the alter ego of 67669. Suncor thus alleged that Monenco owed a duty of care to exercise proper supervision and control over its subsidiary.

  6. The appellants were required to defend themselves in the Suncor action. They were insured by several different insurers, and in particular, they were covered under a comprehensive general liability (CGL) policy issued by the respondent. The appellants requested that the respondent provide a defence for the claims advanced against them in the Suncor action, but the respondent declined. The respondent claimed that it was exonerated from its duty to defend under the turnkey exclusion and/or the professional services exclusion contained within the CGL policy.

  7. The appellants also had a professional liability policy with another insurer, Simcoe & Erie. This policy had a $1,000,000 self-insured retention fee or deductible. Simcoe & Erie accepted that the claims alleged by Suncor fell within its professional liability policy and undertook the defence of Suncor's action jointly with the appellants. Suncor's claim was settled for $2,973,750, and the defence costs incurred amounted to $1,059,000. Simcoe & Erie paid the full settlement and defence costs in excess of the $1,000,000 deductible. The appellants then applied for an order pursuant to rule 18A of the British Columbia Supreme Court Rules, Reg. 221/90, that the respondent pay their costs of defending the Suncor action, in the amount of $1,000,000.

    III. RELEVANT STATUTORY PROVISIONS

  8. Supreme Court Rules, B.C. Reg. 221/90

    19

    (2)

    The effect of any document or the purport of any conversation referred to in a pleading, if material, shall be stated briefly and the precise words of the documents or conversation shall not be stated, except in so far as those words are themselves material.

    26

    (8)

    At any time a party may deliver a notice to any other party, in whose pleadings or affidavits reference is made to a document, requiring the other party to produce that document and, within 2 days, the other party shall deliver a notice stating a place where the document may be inspected and copied during normal business hours or stating that he or she objects to producing the document and the grounds of the objection.

    IV. JUDICIAL HISTORY

    A. Supreme Court of British Columbia (1997), 42 B.C.L.R. (3d) 280

  9. Taylor J. first considered the law governing an insurer's duty to defend and found that this duty arises if the claim against the insured contains an allegation of fact which, if proven, would entitle the insured to an indemnity under the policy. Taylor J. noted that any doubt as to whether the pleadings bring an incident within the coverage of a policy should be resolved in favour of the insured.

  10. Taylor J. went on to state that, in determining whether the respondent had a duty to defend the appellants in the Suncor action, the court must examine both the pleadings and the insurance policy at issue. It was agreed that the CGL policy was in effect at the time of the loss which was the subject of Suncor's claim, and that both Monenco and 67669 were insured under that policy. Pursuant to this policy, the respondent agreed to pay the appellants' legal defence costs with respect to insurance afforded by the policy. However, the policy also contained a number of exclusions, including a professional services exclusion and a turnkey exclusion.

  11. Before analyzing these exclusions, Taylor J. reiterated three fundamental principles applicable to the interpretation of insurance contracts established by this Court's decision in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co. [1993] 1 S.C.R. 252, at p. 269:

    (1)

    the contra proferentum rule;

    (2)

    the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and

    (3)

    the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties.

  12. Based on the third principle, Taylor J. held that evidence adduced by the respondent - which included submissions made by Monenco during the negotiation of the CGL policy, details of Monenco's insurance program, correspondence between the appellants and their professional liability insurer (Simcoe & Erie) regarding the Suncor action, and evidence regarding the involvement of Simcoe & Erie in the settlement of the Suncor action - could be considered. Although the appellants challenged the admission of this evidence, Taylor J. found he could consider it to determine the parties' reasonable expectations regarding the CGL policy, but only if this policy was ambiguous on its face. He thus reserved judgment on the admissibility of this evidence.

  13. Taylor J. remarked that the CGL policy fit into a sophisticated program of insurance maintained by Monenco. This included a professional liability policy with Simcoe & Erie, pursuant to which the appellants agreed to self-insure a $1,000,000 retention for amounts insured under that policy. Taylor J. noted that, after the Suncor action was settled, Simcoe & Erie advised Monenco that it would fully fund the $2,973,750 settlement and defence costs, subject only to the $1,000,000 deductible.

  14. Taylor J. found it clear from the correspondence between Monenco and its insurers that Monenco looked primarily to Simcoe & Erie for defence coverage and an indemnity with respect to the Suncor action. It was only after this that Monenco "cast its nets" to determine whether the CGL policy could provide a defence for the $1,000,000 deductible. The question to be determined was whether the claims for which the appellants were sued by Suncor were risks for which they had contracted with the respondent to be covered.

  15. Taylor J. first considered the applicability of the professional services exclusion. When examined in the context of the whole of Suncor's pleadings, he found that the claims against 67669 arose out of an alleged rendering or failure to render a professional service, namely, the engineered configuration, design and specification of the PVC cables. In Taylor J.'s view, this could only be a matter of professional engineering, and thus the claims fell within the terms of the professional services exclusion. He further held that the allegations against 67669 in regard to a breach of a general duty to warn also fell within this exclusion. The facts alleged to support this argument were based on an alleged breach of a duty to formulate a professional opinion, and to give a professional warning as a result of that opinion.

  16. Taylor J. was satisfied that, on a balance of probabilities, most of the allegations against Monenco also arose from professional engineering services. However, he found that Monenco's alleged failure to exercise proper supervision and control of 67669 did not necessarily arise out of a professional act or omission, since supervision and control of a subsidiary are not services that must be provided only by a professional engineer. The duty was framed too broadly in the pleadings to permit such a finding.

  17. As a result of this conclusion, Taylor J. proceeded to examine the respondent's second defence, namely, that its duty to defend was precluded by the turnkey exclusion. He held that, at para. 65, in order for this exclusion to apply, according to the terms set out in the CGL policy, the claim must:

    (a)

    arise out of a project,

    (b)

    for which the professional architectural and/or engineering services are performed by the Insured,

    (c)

    and the actual construction, installation, erection, fabrication, assembly or manufacture thereof is performed by the Insured, or any legal entity wholly or partly owned by the Insured ....

    [Emphasis in original]

    A question arose as to whether the court should focus its inquiry only on allegations of services actually performed, or whether it also could consider allegations of services that the appellants had contracted or undertaken to perform. Taylor J. found that, based on the wording of the turnkey exclusion, only those parts of the Amended Statement of Claim which alleged services that were actually performed should be considered.

  18. Taylor J. held that Suncor's allegations against 67669 fell clearly within the terms of the turnkey exclusion so as to bar coverage. He emphasized that the Amended Statement of Claim alleged that 67669 carried on the practice of professional engineering, including the design and construction of the Suncor project.

  19. Taylor J. rejected the appellants' argument that Monenco in fact provided no services pursuant to the contract between Suncor and the joint venture. He agreed with the respondent that this argument missed the point, since a court must consider the allegations in the pleadings to determine the applicability of an exclusion, and not what actually occurred in fact. Based on the Amended Statement of Claim, Taylor J. found that Monenco was alleged to have performed both professional engineering and construction services on the Suncor project, so as to fall within the exclusion provision. Moreover, the same claims as those against 67669 were repeated against Monenco, claims which Taylor J. had already found to be allegations of the performance of both engineering and construction services for the Suncor project.

  20. Taylor J. thus concluded that the turnkey exclusion operated to relieve the respondent from the duty to defend both Monenco and 67669 in the Suncor action.

  21. Finally, Taylor J. revisited the challenged extrinsic evidence and reiterated that it was to be considered only if the policy was ambiguous in its wording. Based on his analysis of the coverage provided by the CGL policy and in particular, the relevant exclusions, he was of the view that this was not the case. As such, he stated that he did not consider the extrinsic evidence in reaching his conclusions.

    B. Court of Appeal for British Columbia (1999), 121 B.C.A.C. 99

  22. Southin J.A. for the court first reviewed the relevant provisions of the appellant Monenco's CGL policy with the respondent. She then considered what materials, if any, in addition to Suncor's pleadings could be examined to determine whether the claims against the appellants were covered under the CGL policy. Southin J.A. was of the view that whether Suncor's claims "arose out of" a project of the sort described in the turnkey exclusion could only be determined by looking at the contract that existed between Suncor and the joint venture. Because this contract had been pleaded in Suncor's Amended Statement of Claim, Southin J.A. found that it was "sufficiently incorporated by reference" into the pleadings. Moreover, she considered the fact that Suncor pleaded that the joint venture carried on business under the name "ABM-1978" to be sufficient to enable the court to look at the joint venture agreement as well.

  23. Referring to various terms of the contract between the ABM Engineers and Suncor, as well as the joint venture agreement, Southin J.A. held that, under the contract with Suncor, the joint venturers were obliged to design and construct a "turnkey project". As such, what they undertook to do was, as the trial judge found, within the precise words of the turnkey exclusion within the CGL policy. She neatly stated, at para. 11:

    To put it another way, the claim in the underlying action is a claim "arising out of" this project .... Suffice it to say that if this project had not existed, there would have been no claim, ergo the claim arises out of it.

  24. Southin J.A. then considered the appellants' argument that Suncor's allegations in regard to the duty to warn of the dangerous propensities of PVC cables did not fall within the turnkey exclusion. She found that these claims were based only partly on an allegation of fact. She stated that the facts at issue (which related to the dangerous nature of the PVC cables, and the appellants' knowledge of and failure to warn about this) did not, in and of themselves, create the proximity which lies at the heart of a duty to warn. Whether such a duty is owed is a question of law to be determined on the primary facts as found. Citing Rivtow Marine Ltd. v. Washington Iron Works [1974] S.C.R. 1189, Southin J.A. held that if there was any duty to warn after the Suncor project was completed, it arose because the joint venture built the tar sands plant.

  25. Finally, the appellants argued before the Court of Appeal that they might have had some other relationship at some point with Suncor that gave rise to a duty to warn. However, Southin J.A. noted that no such other relationship was pleaded by Suncor. In her view, an analysis of the Amended Statement of Claim as a whole, "put it beyond doubt" that every one of Suncor's claims against the appellants was for a loss "arising out of the project", as this phrase was used in the turnkey exclusion. As such, the claims could not fall within the insurance coverage extended under the CGL policy.

  26. Having concluded that all of Suncor's claims fell within the turnkey exclusion, it was unnecessary for the Court of Appeal to address the professional services exclusion. Accordingly, the appeal was dismissed.

    V. ISSUES

  27. The parties submitted arguments on two issues:

    1. Does the turnkey exclusion contained in the CGL policy exclude coverage for both 67669 and Monenco?

    2. If the turnkey exclusion does not exclude coverage, do the allegations against 67669 and Monenco in the Amended Statement of Claim filed by Suncor in this action fall within the terms of the professional services exclusion contained in the CGL policy?

    VI. ANALYSIS

    A. Turnkey Exclusion

    1. Legal Principles Governing the Insurer's Duty to Defend

  28. The starting premise for assessing whether an insurer's duty to defend has been triggered rests in the traditional "pleadings rule". Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a Statement of Claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded. The "pleadings rule" was articulated by the British Columbia Supreme Court in Bacon v. McBride (1984), 5 C.C.L.I. 146, where Wallace J. stated, at p. 151:

    The pleadings govern the duty to defend - not the insurer's view of the validity or nature of the claim or by the possible outcome of the litigation. If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation: ....

  29. This reasoning was subsequently adopted by this Court in Nichols v. American Home Assurance Co. [1990] 1 S.C.R. 801, where McLachlin J. (as she then was) indicated that general principles regarding the construction of insurance contracts support the conclusion that the duty to defend arises where the pleadings raise claims which would be payable under the agreement to indemnify in the insurance contract. McLachlin J. also referred to the ruling in Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 73 N.B.R. (2d) 389, (C.A.), leave to appeal refused by this Court, [1987] 1 S.C.R. xi, for the proposition that, where it is clear from the pleadings that a suit falls outside policy coverage by reason of an exclusion clause, the duty to defend does not arise. McLachlin J. further noted that it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim falling within the policy may succeed will suffice. In this sense, the insurer's duty to defend is broader than the duty to indemnify (Nichols, supra, at p. 810).

  30. The principles set out in Nichols were recently applied by the Quebec Court of Appeal in Association des hôpitaux du Québec v. Fondation pour le cancer de la prostate, Centre hospitalier de l'Université Laval [2000] R.R.A. 78. LeBel J.A., as he then was, wrote for the court, and held that the existence of the duty to defend must be assessed with reference to the pleadings. He affirmed that this duty may arise even when the duty to indemnify does not. LeBel J.A. went on to state that, while insurance contracts impose considerable responsibilities on insurers, notably the obligation to defend, a correlative duty is placed on the insured to collaborate with the insurer in conducting the defence (at para. 26).

  31. Where pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred. This principle is congruent with the broader tenets underlying the construction of insurance contracts, namely the contra proferentum rule, and the principle that coverage provisions should be construed broadly, while exclusion clauses should receive a narrow interpretation. In Opron Maritimes, supra, the New Brunswick Court of Appeal conveyed these principles by stating at para. 15 that, "[a]ny doubt as to whether the pleadings bring the incident within the coverage of the policy ought to be resolved in favour of the insured." Moreover, in Nichols, McLachlin J. stated at p. 812:

    I conclude that considerations related to insurance law and practice, as well as the authorities, overwhelmingly support the view that the duty to defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy. That said, the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy.

  32. As G. Hilliker writes in Liability Insurance Law in Canada (3rd ed. 2001), at p. 72, some courts have interpreted the foregoing passage as saying that if there is any possibility that the claim falls within liability coverage, the insurer must defend. However, Hilliker also maintains that courts must not engage in "a fanciful reading of the statement of claim merely for the purpose of requiring the insurer to defend." He notes that it is only where there is genuine ambiguity or doubt that the duty to defend must be resolved in favour of the insured party. This principle is articulated in a broader fashion by Andal and Donnelly, who state that "the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy." (See R.V. Andal and T. Donnelly, "Liability Insurance", in C. Brown, Insurance Law in Canada (1999), vol. 2 (loose-leaf), 18, at p. 13.

  33. The pleadings rule was further considered by this Court in Non-Marine Underwriters, Lloyd's of London v. Scalera [2000] 1 S.C.R. 551, 2000 SCC 24. In that case, the Court unanimously affirmed the principles set out in Nichols. The majority also endorsed the reasoning of the Colorado Court of Appeals in Colorado Farm Bureau Mutual Insurance Co. v. Snowbarger 934 P.2d 909 (1997) at p. 912, to the effect that the "duty to defend arises when the underlying complaint alleges any facts that might fall within the coverage of the policy" (at para. 78, emphasis added).

  34. At the same time, Scalera held that the bare assertions advanced in a statement of claim are not necessarily determinative. If so, the parties to an insurance contract would always be at the mercy of a third-party pleader. As such, it was stated at para. 79 that "[w]hat really matters is not the labels used by the plaintiff, but the true nature of the claim" (emphasis added). Based on this, courts have been encouraged to look behind the literal terms of the pleadings in order to assess which of the legal claims put forward by the pleader could be supported by the factual allegations. This analysis is undertaken with a view to discerning the true "substance" of the allegations. Thus, the key question is not whether the claims are meritorious, but "whether, assuming the verity of all of the plaintiff's factual allegations, the pleadings could possibly support the plaintiff's legal allegations" (at para. 84).

  35. Based on this line of authority, it follows that the proper basis for determining whether a duty to defend exists in any given situation requires an assessment of the pleadings to ascertain the "substance" and "true nature" of the claims. More specifically, the factual allegations set out therein must be considered in their entirety to determine whether they could possibly support the plaintiff's legal claims.

  36. While these principles are instructive for the purposes of the present case, one important question arising in this appeal has been left open by the jurisprudence to date. That is, whether, in seeking to determine the "substance" and "true nature" of a claim, a court is entitled to go beyond the pleadings and consider extrinsic evidence. Without wishing to decide the extent to which extrinsic evidence can be considered, I am of the view that extrinsic evidence that has been explicitly referred to within the pleadings may be considered to determine the substance and true nature of the allegations, and thus, to appreciate the nature and scope of an insurer's duty to defend. I now turn to that question.

    2. Application of Legal Principles to the Present Case

    (a) Reference to Extrinsic Evidence

  37. It should be recalled that the question whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. Of course, after trial, it may turn out that there is no liability on the insurer, and thus, no indemnity triggered. But that is not the issue when deciding the duty to defend. Consequently, we cannot advocate an approach that will cause the duty to defend application to become "a trial within a trial". In that connection, a court considering such an application may not look to "premature" evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation.

  38. In the present case, I affirm Southin J.A.'s holding that the contract between Suncor and the joint venture, having been referred to in the Amended Statement of Claim, could be reviewed to determine the substance and true nature of Suncor's claims. In a similar vein, I agree with Southin J.A. that, because Suncor had pleaded that the joint venture had carried on business under the name "ABM-1978", this enabled the court to review the joint venture agreement as well.

  39. In endorsing Southin J.A.'s rulings on this extrinsic evidence, I must emphasize that it was not considered for the purpose of examining the contentious points in issue in the underlying litigation between Suncor and the appellants. Reference to these documents did not require factual findings to be made that would impact this litigation which, in this particular case, had been settled by the time the duty to defend application was brought before the courts. A review of the extrinsic evidence simply illuminates the substance of the pleadings and as such, is consistent with the reasoning in Scalera, supra.

  40. Finally, I would also note that reference to the joint venture agreement and to the contract between the joint venture and Suncor appears consistent with the Supreme Court Rules, B.C. Reg. 221/90, which are applicable to this duty to defend application. Pursuant to rule 26(8), an opposing party may request to see a document referred to in a Statement of Claim presumably to understand the pleadings and the litigation involved. I agree with the respondent that a court should also be entitled to this benefit, and thus should be permitted to review for itself any document that has been explicitly referred to in a Statement of Claim. I reach this conclusion even though rule 19(2) states that the effect of any document referred to in a pleading, if material, must be summarized briefly in the pleadings, without the precise words of the document being stated. Although rule 19(2) might be used to provide the court with an overview of any extrinsic evidence, it also makes sense to allow a court to refer to the documents pleaded in a Statement of Claim when necessary to determine the true nature and substance of the pleadings, and thus, the scope of the insurer's duty to defend.

    (b) Applicability of the Turnkey Exclusion to 67669

  41. The turnkey exclusion, found in Endorsement S-2 of the CGL policy, states the following:

    IT IS HEREBY UNDERSTOOD AND AGREED that:-

    The Insurer is not liable under this policy for claims arising out of projects for which the professional Architectural and/or Engineering services are performed by the Insured and the actual construction, installation, erection, fabrication, assembly or manufacture thereof is performed by the Insured, or any legal entity wholly or partly owned by the Insured, or any individual or firm acting in the capacity of a subcontractor of the Named Insured.

    As such, the trial judge rightly recognized, at para. 65, that in order for this exclusion to operate so as to bar recovery, a claim must:

    (A)

    arise out of a project,

    (B)

    for which the professional architectural and/or engineering services are performed by the Insured,

    (D)

    and the actual construction, installation, erection, fabrication, assembly or manufacture thereof is performed by the Insured, or legal entity wholly or partly owned by the Insured .... 

    [Emphasis in original]

  42. In my opinion, the lower courts correctly held that the turnkey provision was applicable to 67669. Although 67669 was not the named insured under the policy, the exclusion explicitly extends to any legal entity owned in whole or in part by the insured party. Thus, it clearly applies to one of Monenco's wholly owned subsidiaries.

  43. As against 67669, Suncor alleged breach of contract, breach of a duty of care owed by professional employees, breach of a general duty to warn of the dangerous propensities of PVC cables and to advise of effective remedial measures to protect the plant from risk, and breach of duty to warn and advise of effective measures to protect the plant from a material change in risk. Each of these claims "arose out of the project" within the meaning of the turnkey exclusion. Although the appellants argued that 67669's duties to Suncor may have arisen in the context of a relationship other than that created by 67669's participation in the Suncor project, Southin J.A. correctly noted that this was never alleged in the pleadings. I therefore agree with Southin J.A.'s conclusion that the project was the proximate cause of Suncor's claim.

  44. Suncor also claimed that 67669 performed both the design and construction services for the tar sands plant expansion project. The pleadings make this clear. In particular, I would note para. 15, which makes allegations of the services 67669 actually performed on the Suncor project. It states:

    15.

    The services performed by the ABM Engineers under the Contract for the expansion project included the design and construction of the power and electrical system for Suncor's expanded plant ....

    [Emphasis added]

    Although para. 15 speaks to "the ABM Engineers" rather than 67669 specifically, the pleadings as a whole reveal that the claims advanced against the ABM Engineers "collectively" encompass claims against each individual member of the joint venture, all of whom were named as defendants in the Suncor action. This is clear from para. 7, which alleges that the joint venturers, including 67669, carried on general engineering and construction practices:

    7.

    At all times material to this action, .... 67669 Alberta Inc. .... through their employees carried on the practice of professional engineering, including the design and construction of plant and facilities for the production of synthetic crude oil.

    [Emphasis added]

    Further, para. 13 claims that 67669 and the other joint venturers, both individually and as members of the joint venture, undertook to carry out such work on the Suncor project.

    13.

    Bechtel Canada Ltd ...., 67669 Alberta Inc. .... and 111467 Alberta Ltd. ...., which entities are hereinafter sometimes collectively called "the ABM Engineers", .... entered into a Contract in writing with Suncor, .... for the management, engineering, procurement and construction of an expansion of the synthetic crude production capacity of Suncor's then existing plant and facilities ....

    [Emphasis added]

    While para. 13 makes allegations regarding what 67669 undertook to do rather than what it actually did, I believe this paragraph can and should be considered to determine the applicability of the turnkey exclusion. As stated earlier, it is clear in this case that Suncor alleged the actual performance and construction by 67669. Nonetheless, a court may, at this stage of the proceedings, consider the obligations that the insured party is alleged to have undertaken. As mentioned above, it may well be that at trial it could be established otherwise, such that the insurer is not liable to indemnify the insured.

  45. An examination of the agreements referred to in Suncor's pleadings reveals that the appellants undertook to perform design and construction services for the Suncor project. The joint venture agreement makes clear that the work for which the joint venturers contracted included "the process design, detailed engineering, procurement, construction and expansion" of Suncor's tar sands plant. The agreement also stipulates that the joint venturers' obligations were to be "executed and performed in the name of each Joint Venturer," and that the transactions made on behalf of the joint venture were the joint and several obligations of each individual member. Thus, under the terms of the joint venture agreement, the situation was exactly as though each joint venturer, including 67669, had contracted individually and directly with Suncor.

  46. The contract between Suncor and the joint venture further reveals that the nature of the work undertaken by the joint venturers fell within the turnkey exclusion. The very title of this contract, "Contract for Engineering, Procurement, and Construction Services," suggests that a suit related to the actual work completed by the joint venturers on the Suncor project would fall within the ambit of this exclusion. Moreover, Article 2.1 of the contract indicates that the work undertaken by the joint venture included the design and engineering of the Suncor project, as well as its construction. Although this contract speaks only to the obligations assumed by the joint venture, as discussed, these obligations were the joint and several responsibilities of each individual joint venturer. The contract thus can be read as describing the work undertaken by the particular joint venture members, including 67669.

  47. For these reasons, I am satisfied that the claims alleged against 67669 in Suncor's Amended Statement of Claim triggered the application of the turnkey exclusion. While this conclusion can be reached on a reading of the pleadings alone, it is supported by the extrinsic documents that were explicitly referred to in the pleadings by Suncor, and which were considered by the Court of Appeal.

  48. Having found that the turnkey exclusion applies to the claims advanced against 67669, I agree with the lower courts that, under the terms of the CGL policy, the respondent was not obliged to defend this appellant in the Suncor action.

    (c) Applicability of the Turnkey Exclusion to Monenco

  49. The difference between the analyses to be undertaken for assessing the application of the turnkey exclusion to Monenco and to 67669 is not substantial. This is primarily because all of Suncor's claims against 67669 were repeated against Monenco on the basis that Monenco was the alter ego of 67669, or that 67669 entered into the contract as Monenco's agent. Thus, for the same reasons as those set out above with respect to the application of the turnkey exclusion to 67669, Suncor's claims against Monenco "arose out of" the Suncor project. Based on what is advanced in the Amended Statement of Claim, it is clear that a distinct link exists between Monenco's alleged breaches and its role in this project. Further, the pleadings do not allege any relationship between Suncor and Monenco other than that which arose from their respective roles in the expansion of Suncor's Alberta tar sands plant.

  50. I am also of the view that Suncor's claims against Monenco satisfied the second and third criteria for the application of the turnkey exclusion. Suncor's Amended Statement of Claim alleged that, even though Monenco was not a party to the joint venture agreement, it was involved in professional engineering and construction services on the Suncor project. This occurred by virtue of the fact that Monenco exercised full control over the activities of 67669. These allegations are encompassed by paras. 9, 32 and 33 of Suncor's Amended Statement of Claim, which state the following:

    9

    The Defendants Monenco Ltd ("Monenco") and Associated Engineering Group Ltd. ("Associated") .... respectively controlled and owned all of the shares of MHG International Ltd. (now known as 67669 Alberta Inc.) and of Associated Engineering Services Ltd. (now known as 111467 Alberta Ltd.).

    32

    .... Bechtel U.S., Monenco and Associated .... at all material times, likewise had effective control, substantial involvement and participation in providing the services undertaken by the ABM Engineers for the expansion project. At all times material, Suncor .... was invited by the parent Engineers to rely, and Suncor did rely, upon their reputations and experience, in the performance of the engineering services .... Suncor says that the duty to warn and also to advise of effective remedial measures following installation of the PVC jacketed electrical cables existed down to the date of the fire ....

    33

    .... Monenco and Associated at all materials [sic] times likewise exercised effective control, supervision and management of each of their wholly owned subsidiaries .... As such Canadian Bechtel and the ABM Engineers, and each of them, were the corporate instruments of each of Bechtel U.S., Monenco and Associated, who were the alter egos of the subsidiary companies. In the further alternative, at all material times, Canadian Bechtel and the ABM Engineers were the respective agents of each of Bechtel U.S., Monenco and Associated.

    [Emphasis added]

  51. The allegations contained in these paragraphs suggest that Monenco - as the parent, alter ego, and principal of its wholly owned subsidiary - performed the services in question through 67669. Since, as discussed above, Suncor claimed that 67669 engaged in both the engineering and construction of the Suncor project, the allegations against Monenco must be to the same effect. As such, I agree with the conclusion of Taylor J., who stated, at para. 77:

    I am satisfied, based upon the allegations contained in paragraphs 32 and 33, that Monenco was alleged to have performed both professional engineering services and construction on the project, so as to fall squarely within the terms of the turnkey provision. I need only refer to the allegations in paragraph 33, which essentially repeat, as against Monenco, the allegations made against 67669, allegations which I have already found involved the performance of both professional engineering and construction services for the Suncor project.

  52. Based on the foregoing, I find that the claims advanced by Suncor against Monenco, like those against 67669, triggered the application of the turnkey exclusion. Consequently, I am of the view that the lower courts correctly held that the respondent's duty to defend could not arise in the circumstances of the present case.

    B. Professional Services Exclusion

  53. Having found that the turnkey exclusion contained in the CGL policy excluded coverage for both of the appellants, I find it unnecessary to deal with the second issue pertaining to the applicability of the professional services exclusion.

    VII. DISPOSITION

  54. For the foregoing reasons, the appeal is dismissed with costs.


Cases

Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252; Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; Bacon v. McBride (1984), 5 C.C.L.I. 146; Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801; Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 73 N.B.R. (2d) 389 (C.A.); Association des hôpitaux du Québec v. Fondation pour le cancer de la prostate, Centre hospitalier de l'Université Laval, [2000] R.R.A. 78; Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, 2000 SCC 24; Colorado Farm Bureau Mutual Insurance Co. v. Snowbarger, 934 P.2d 909 (1997).

Legislations

Supreme Court Rules, B.C. Reg. 221/90, rr. 18A [rep. & sub. B.C. Reg. 95/96], 19(2), 26(8).

Authors and other references

Andal, R. V., and T. Donnelly. "Liability Insurance" in C. Brown, Insurance Law in Canada, vol. 2. Scarborough, Ont: Carswell, 1999 (loose-leaf).

Hilliker, Gordon. Liability Insurance Law in Canada, 3rd ed. Toronto : Butterworths, 2001.

Representations

John R. Singleton, Q.C., and Catherine L. McLean, for the appellants (instructed by Singleton Urquhart, Vancouver)

D. Barry Kirkham, Q.C., for the respondent (instructed by Owen Bird, Vancouver)


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