Riverwest (Delta): Mr. and Mrs. Fleming, the owners of a leaky condo, sue the Strata Corporation which sues Royal Insurance Company of Canada

Date of Release:  March 22, 1996                      NO. A953402
VANCOUVER REGISTRY

IN THE SUPREME COURT OF BRITISH COLUMBIA

IN THE MATTER OF STRATA PLAN NW3341 - RIVERWEST
AND IN THE MATTER OF THE INTERPRETATION OF A POLICY OF INSURANCE

BETWEEN: )
)
THE OWNERS, STRATA PLAN NW3341)
- RIVERWEST )
)REASONS FOR JUDGMENT
PETITIONERS)
)OF THE HONOURABLE
AND: )
)MADAM JUSTICE SAUNDERS
ROYAL INSURANCE COMPANY OF )
CANADA )(IN CHAMBERS)
)
RESPONDENT)


Christopher J. O'Connor For the Petitioners
Ingrid E. Rost For the Respondent


Heard at Vancouver: January 17, 1996


1 Is the respondent insurance company obliged to defend an
action brought against the petitioners by a third party? The
petitioners seek a declaration to this effect on two bases. They
say that either the respondent insurance company has waived its
right to deny a duty to defend, or the parties' contract of
insurance imposes a duty to defend the action.

2 The answer to this question requires a review of the
lawsuit, the insurance policy, and the respondent's actions after
the action was commenced, all in the context of applicable legal
principles.

THE LAWSUIT

3 The petitioners are the owners of a strata corporation
known as Riverwest. Riverwest is a condominium complex and dock
facility near the Fraser River harbour in Delta, British Columbia,
initially owned and developed by Canlan Investment Corporation.

4 In February 1992, Mr. and Mrs. Fleming purchased a strata
lot at Riverwest from Canlan Investment Corporation. They have
commenced an action in this court seeking damages from, amongst
others, the petitioners. In the action Mr. and Mrs. Fleming allege
that at the time they purchased their strata lot, Canlan Investment
Corporation agreed to perform certain repairs. They allege that
Canlan Investment Corporation failed to make the repairs and failed
to provide agreed facilities and amenities.

5 As against the petitioners, Mr. and Mrs. Fleming allege
failure to complete the repairs in a timely way or at all, and
allege that such failure rendered their strata lot unfit for
habitation. They also allege that wrongful acts of the petitioners
caused a resale of their strata lot to fail to complete, and claim
damages for inducing breach of the resale contract. They have made
these allegations against the petitioners in these terms:

21. The Defendant, The Owners, Strata Plan NW
3341 failed to complete repairs to the common
property including the deck adjoining the
Strata Lot in a timely fashion and the work
which was performed failed to adequately
repair the common property.

22. The Plaintiff Rosemary Fleming has a
heart condition. As a result of the failure
of the ... The Owners, Strata Plan NW 3341 to
complete the repairs set out in the Contract
of Purchase and Sale in a timely fashion, the
Strata Lot was rendered unfit for the
habitation of the Plaintiff, Rosemary Fleming.

...

27. Subsequent to executing the Contract of
Purchase and Sale, Mr. and Mrs. Stanley were
told by a member or members of Strata Council
that their infant daughter would not be able
to live at Riverwest.

28. Were it not for the statements made by
the member or members of Strata Council Mr.
and Mrs. Stanley were prepared to purchase the
Strata Lot for Two Hundred and Sixty Thousand
Dollars ($260,000.00).

...

32. Further, or in the alternative, the
Plaintiffs claim damages against The Owners,
Strata Plan NW 3341 for failing to repair the
common property.

...

34. Further, or in the alternative, the
Plaintiffs claim damages against The Owners,
Strata Plan NW 3341 for their inducement of
Mr. and Mrs. Stanley to breach their contract
with the Plaintiffs.THE INSURANCE POLICY

6 The parties have contracted for comprehensive insurance
including directors' and officers' liability and commercial general
liability.

7 The Directors' and Officers' Liability portion of the
policy provides:

1. INSURING CLAUSE:

To pay on behalf of the insured all sums which
... the insured becomes legally obligated to
pay as damages because of claims made against
the insured arising out of wrongful acts
committed by the insured while acting as ...
Officers of the Condominium Corporation of
Strata Council, or as members of the Board of
Directors of the Condominium Corporation or
Strata Council or ...

...


3. DEFENSE:

The Insurer will defend any suit brought
against the insured seeking damage to which
this coverage applies, even if the allegations
in the suit are groundless, false or
fraudulent. ...

...


7. DEFINITIONS:

When used in reference to this coverage:

a. "Directors & Officers" - means the
... Board of Directors, Strata
Council or as may be defined by
Provincial Legislation relating to
condominiums or strata corporations
...

b. "Claim" - means any demand, notice,
summons, suit ... served on the
insured or it's [sic] representative
alleging damage because of or
arising out of a wrongful act
directly related to the maintenance
or use of the condominium ...

c. "Wrongful Act" - means a negligent
act, error or omission directly
related to the maintenance or use of
the condominium or co-operative
property.

d. "Insured" - means all Directors and
all Officers of the corporation ...
named condominium or strata owners
... and shall include the said
corporation with respect to claims
for which the corporation may be
obligated to indemnify it's [sic]
Directors or Officers.

8 In the Commercial General Liability portion of the policy
the respondent covenanted:

1. Insuring Agreement

a. The Insurer will pay those sums that
the insured becomes legally
obligated to pay as compensatory
damages because of "bodily injury or
property damage" to which this
insurance applies. ... The "bodily
injury" or "property damage" must be
caused by an "occurrence". ... The
Insurer will have the right and duty
to defend any "action" seeking those
compensatory damages. ...

b. Compensatory damages because of
"bodily injury" include compensatory
damages claimed by any person or
organization for care, loss of
services or death resulting at any
time from the "bodily injury".

c. "Property Damage" that is loss of
use of tangible property that is not
physically injured shall be deemed
to occur at the time of the
"occurrence" that caused it.

...

DEFINITIONS

1. "Action" means a civil proceeding in
which compensatory damages because of
"bodily injury", "property damage" or
"personal injury" to which this insurance
applies are alleged. ...

...

3. "Bodily injury" means bodily injury,
sickness or disease sustained by a
person, including death resulting from
any of these at any time.

...

5. "Impaired property" means tangible
property, other than "the Named Insured's
product" or "the Named Insured's work",
that cannot be used or is less useful
because:

...

b. The Named Insured has failed to
fulfil the terms of a contract or
agreement; if such property can be
restored to use by:

i. the repair, replacement,
adjustment or removal of "the
Named Insured's product"; or
"the Named Insured's work"; or

ii. the Named Insured's fulfilling
the terms of the contract or
agreement.

...


7. "Occurrence" means an accident, including
continuous or repeated exposure to
substantially the same general harmful
conditions.

...

11. "Property damages" means:

a. Physical injury to tangible
property, including all resulting
loss of use of that property; or

b. Loss of use of tangible property
that is not physically injured.

...

13. "The Named Insured's work" means:

a. Work or operations performed by the
Named Insured or on the Named
Insured's behalf; and

b. Materials, parts or equipment
furnished in connection with such
work or operations.

EVENTS AFTER THE WRIT

9 The Fleming action was commenced on May 5, 1994. When
the writ and statement of claim were served upon the petitioners on
May 9, 1994, the petitioners promptly notified the respondent's
agent; the matter was referred to a claims adjuster. On May 12,
1994 the claims adjuster advised that the claims in the action were
covered by the policy and requested instructions from the
respondent to defend the claim. In the course of doing so, the
adjuster expressed the view that the Directors and Officers
liability coverage would provide costs of defending the action.
This was a confidential report to the respondent, and accordingly
does not constitute a waiver of the right to deny the duty to
defend.

10 On May 16, 1994 the respondent retained counsel to defend
the Fleming action on behalf of the petitioners and entered an
appearance on their behalf forthwith. Counsel filed a statement of
defence on the petitioners' behalf on June 1, 1994.

11 On June 17, 1994 defence counsel advised the petitioners
that he had been advised by the respondent that the respondent had
not fully addressed the issue of coverage with respect to
directors' and officers' liability and said:

... please treat this letter as formal
notification by Royal Insurance Company of
Canada, the insurer, that they reserve their
right to deny coverage with respect to items
in dispute but not covered by the directors
and officers liability endorsement.

12 On June 30, 1994 counsel for the petitioners further
advised:

... Rather than Royal Insurance Company of
Canada, the insurer, taking the position now
that they do not have a duty to defend based
upon a review of the pleadings, they had asked
me to advise formally that they reserve their
right at some time in the future to deny
coverage with respect to those items in
dispute and not covered by the endorsement or
conversely excluded by the endorsement.
Essentially this means that the Royal will
continue to defend NW3341 and pay my ongoing
legal fees.

13 On January 10, 1995 the respondent advised defence
counsel that the policy does not provide coverage for the claims
raised in the action. Since that time the respondent has denied
both a duty to indemnify and a duty to defend.

WAIVER

14 The petitioners contend that the respondent waived any
right to deny a duty to defend. They do not rely upon estoppel.
They say the waiver is found in the correspondence from defence
counsel appointed by the respondent, and point out that counsel
acted on this waiver by entering the statement of defence and
actively defending the action.

15 Although waiver and estoppel are ofttimes confused in
cases in this area of insurance law, estoppel does not engage
specific provisions of the Insurance Act, R.S.B.C. 1979, c. 200:
Cadboro Investments Ltd. v. Canada West Insurance Co. (1987), 19
B.C.L.R. 352 (B.C.C.A). On the other hand, the issue of waiver is
determined by application of section 13 of the Act. This section
provides:

13.(1) No term or condition of a contract
shall be deemed to be waived by the
insurer in while or in part unless
the waiver is stated in writing and
signed by a person authorized for
that purpose by the insurer.

(2) Neither the insurer nor the insured
shall be deemed to have waived any
term or condition of a contract by
any act relating to the appraisal of
the amount of loss or to the
delivery and completion of proofs or
to the investigation or adjustment
of any claim under the contract.

16 It is apparent s.13 only applies to waiver of a term or
condition of an insurance policy. In this case the policy endows
the respondent with a "right and duty" to defend any action, the
damages of which are included in the scope of required
indemnification. Thus the petitioners must bring themselves within
s.13(1) in order to establish an effective waiver.

17 To bring themselves within s.13(1) of the Act, the
petitioners must establish that the "waiver" was in writing and was
signed by a person authorized for that purpose. The written waiver
must be express and unequivocal: Northern Life Assurance Company of
Canada v. Reirson [1976] 3 W.W.R. 275 (S.C.C.). Waiver will be
found only where the party waiving had both full knowledge of its
rights and a conscious intention to abandon those rights:
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.,
[1994] 7 W.W.R. 37 (S.C.C.).

18 In my judgment the train of correspondence referred to by
the petitioner does not establish that the respondent unequivocally
and consciously intended to waive its right to deny coverage. I
have reached this conclusion for two reasons. Firstly, the
correspondence, in my view, is a best ambiguous, for it both
reserves the right to deny coverage, and appears to defer the issue
of the duty to defend in the June 30, 1994 letter from defence
counsel:

Rather than [the respondent] taking the
position now that they do not have a duty to
defend ...

This is not the clear sort of statement which is required to
constitute a waiver.

19 Secondly, I find this correspondence is not within
section 13 of the Act because it is not established that the
correspondence was signed by a person authorized for the purpose of
waiving this right. Assuming that counsel was acting as agent for
the respondent, which is not clear given his professional duty to
act on behalf of the petitioners, it is not established that he was
authorized to waive the issue of the respondent's duty to defend.
If, on the other hand, he was not acting as agent for the
respondent, there is no writing in evidence from the respondent to
wherein this right is waived.

20 For these reasons I find that the petitioners have not
established a waiver of the right to deny the duty to defend and I
move to the question, is there a duty to defend?

IS THERE A DUTY TO DEFEND?

21 The duty of an insurer to defend an insured is broader
than the duty to indemnify.

22 Determination of the duty to defend requires the
pleadings in the lawsuit to be compared to the insurance policy.
Where the policy expressly excludes the allegations, the insurer
has no duty to defend. On the other hand, where the plaintiff's
claims, if proven, might be covered by the policy, there is a duty
to defend: Privest Properties Ltd. v. Foundation Co. of Canada
Ltd. (1991), 57 B.C.L.R. (2d) 88 (B.C.S.C.); Nichols v. American
Home Assurance Co. Ltd. (1990), 68 D.L.R. (4th) 321 (S.C.C.).

a) The Directors' and Officers' Liability Coverage

23 The respondent contends the directors' and officers'
liability coverage is inapplicable to the claims because the policy
does not insure the actions of the corporation itself, except where
it must reimburse the directors and officers. It says that the
Fleming action is against the Strata Corporation, not members of
the Strata Corporation, and so no members have been joined and the
policy does not apply.

24 The Fleming action alleges that a member or members of
the Strata Corporation had discussions with the prospective
customers and that those discussions caused the resale of the
Fleming strata lot to fail to complete. This wrong, says Mr. and
Mrs. Fleming, entitle them to damages against the petitioners for
inducing breach of the resale contract.

25 Section 15 of the Condominium Act, R.S.B.C. 1979, c. 61
provides that a strata corporation may be sued as representative of
the owners of the strata lots, and that a judgment against a strata
corporation is a judgment against the owners. In effect, by suing
the strata corporation, Mr. and Mrs. Fleming have sued all the
owners of the strata lots.

26 The definition of "insureds" in the directors' and
officers' liability coverage provides:

Insured - means all Directors and Officers of
the corporation ... named condominium or
strata owners ... and shall include the said
corporation with respect to claims for which
the corporation may be obligated to indemnify
it's [sic] Directors or Officers.

27 In this case all strata owners are named and all strata
owners will be judgment debtors of any judgment obtained by Mr. and
Mrs. Fleming against the petitioners. Read broadly, the allegation
concerns statements made by some strata owners, or members of the
Strata Corporation concerning the use of the strata lot. Read
broadly, the allegation is for damages for a wrongful act by an
insured.

28 In my view, the claim, if proved, might engage their
liability under this portion of the policy.

b) The Commercial General Liability Coverage

29 I turn now to whether there is also a duty to defend on
the claims made by Mr. and Mrs. Fleming for failure to repair.

30 The policy insures bodily injury or property damage
caused by an occurrence. Bodily injury is defined as "bodily
injury, sickness or disease sustained by a person ..." (emphasis
added). The pleadings allege Mrs. Fleming has a heart condition
and that failure to repair rendered the strata lot unfit for Mrs.
Fleming's habitation. Even reading the pleadings broadly as I must
do in considering whether there is a duty to defend, in my view the
allegation is one of lost usage of the property, not bodily injury.
I do not consider the pleadings might raise a claim for damages for
bodily injury, and I do not find a duty to defend on the basis of
"bodily injury".

31 The petitioners also contend that the Fleming action's
claims for failure to repair, broadly read, are a claim for
property damage.

32 The action apparently claims for damages because the
Fleming strata lot was rendered uninhabitable, and for unspecified
damages for failure to repair. This latter claim is likely a claim
for diminution of value. In my view neither of these claims is
within the "property damage" coverage of the policy. Accordingly,
there is no duty to defend on this aspect of the claim.

CONCLUSION

33 In summary, I find that the respondent is required to
defend the Fleming action under the Directors' and Officers'
Liability portion of the policy.

34 The parties did not address costs in their sumissions to
me. In the event they wish to do so, they may arrange with the
Registry to make submissions on costs, in writing.

"M.E. SAUNDERS, J."
March 22, 1996
Vancouver, B.C.