Case Summary: Coverage dried up for desiccant supplier
A manufacturer and supplier of desiccant was not an insured under a wrap-up policy.
Insurance law – Liability insurance – Wrap up policies – Interpretation of policy – Construction development – Duties and liabilities of insured – Practice – Summary judgments
Strata Plan BCS 3206 v. KBK No. 11 Ventures Ltd.,  B.C.J. No. 821, 2022 BCSC 766, British Columbia Supreme Court, May 10, 2022, M.B. Blok J.
Honeywell sought coverage under a wrap-up liability policy relating to the construction of the Shangri-La in Vancouver. Honeywell was a third party in an underlying action in which owners allege that the windows are deficient. The windows allegedly fog up due to moisture and are prone to spontaneous failure. Honeywell was alleged to have manufactured the desiccant incorporated in the window panes, which was intended to absorb moisture.
The wrap-up policy insurer, XL, denied coverage on several grounds, including that Honeywell was not an insured under the policy. Under the policy, “insured” included each contractor designated as an insured under written contract with the named insured, its “sub-contractors” and their “sub-contractors”. The definition of “contractors” and “sub-contractors” included all persons or organizations who performed any part of the work under the insured project, but did not include “suppliers whose only function is to supply materials, machinery or other supplies to the project and who do not carry out any installation, construction, or supervisory work on the insured project”. The insurer’s position was that Honeywell fell into the latter category and therefore was not an insured.
Honeywell argued that it was not merely a “supplier”, but that Honeywell was alleged to have manufactured the desiccant. Honeywell argued that supplying and manufacturing are different activities, and that if the insurer had intended to exclude coverage to manufacturers then it could have done so in the policy. However, the court agreed with the insurer, noting that Honeywell’s position did not fit well with the “commercial atmosphere” of a wrap-up liability policy. The court found that Honeywell’s position failed to interpret the entire provision as a whole, in the context of the nature and purpose of a wrap-up liability policy. As Honeywell was not an insured, the court did not consider the insurer’s other grounds for denying coverage.
This case was digested by Joe Antifaev, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Joe Antifaev at firstname.lastname@example.org.