Case Summary: Insurer not required to pay contractor after paying insured for covered loss
A third party contractor’s claim against the insurer for environmental clean-up costs owed to the contractor by the bankrupt insured was dismissed.
Insurance law – Liability insurance – General contractors – Third parties – Interpretation of policy – Practice – Summary judgments
SWAT Consulting Ltd. v. Canadian Western Bank,  A.J. No. 1250, 2018 ABQB 875, Alberta Court of Queen’s Bench, October 24, 2018, Master J.T. Prowse
The insurer indemnified the insured for the costs to clean-up two pipeline spills. The insured deposited the insurance proceeds with its bank. The bank applied the proceeds in repayment of loans owed by the insured. The insured later went bankrupt. A third party contractor who had provided the insured with clean-up services related to the oil spills was never paid. The contractor brought an action against the insurer for payment of the money owed by the insured. At a summary trial, the contractor relied on s. 534 of the Insurance Act, R.S.A. 2000, c. I-3 and the wording of the policy.
Section 534 provided a means for a person to claim against an insurer for property damage where the insured had failed to satisfy a judgment. The Court held that there were three problems with reliance on s. 534. First, the contractor had suffered a financial loss, rather than property damage such that it was not a ‘claimant’. Second, the contractor had not met the technical requirement that it first obtain judgment against the insured. Third, it was possible that the section had no application where the insurer had already paid the insured.
The contractor argued that the policy wording requiring the insurer to pay sums “on behalf of the Insured” implicitly required payment to service providers. The Court drew a distinction between a subrogated situation and the present situation where the clean-up costs were costs actually incurred by the insured. In the latter, the Court found that the phrase did not fit easily and would lead to an awkward outcome. Further, the Court noted that the contractor was effectively asking the insurer to pay clean-up costs twice, something for which there was no case law provided in support. For these reasons the Court held that the phrase “on behalf of the Insured” did not mean insurance proceeds were payable to third party contractors who did clean-up work.
This case was digested by Michael J. Robinson, 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 Michael J. Robinson at firstname.lastname@example.org.