Published In: Insurance Law 10.Nov.20 November 10, 2020

Case Summary: Seeking coverage as an additional insured when it all goes up in flames

The additional insured was not entitled to coverage as the liability arose from the additional insured’s own decision making and not from the operations of the named insured.

Insurance law – Liability insurance – Additional named insured – Exclusions – Interpretation of policy – Good faith, breach of – Duties and liabilities of insurer – Practice – Appeals

Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Co., [2020] O.J. No. 3750, 2020 ONCA 558, Ontario Court of Appeal, September 9, 2020, G.R. Strathy C.J.O., P.D. Lauwers and K.M. van Rensburg JJ.A.

A developer sought coverage as the additional insured pursuant to its contractor’s commercial general liability coverage with Economical Mutual Insurance Co. The additional insured endorsement provided coverage only with respect to “liability arising out of the operations of the Named Insured”.  The wording “arising out of” requires more than a “but for” connection between the liability of the additional insured and the operations of the named insured.  There must be an “unbroken chain of causation” and a connection that is more than “merely incidental or fortuitous”.  The term “operations” is sufficiently broad to include the creation of a situation, or circumstance, that is connected in some way to the alleged liability.  It does not necessarily imply an active role by the named insured in the creation of the liability event.

The developer had contracts to provide electricity generated by rooftop solar projects to two buildings.  The contractor was contracted to construct the two projects. Ownership of the project was ultimately transferred to a third party. Transformers failed, causing fire losses for the third party.  The developer settled with the third party and then sought recovery from Economical.  The Court upheld the trial judge’s decision that there was no coverage for the developer as the additional insured.  The contractor’s connection with the failure of the transformer was merely incidental.  The fire was caused by the failure of the transformer.  Although the contractor had ordered and installed the transformers, it was not within the contractor’s operations to select the transformers to be installed.  The selection of the transformers was made by the developer.  The contractor was merely a bystander to the decision of the developer, the additional insured.

The trial judge’s dismissal of the claim that the insurer breached its duty of good faith in denying coverage and the trial judge’s decision on costs were also upheld.

This case was digested by Dionne H. Liu, 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 Dionne H. Liu at