Inland Concrete Limited v. Commonwealth Insurance Company, 2011 ABQB 378

Court of Queen ’ s Bench of Alberta Citation: Inland Concrete Limited v. Commonwealth Insurance Company, 2011 ABQB 378 Date: 20110621 Docket: 0503 02158 Registry: Edmonton Between: Inland Concrete Limited and Inland Aggregates Limited Plaintiffs - and - Commonwealth Insurance Company Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A.W. Germain _______________________________________________________ 1. Introduction.............................................................................................................. Page: 2 2.

Background ........................................................................................................... Page: 3 3. The Piling Problem Develops............................................................................... Page: 4 4. Understanding the Concrete Supply Industry...................................................... Page: 5

5. Concrete Used in the NAIT Project...................................................................... Page: 6 A. The Recipe................................................................................................. Page: 6 B. Correlations Between MPa and the Recipe........................................... Page: 7 C. Correlation Between MPa and Job Site Handling................................. Page: 7 D. Correlation Between MPa and Time....................................................... Page: 7 E.

Testing the Concrete................................................................................. Page: 8 F. Conclusion - Concrete Strength............................................................. Page: 10 6. The Commonwealth Insurance Policy................................................................ Page: 10 7. The Parties’ Positions......................................................................................... Page: 12 A. Inland......................................................................................................... Page: 12 B.

Commonwealth........................................................................................ Page: 13 8. Legal Analysis...................................................................................................... Page: 13 A. Non-Suit Application - Inland #1 ........................................................... Page: 13 B. Inland’s Alleged Losses.......................................................................... Page: 14 C. What is Covered by the Policy?............................................................. Page: 15 i.

Insured Property........................................................................... Page: 16 ii. Faulty Products and Workmanship............................................ Page: 18 D. Evidence of Defective Concrete............................................................ Page: 20 i. Commonwealth Expert Evidence............................................... Page: 20 ii. Inland Expert Evidence................................................................ Page: 20 iii. Conclusion - Concrete Defects.................................................. Page: 21 9.

Conclusion - Damages Claimed by Inland........................................................ Page: 24 10. Proof of Loss........................................................................................................ Page: 25 11. Conclusion............................................................................................................ Page: 25 12. Costs..................................................................................................................... Page: 26

1. Introduction [ 1 ] Inland Concrete Ltd. and Inland Aggregates Ltd. [together, “Inland”] sue Commonwealth Insurance Company [“Commonwealth”] under a “Builders Risk Property Insurance” policy issued by Commonwealth [“the Policy”: Agreed Statement of Facts, tab 1]. Inland asserts they suffered a loss of approximately $1.4 million covered by the Policy. [ 2 ] Inland’s alleged damages are their contribution to settle a lawsuit brought against Inland for defective concrete.

While Inland contributed to settle the lawsuit, that payment did not constitute an admission of any liability [Exhibit 9, tab 1]. [ 3 ] There are two issues central to this lawsuit: 1. did Inland suffer a loss covered by the Policy, and 2. does an exclusion in the Policy (not otherwise saved by an exception) restrict coverage? 2. Background [ 4 ] In 2000, the Northern Alberta Institute of Technology [“ NAIT ”] began construction on a new building at its Edmonton campus. Numerous contractors, trade suppliers, engineers, architects, and sub-trades worked on the project.

Commonwealth provided the Policy for the benefit of the contractors and suppliers, including Inland, during the construction period. [ 5 ] NAIT retained PCL Maxum (a joint venture) [“PCL”], to act as their general contractor. PCL hired Central Caissons to do the foundation work. Central Caissons contracted Inland to supply concrete. EBA Engineering Ltd. [“EBA”] was hired to supervise the concrete placement and monitor and perform quality control assurance tests on the concrete. [ 6 ] The building design required 602 pilings as part of the foundation structure.

These pilings would be placed below grade to act as foundation support, utilizing a method identified as an in-place dynamic piling. Pilings produced by this method are sometimes called “Franki Pilings” or, “Compacto Pilings”. The pilings use holes in the earth to form the piling structure. The holes are then filled by pouring and compacting a relatively dry concrete around a steel reinforcing rebar structure. [ 7 ] This foundation structure was described in the report of Dr. W. S. Langley, Ph.D. (Hon.) P.Eng., a professional engineer called by Inland [Exhibit 34, page 5,

section 5.0]: Dry cast piles, typically referred to as Franki Piles, are constructed by driving a thick cylindrical shaft in the ground with a dry plug of gravel or concrete at the end of the shaft. After driven to desired elevation, the concrete is expelled by dropping a weight on the concrete. Additional concrete is compacted in the shaft and expelled to form an expanded base. The size of base and energy expended for compaction is based on empirical data and load capacity needed for a given structural element (column or wall).

After the base is formed, the reinforcing steel is placed and additional concrete added in lifts to form the pile shaft. As the concrete is placed, the shaft is incrementally withdrawn until the pile is completed. [ 8 ] The first concrete pour at the NAIT site occurred on September 14, 2000 [Exhibit 6]. Within weeks EBA became concerned about the strength of the concrete and the combined strength of the concrete and rebar within the piling structure. Two theories

immediately sprang to the forefront: 1. the EBA testing was in error, or 2. the concrete supplied by Inland was defective. [ 9 ] Inland preferred, and proposed, a third explanation: inadequate concrete strength was a result of poor handling by Central Caissons , but Inland also accepted the alternative possibility that EBA testing techniques were in error. [ 10 ] NAIT finally accepted a solution for the apparent defect, that approximately 212 of the pilings would be replaced. Remediation work began in the latter part of 2000 and was probably concluded by April of 2001.

The remediation was not without cost which led to a lawsuit [the “PCL Action”, QB Action No. 0203 17590, commenced September 13, 2002]. The PCL Action claimed that Inland and Central Caissons were negligent in the supply and placement of the concrete. EBA was then effectively added by a parallel law suit between PCL and EBA (Action No. 0203 17591). The PCL Action claimed damages of over $3 million.

I accept that sum was a reasonable reflection of the cost to repour 212 of the footing pilings. [ 11 ] In November 2005, the parties to the PCL Action (including EBA) met, and were able to mediate a conclusion to the litigation. Mutual releases were exchanged; none of the parties admitted any liability. The releases were said to have been “made as a compromise to terminate controversy”. The release provided by Inland is somewhat different than the others, in that it reserves a potential claim against Commonwealth [Exhibit 9, tab 5].

The evidence reveals a strong inference that EBA, Inland, and Central Caissons each paid about a third of a reduced PCL claim. Inland now claims that Commonwealth should pay for the settlement and legal cost incurred by Inland to settle the PCL lawsuit and a related action. [ 12 ] On December 9, 2002 Inland placed Commonwealth on formal notice of this claim. On December 16, 2002 a Commonwealth adjuster indicated that Commonwealth was investigating the claim. Nevertheless, on February 4, 2004 Commonwealth denied the claim.

A letter to Inland’s legal counsel [Agreed Statement of Facts, tab 6] explained the basis for that decision: After a detailed review of the facts, expert opinion, the terms of the Policy, and the relevant case authorities, we are of the view that the terms of the policy are such that neither the cost of the Piles, nor the cost of demolishing and rebuilding the Structure, are covered under the Policy, as they either do not come within the coverage provisions, or they fall within the exclusions and are not saved by the exception thereto.

Thus as noted, we are of the view that there is no coverage under the policy. [ 13 ] Despite this correspondence, Inland notified Commonwealth of the settlement meeting in November 2005. Commonwealth declined to participate, asserting that the dispute between the litigants in the PCL Action was a liability issue, not a property loss issue. 3. The Piling Problem Develops [ 14 ] The design of the pilings required Inland to provide a concrete product that would harden with 28 days of curing after placement and have a strength of 32 MPa (a measure of strength).

The concrete supplied by Inland was, by necessity for the piling design, to be delivered extremely dry and mixed to a rigidly controlled formula which had been approved by the contractor. (See sections on the production and testing of concrete below for further scientific and technical details on this issue.) [ 15 ] EBA expressed doubt about the strength of the concrete and the pilings about 20 days into the concrete foundation pour. EBA’s negative report resulted in several events.

The general contractor served notice that it would stop paying the sub-trades involved until the source of the problem was identified and rectified. Second, the sub-trades, contractor, and the owner agreed to keep working on the project while the piling strength problem was investigated and addressed. This choice was particularly prudent because immediately after the strength issue emerged the parties believed (and probably hoped) the EBA report was simply a testing problem and the concrete and pilings were, in fact, sound.

[ 16 ] The parties began holding business/construction meetings to identify the problem and discuss solutions. These meetings commenced November 20, 2000 and were held periodically at least until February 20, 2001 [Exhibit 10]. [ 17 ] Numerous methods to test the pilings were suggested, described, and in some cases attempted. The difficulty was that while it is relatively easy to test concrete strength by taking samples from a source truck during the pour, the task is much more difficult when one attempts to test a solidified pile’s strength, in situ .

Also, concrete tested off the truck is free of issues relating to its post-delivery handling, so fault can be more readily determined. Ultimately, a testing protocol was accepted that led to the bottom-line decision that 212 pilings would be replaced. Some review of this scientific analysis will be important to understand whether or not Inland supplied a defective product. [ 18 ] Throughout all the testing and project evaluation, Inland consistently took the position that the concrete product they supplied was not defective. 4.

Understanding the Concrete Supply Industry [ 19 ] The following explanation of concrete, its components, preparation, and use came from the undisputed evidence of the Inland representative, as a witness, and also from the Inland expert Dr. Langley. I am grateful for the educative role each played. Any errors in summarizing the science and technology of concrete as background to my decision are mine alone. [ 20 ] Concrete is a recipe of sand, aggregate material (small stones and gravel), cement (a grey icing sugar like powder) and water.

Occasionally, special purpose chemicals are added, these are called admixture . Putting the ingredients together is called batching . Mixing is the subsequent step of handling the batched ingredients so that they have a single consistency without isolated clumps or pockets of sand, gravel or cement. The concept is the same, no matter whether this is done in a wheelbarrow with a shovel, a home handyman’s power mixer, or at an industrial scale concrete plant. And so are the potential errors and weaknesses!

If the batching is off, there is too much or too little of any ingredient including water, that can result in weak concrete. If the concrete is not properly mixed the pockets of unmixed materials in the finished product will also cause weak concrete. Poorly mixed product can result in local weak areas that contain an improperly mixed concrete. [ 21 ] The cement in the formula is the glue that binds the materials together. If it is not in the correct ratio with the aggregate and sand then that will undermine the bonds between those materials.

The ratio of sand to aggregate also makes a difference as if there is no or inadequate sand there is nothing to fill the spaces between the irregular contours of the aggregates. Again, concrete strength will be lower. [ 22 ] Timing is also important. Even properly batched and mixed concrete can form a weak product if there are delays in pouring and placing the concrete into its destination location. Adding too much water at the pour site may weaken the concrete.

Finally, the actual strength of the finished product is dependent on how much compaction the concrete is subjected to and again a failure to apply appropriate compactive pressure can result in weak concrete. These are some but not all the causes that lead to a weak finished product. [ 23 ] At the commercial level concrete suppliers maintain recipe books of material combinations that have, with time, been tested, tried, and proven.

Concrete suppliers and their customers and consultants know that if the manufacturer follows those recipes (within reasonable tolerances) the result is concrete which, if it is properly handled and quickly placed on the job site into its final resting place before it is allowed to set, will harden into the desired product. The general reliability of this technology is evidenced by the everyday presence of this material that carries and supports the common buildings and structures of our society. 5. Concrete Used in the NAIT Project A. The Recipe

[ 24 ] Inland contracted to supply a concrete that would consist of those four usual components (sand, aggregate, cement, and water) in appropriate proportions that, if placed properly, it would harden into a product with a strength of 32 MPa, 28 days after the concrete was placed. Because of the nature of the type of piling that was being built on this project, an in-place dynamic piling, the concrete had to be supplied without any additives and with a minimum amount of water.

This type of concrete is called ‘ zero slump ’ concrete. ‘Zero slump ’ means that if a sample of the concrete was taken from a concrete truck and put into a container, the concrete would retain the same shape if the container was tipped upside down and removed. The concrete is so dry that it is already quite stiff and will keep its shape. [ 25 ] A beach-side analogy is appropriate. Beach goers often build things out of sand by packing the sand into a pail, then turning the pail upside down. Careful removal of the pail may see the sand stay in the shape of the pail.

However, if the sand is too wet it will ‘slump’ and deform into a lower, flatter structure. Unsurprisingly, ‘slump’ is an important measurement in the concrete business and concrete recipes will have an associated and specified slump. [ 26 ] Zero slump concrete is an unusual material, and represents less than 1% of the product marketed by Inland. That figure is probably similar for other suppliers. Concrete workers prefer a higher proportion water concrete because it is easier to move around, work, and finish.

However, the concrete here was virtually a dry mix of the dry component parts aside from the minimal moisture which might naturally be in the raw materials, and a small of amount added water added per the concrete recipe. B. Correlations Between MPa and the Recipe [ 27 ] To reach an MPa of 32 at the end of 28 days, the concrete product has to be mixed correctly by following a formula that has been proven to harden to the intended strength.

In this case, Inland suggested the appropriate mix; PCL’s engineers approved the recipe. [ 28 ] Midway through the contract Inland was asked by the customer to change the product mix by increasing both the cement (significantly) and sand (slightly) at the expense of the aggregate. Inland agreed to do so, but did not admit that the original mix, which had been approved by PCL, was incorrect. This shift was in deference to the customer’s preferences.

The customer’s decision to increase the sand slightly also makes sense because of the correlation between the sand/aggregate ratio and concrete strength. [ 29 ] This revision does not prove, or establish, that the initial recipe was inadequate. C. Correlation Between MPa and Job Site Handling [ 30 ] The strength of concrete can also be reduced by improper job site handling.

Concrete strength is based in no small measure on compaction, so as pilings or footings are placed, increased strength can be obtained for the finished product by ensuring that the concrete is compacted hard enough so that sand and aggregate fills all of the voids in the wet concrete. That both increases density and creates mechanical strength. [ 31 ] In addition, water is the antithesis of concrete strength. While wet concrete is easier to work, the more water that is put in the concrete makes it more likely the concrete will be under-strength.

Some moisture is, of course, present in every batch of concrete, and concrete recipes necessarily call for a specific water content. However, additional water is sometimes added on the job site. This addition makes the concrete easier to manipulate but increases the risk of a lower strength product. [ 32 ] This too is a complicating factor that may lead to substandard concrete piling strength. Inland had a disclaimer on each delivery ticket that specifically pointed out the risk of strength loss due to water added.

That disclaimer stated that defective concrete caused by on-site water addition was the fault of the contractor, and not Inland as supplier. D. Correlation Between MPa and Time

[ 33 ] The strength of concrete increases the longer it cures and hardens, which is why the MPA specification is also date specific. In the construction industry strength tests are often done at three, seven, and 28 days. Three and seven day indicators provide a trend so if at the three day mark the target of 32 MPa is already achieved, a concrete supplier will conclude that the project material has achieved its target goal.

This is because concrete will not diminish in strength during the testing time, so if the three or seven day measurement of strength is accurate, a builder can reasonably assume that the concrete strength will either remain the same or increase into the future. [ 34 ] Even if the target strength has not yet been achieved at the three or seven day test dates the supplier will not become immediately distressed. If the concrete has been correctly prepared and deployed then it is fair to expect concrete strength will continue to increase, and ultimately hit the target mark.

However, in this case, EBA concluded around late November of 2000 that the concrete they were testing was not achieving the desired strength, based on the 28 day test results. E. Testing the Concrete [ 35 ] In this case, it is Inland’s thesis that the concrete was improperly tested by EBA and that improper testing led, in part, to the decision by NAIT to replace 212 pilings. There was much evidence to suggest that EBA did make errors during concrete testing.

One piece of evidence was that some samples were appearing to lose strength, with curing time - the experts say this is intuitively not possible as increased curing time would harden all concrete irrespective of its starting point strength. [ 36 ] On every large construction job where concrete is being placed, the testing contractor, here EBA, will have an employee in the vicinity of the concrete trucks and as the concrete is being dumped, the tester diverts random samples from the truck into small cylinders. There is a prescribed way for the concrete to be collected from the truck and placed in these cylinders.

Typically a certain number of cylinders are collected. This analysis is an engineering test with defined and accepted protocols. [ 37 ] The randomly selected concrete is placed into the cylinders and then compressed. The two common compression methods are a mechanically assisted device such as a small pneumatic or electrically driven hammer, or simply to have the tester tamper the concrete into place using a hand tool.

This artificial compression replicates the compression and compaction that occurs when concrete is placed on the job site. [ 38 ] These randomly collected cylinders are then subjected to a ‘test to destruction’ procedure at the three, seven and 28 day periods referenced in para. 33 above. The frame which formed the cylinder shape is removed, leaving the hardened concrete in a cylindrical plug. That cylinder of hardened concrete is placed in a compressive device, and pressure is applied by the device until the concrete fails.

The pressure at which the cylinder fails is measured in MPa and reported to the customer. [ 39 ] On a construction site there is typically no testing of the final product in situ . For example, it would be unusual to directly test the strength of the pilings in the ground. The basic assumption is that if the concrete samples as tested from the truck achieve the appropriate strength, the final product will likewise be of the appropriate strength.

Here, when the test cylinders failed at strengths lower then contractually required, the parties turned to other tests. [ 40 ] The gold standard test for an in situ concrete product is to actually apply a load to that structure. This load-bearing test will determine with virtually total confidence whether the product as put together and hardened in the field makes the grade. The difficulty with this test is it is time-consuming and costly.

It was simply not practical in this job for all of the pilings to be tested in this manner. [ 41 ] Inland and their expert make much of the fact that the one piling that was subject to this gold standard actually carried a load significantly more than required. Inland has also emphasized that same piling failed other tests, including the LST test which NAIT finally relied upon to evaluate piling deficiency.

That casts doubt on the efficacy of the test upon which NAIT finally relied to evaluate whether the various contractors had created a substandard product. [ 42 ] Another test to evaluate concrete strength is to take a core from the finished product. This core sample is then subjected to the same type of pressure testing as the cylinder samples referred to in para. 38. The difficulty with this approach is again that it is impractical, labour intensive, and from a pure science point of view can only prove that the core met strength. The core may not be

representative of the entire concrete structure. [43] If, for example, there is segregation in the column (striations of unmixed cement or other raw product) then the core samplemight be strong but the entire piling may have serious deficiencies. Inland and their expert make much of the fact that a core sampletaken by their expert from a rejected pile achieved greater than the 32 MPa strength.

That again suggests that the test ultimately used toevaluate piling strength lacks scientific efficacy. [44] NAIT and PCL, acting on professional engineering advice, finally selected one other type of test to evaluate the foundationpilings, Low-Strain Integrity testing [LST] [Exhibit 27]. Ultimately, this was the definitive method which was selected and used toevaluate the pilings and the basis on which 212 were rejected. I understand the LST method to be a form of ultrasound test, that would(in lay terms) send a sound wave down the pile and time in some fashion the return or diminution of the sound wave.

These recordscould then be converted to data that would allow an engineer to calculate the pile strength. [45] The piles that passed this testing would be accepted and those that did not were replaced. Dr. Langley, the expert called byInland [Exhibit 34] indicated that this test is controversial and not completely indicative of a defective pile. Dr. Langley actually attendedon site and took a core sample of one of the columns that failed the ultrasound test.

When subjected to a proper destructive test, that thecore sample’s strength greatly exceeded the 32 MPa threshold. [46] The difficulty with this core test is a common-sense one, and as I have explained at para. 43, a single core does not make nornecessarily accurately represent an entire column. It may well have been the case that certain segments of each of the failed pilesachieved the 32 MPa strength. The relevance of the core sample strength is thus limited. The requirement for the buyer is that all of theproduct in the column had to meet the necessary strength. F.

Conclusion - Concrete Strength [47] There may remain slight uncertainty on whether the NAIT building foundation piles were defective or not. Objectively, NAITand PCL had reason for concern. The LST test was chosen on the basis that it comprised an objective basis to conclude that a piling wasdefective. It does not contribute to the analysis about the cause of the low strength. [48] There are a number of alternative points where an error by Inland or another subcontractor may have led to a defectiveproduct.

The many steps to manufacture and place concrete mean the point at which an error occurred may not be obvious. [49] I will return to the questions of the probable cause of those defects later in this judgment. 6. The Commonwealth Insurance Policy [50] Big construction means big risk.

It is not uncommon for large construction projects to be bid on the basis that the contractorsand suppliers have some litigation safety nets to minimize those risks. [51] One common safety net is for the owner, NAIT, to purchase a “builders’ risk” property insurance policy to ensure the entirevalue of the project (in this case $52 million). [52] A common feature of a “builders’ risk” type of policy is that all of the subcontractors working on the project are automaticallyinsured and entitled to the benefit of the policy.

The common-sense reason for this is obvious, and has been historically explained by theSupreme Court of Canada in Commonwealth Construction Co. v. Imperial Oil Ltd., (SCC), [1978] 1 S.C.R. 317, 69

D.L.R. (3d) 558: ... the multi-peril policy under consideration is called in the contract between Imperial and Wellman-Lord a course of construction insurance. In England, it is usually called "Contractors' all risks insurance" and in the United States, it is referred to as "Builders' risk policy".

Whatever its label, its function is to provide to the owner the promise that the contractors will have the funds to rebuild in case of loss and to the contractors the protection against the crippling cost of starting afresh in such an event, the whole without resort to litigation in case of negligence by anyone connected with the construction, a risk accepted by the insurers at the outset. This purpose recognizes the importance of keeping to minimum the difficulties that are bound to be created by the large number of participants in a major construction project, the complexity of which needs no demonstration .

It also recognizes the realities of industrial life. In Morris v. Ford Motor Co. Ltd. [ [1973] 2 All E.R. 1084 .], the majority in the Court of Appeal refused to accept the existence of subrogated rights because in the words of Lord Denning, it was not just and equitable to compel the insured to lend their name to an action against their own servant and, in the words of James L.J., such a subrogation in an industrial setting was unacceptable and unrealistic. ... [Emphasis added.] [ 53 ] A builders’ risk policy pre-empts the multiplicity of litigation and finger-pointing that can occur in a complicated project.

It does not matter who is at fault. All players have access to the same policy of insurance, and a way to ensure a failed project is rebuilt. [ 54 ] However, a builders’ risk policy does not include “warranty replacement”. That is one of the litigation battlegrounds in this action, because Commonwealth asserts Inland is seeking coverage for supplying a faulty product - defective concrete. [ 55 ] The common law has established a swinging pendulum of legal obligation. First, the plaintiff must prove that they are insured. That is not disputed in this case.

Second, the plaintiff must prove that it suffered a loss covered by the policy. That is in dispute. If the plaintiff proves those precursors then the burden switches to the defendant insurance company to show that an exclusion in the policy applies and restricts the insurer’s obligation to pay. That too is argued here, as is an exception to that exclusion. If the defendant proves the exclusion the burden again swings so the plaintiff must prove the exception to overcome the exclusion. [ 56 ] The Policy includes a specific and explicit clause excluding certain losses from insurance coverage: 6.

PERILS EXCLUDED This policy does not insure: ... (

c) the cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage; [ 57 ] Restated in the context of this matter, the Policy does not cover the cost of defective concrete supplied by Inland unless some consequence of the defective concrete resulted in “physical damage”. [ 58 ] Inland carries this action alone. Commonwealth was not called upon by the named insured parties, PCL and NAIT , to cover the remediation costs of the replacement pilings.

A review of the PCL Action implies that they pursued recovery on the basis of negligence or breach of contract against all three involved subcontractors: Inland, Central Caissons and later EBA. [ 59 ] Inland did however defend the PCL Action on the basis that they did not supply defective concrete, but that further any loss or consequential loss due to defective concrete was included in the Commonwealth insurance coverage. This lawsuit against Commonwealth was commenced prior to the conclusion of the PCL Action and amended to recite the result of the settlement in the PCL Action.

[ 60 ] Inland invited Commonwealth to participate in the settlement of the PCL action but Commonwealth declined. 7. The Parties’ Positions A. Inland [ 61 ] The position of Inland may be summed up as follows: 1. Inland were an insured under the Policy; 2.

Inland’s product, the unsolidified concrete, was incorporated by others into a design structure that did not, for a combination of not fully understood factors, measure up to the design requirements and as a result the customer lost confidence in the concrete pilings; 3. this design failure is an accident (a fortuitous event) for which Commonwealth insured Inland; and 4.

Inland’s product was not defective and the injury to Inland was not a consequence of it supplying a defective product. [ 62 ] Inland emphasized it did not provide a defective product, but notes that Commonwealth has the burden to prove on a balance of probabilities any product defect if it seeks to avoid coverage using the ‘faulty construction materials’ peril exclusion. [ 63 ] Inland’s damages consist of their contribution to the overall settlement for the construction defect that led to the remediation costs of the perceived weak pilings.

Inland specifically claims: 1) cash payment to the contractor - PCL: $575,000.00 2) credit on future concrete purchases: $300,000.00 3) extinguishment of account receivable: $345,701.00 4) legal costs incurred : $223,854.00 Total: $1,444,555.00 Inland also claims costs and interest in this litigation. [ 64 ] Inland asserts that all the damages are legitimately collectible (irrespective of how characterized) because those damages represent Inland’s mitigated costs to avoid a building replacement claim of nearly $3 million, for which Inland, and perhaps others, had the benefit of Commonwealth insurance. B.

Commonwealth

[ 65 ] Commonwealth resists Inland’s argument on several fronts: 1. a technical argument that Inland has not filed a proof of loss; 2. the Policy had a more restrictive scope, it was a property insurance policy and not a general liability policy; the result of Inland’s argument is conversion of the Commonwealth policy into a general liability policy; 3. Commonwealth has shown on a balance of probabilities that Inland’s concrete was defective; 4.

Inland suffered no property loss and instead simply made a business decision to settle the PCL Action; and 5. the claim of $1.4 million in damages is not recoverable under this policy because suppliers claims are limited to the cost of their lost product, which here is at most $345,701.00 in concrete which Inland supplied without pay due to the remediation dispute. 8. Legal Analysis A. Non-Suit Application - Inland #1 [ 66 ] My legal analysis in this judgment must be in part shaped by the preliminary ruling which I made dismissing the Defendant’s non-suit application, which is reported as Inland Concrete Ltd. v.

Commonwealth Insurance Co. , 2010 ABQB 600 , 89 C.C.L.I. (4th) 304 [“ Inland #1 ”]. In Inland #1 I found that Inland had at least a prima facie case; Commonwealth faced a case to refute. [ 67 ] I reached a number of relevant conclusions in Inland #1 : 1.

Inland suffered at least a $345,000.00 injury for supply of replacement concrete (paras. 21-22); 2. the Defendant has the obligation to prove a Policy exclusion that eliminates or restricts the Plaintiffs’ claim (paras. 24-25); 3. the defective pilings are objective evidence of direct physical loss or damage to the insured property (paras. 28-43); and 4. the occurrence of the defective pilings was a fortuitous (or unfortuitous) event. [ 68 ] The Defendant entered expert evidence that indicated Inland’s concrete was defective; this was the only new evidence provided after the trial recommenced. B.

Inland’s Alleged Losses [ 69 ] Before moving to whether Inland’s claimed damages are covered by the policy it is first helpful to review exactly what Inland

wants indemnified. The $345,701.00 account receivable (which was forgiven), is a reasonable amount to attribute to the cost to providenew concrete for the replacement pilings. The other items are more unusual for a builder’s risk policy. [70] First, the $300,000.00 claim [para. 63, item 2] was, in fact, a future contract discount. During the November 22, 2005settlement meeting, Inland and PCL exchanged a business arrangement document which set out the following: Inland will pay PCL $300,000 by way of payments of five dollars per cubic metre of concrete sold by Inland to PCL at commerciallycompetitive rates.

These payments will be made at times and to PCL entities and by Inland entities as may be agreed by the parties, acting reasonably. The parties will use their best commercially reasonable efforts to have PCL purchase sufficient concrete from Inland so that this paymentwill be completed over a two-year period from December 2005, in the Western Canadian region. PCL agrees to retract the e-mail from ... terminating the business relationship between PCL and Inland, and the parties agree to continueto conduct business with each other.

November 22 2005 [71] No evidence was given by the Plaintiffs to indicate this ‘discount’ represents payment for damages directly caused by thedefective pilings, other than inferred by the circumstance of the settlement. Inland, for example, did not argue this was economicmitigation, or that Inland could not have turned that $300,000.00 goodwill future purchase discount into perhaps a lesser sum ofadditional cash which would have limited their bottom line settlement.

Nor was there evidence for an offset to the possible increase toInland’s bottom line by this arrangement that encouraged purchase of 60,000 metres of concrete. [72] In the circumstance presented in this case Inland’s agreement to a goodwill future discount for future purchases was a directresult of the aggressive position taken by PCL against Inland for denying liability. It reflects no mitigation, and is simply a good-faithgesture to patch up a strained relationship.

The written memorandum of November 22 between PCL and Inland clearly reflects theconsideration for the future discount is the retraction of the decision to discontinue the use of Inland as a supplier to PCL. [73] The remaining portions of the lnland claim are their legal fees ($223,854.00) for defending and supporting their position inthe PCL action [including another $10,000.00 to resolve a separate legal action Inland had brought against another engineer], and anamount paid to settle the PCL Action on a ‘no-fault basis’ ($575,000.00). C. What is Covered by the Policy? [74] In Brissette Estate v.

Westbury Life Insurance Co.; Brissette Estate v. Crown Life Insurance Co., (SCC),[1992] 3 S.C.R. 87 at 92-93, 96 D.L.R. (4th) 609, Justice Sopinka laid out the principles that guide

interpretation of insurance contracts: In interpreting an insurance contract the rules of construction relating to contracts are to be applied as follows:

(1) The court must search for an

interpretation from the whole of the contract which promotes the true intent of the parties at the time ofentry into the contract.

(2) Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will

be selected.

(3) Ambiguities will be construed against the insurer.

(4) An

interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided. SeeConsolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888. [75] Geoff R. Hall, in Canadian Contractual

Interpretation Law, 1st ed. (Markham, Ont.: LexisNexis, 2007) at 173-174, providesa set of eight interpretive principles that expand on Justice Sopinka’s guidelines: 1. The court should look at the words of the contract to determine if there is ambiguity. 2. The court should ascertain the intention of the parties concerning specific provisions by reference to the language of the entirecontract. 3. The court should construe ambiguities found in the insurance contract in favour of the insured (the contra proferentem rule). 4. The court should limit the construction in favour of the insured by reasonableness. 5.

Coverage provisions should be construed broadly and exclusion clauses should be construed narrowly. 6. It is desirable, at least where a policy is ambiguous, to give effect to the reasonable expectations of the parties. 7. Policies of insurance should be interpreted in a manner consistent with the general economic purpose of insurance. 8. There is an increased willingness to rely on precedent, including in some cases American authorities, for insurance contracts thanthere is for other types of contracts. i.

Insured Property [76] In Clause 4 in the insurance policy states: [t]he policy insures against ALL RISKS of direct physical loss of or damage to the property insured ... [Emphasis added.] [77] The term “property insured” is defined by Clause 3 and includes three categories: Clause 3(a): the structure being constructed or demolished and its material subcomponents; Clause 3(b): property, including materials and supplies, that are intended for the construction project; and

Clause 3(c) : third party property, including materials and supplies, that are intended for the construction project. [ 78 ] The concrete supplied by Inland clearly can fall into the Clause 3(

b) category. However, certain other items advanced by Inland as damages claims do not seem to fit into the categories of “direct physical loss” or “damage to the property insured”. Similarly, I cannot see how the other three headings, cash payment to end the PCL action, credit on future cost purchases, and legal cost of the PCL action can be characterized as “damage to the property insured”. [ 79 ] “Direct physical loss” [emphasis added] indicates that a physical thing must be damaged before a claim can arise on this basis.

Again, the PCL legal action, future purchase credit, and legal costs do not involve a physical loss, but rather a variety of non-physical things. [ 80 ] Let’s say that the credit on future cost purchases can be explained as a loss of goodwill. Goodwill is clearly a valuable kind of property, and an injury to goodwill could be a basis for an enforceable damage claim in certain contexts, such as a tort action.

However, I cannot see how injury to a physically intangible, though a valuable thing, could fall into the category of “direct physical loss”. [ 81 ] The same is true for the Inland’s lawsuit settlement and legal costs. These are not insured risks. In reaching this conclusion I remain mindful of the fact that Inland takes a position that the insured property loss here was really the $3 million paid by PCL to restore the faulty pilings. Inland’s loss, should be viewed globally as representing about a third of that property loss and not focus nor flounder, on the characterized particulars.

Inland should not lose a viable claim for what is a partial property loss simply because of how the loss was characterized for settlement purposes. [ 82 ] Despite this courageous argument I am not able, nor prepared, to directly convert business promotion payments, uninsured legal fees, and without-prejudice liability payments into a builders risk policy claim in the circumstance of this case. The principles of

interpretation of this type of insurance contract, reviewed in paras. 74 and 75, imply that the business purpose approach dictates against a ‘proxy-like’

interpretation of the definition of property loss. [ 83 ] Inland argued that it had, in effect, mitigated Commonwealth’s exposure to property losses. I reject this argument for several reasons. First, Commonwealth had no duty to defend and it did not breach any term of the policy by failing to defend lawsuits advanced against their insureds. That is the domain of liability insurance. Inland had the option to purchase, and did purchase, and did call upon that kind of policy. There is no duty in a property insurance policy to provide a defence to a liability claim.

That is reflected in the text of the Policy which restricts what is insured to “physical” things. No recharacterization of the legal costs incurred by Inland fighting the PCL Action makes those costs part of the claim on a property policy. Commonwealth was not a “reluctant insurer” such as in A.R.G. Construction Corp. v. Allstate Insurance Co. of Canada , [2005] O.J. No. 3073 (QL), 29 C.C.L.I. (4th) 5 (Ont. Sup. Ct. J.) .

It had no obligation to defend any legal action - it’s sole obligation was to pay for damaged or destroyed property. [ 84 ] Second, I reject any proposed expansion of the coverage provided in a builder’s risk insurance contract that would transform it into a liability policy. The text of the contract makes it clear to me that

interpretation would not “promote the true intent of the parties at the time of entry into the contract”: Brissette Estate v. Westbury Life Insurance Co. ; Brissette Estate v. Crown Life Insurance Co. [ 85 ] Third, that broader kind of indemnification would offend a principle identified by Justice Sopinka and Mr. Hall, that an insurance contract should not be interpreted to defeat “... the general economic purpose of insurance.”: Hall, at p. 173. The broader indemnification of Inland would “... result in ... an unanticipated recovery to the insured”: Brissette Estate v.

Westbury Life Insurance Co.; Brissette Estate v. Crown Life Insurance Co. If I were to impute liability coverage in the Policy then the business reality is that the cost of builders’ risk insurance would skyrocket, if that kind of coverage even remained commercially available.

A property insurer would be understandably very adverse to a future risk for years of posturing litigation and ultimate settlement on a business motive rather than a property loss basis. [ 86 ] Thus, while I do not see ambiguity in the text of the Policy that could expand its coverage to new kinds of losses, even if there was an argument on that point I would reject that

interpretation as contrary to policy.

[ 87 ] The language in Clause 6(

c) reinforces my conclusion that only physical damage might be claimed. The ‘non-concrete’ claims advanced by Inland cannot fall into the exception. Clause 6(3) says “... this policy shall insure such resulting damages; ...”, however “ such resulting damage” clearly refers to “... physical damage not otherwise excluded by this policy ...” [emphasis added]. That means resulting damage covered by the exception is resulting physical damage.

Again, that excludes a claim for the PCL legal action settlement payment, future purchase credit, and legal costs headings. [ 88 ] That extinguishes all of Inland’s claims, other than the $345,701.00 amount . ii. Faulty Products and Workmanship [ 89 ] Clause 6(

c) excludes liability from certain kinds of defective materials, services and designs. The operation of an identically worded clause was interpreted in Ploutos Enterprises Ltd. v. Stuart Olson Constructors Inc. , 2008 BCSC 271 at para. 94-106 , 60 C.C.L.I. (4th) 59 [“ Ploutos ”] : 4. This policy does not insure: ... (

c) The cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this Policy results, in which event this Policy shall insure such resulting damage. That case also involves a Commonwealth Insurance Builder’s Risk policy. [ 90 ] In Ploutos hardwood flooring was laid on concrete surfaces. The flooring subcontractor failed to take adequate steps to ensure the concrete was dry (para. 72), and subsequent moisture release by the concrete caused the floor to buckle and required replacement (para. 12).

The general contractor failed to order either a vapour barrier or engage in adequate testing, creating a design flaw (paras. 76- 78, 93). [ 91 ] Justice Martinson interprets the meaning of the exclusion and its exception at paras. 94-106 , in response to an argument by the general contractor that its loss was “resulting damages”. She then turns to the exclusion clause and concludes that no recovery should be possible for a defective material: 104 Policy reasons suggest that [the general contractor] should not be able to recover.

It would be an inappropriate spreading of the risk if an insured were able to recover such loss. The contractor or designer would theoretically be able to charge a full price for the work, save money by being careless, and then rely on the insurer to pay for the cost of correcting the mistakes . [The general contractor] submits that such insurance should be available and that is what it purchased. This goes against the principle suggested above, that policies of insurance should be interpreted in a manner consistent with the general economic purpose of insurance . 105 Clause 4(

c) should be interpreted in accordance with the well-established line of cases dealing with exclusion clauses. [The general contractor] can recover only for that which falls within the exception to the exclusion, that being resulting physical damage. Therefore, if there is faulty workmanship, construction materials or design in relation to the flooring, then the defendant cannot recover the cost of making good the flooring system. [Emphasis added.] [ 92 ] I agree with Justice Martinson’s

interpretation of this language. “Resulting damage” is something else that falls outside the scope of a defective material. The way I understand this dichotomy is that if a defective material was installed then the cost to directly repair that defective material would not be covered by the policy. However, if that repair or replacement had additional associated damages that were independent of the defective material, then those would be “resulting damages” and fall into the exception.

[ 93 ] In Ploutos a hardwood floor was defective due to faulty design and workmanship. The cost of a new floor was not covered by the insurance policy (para. 106).

However, if replacement of the floor also required the builder scrap or demolish other parts of the structure, such as partitions above the floor, and those partitions were not defective, the replacement cost to scrap and reinstall those partitions would be a “resulting damage” that would be covered. [ 94 ] Taking that analysis to the NAIT structure and concrete, Inland could theoretically have a claim under the Policy if there was no fault with the concrete as supplied. Let’s say that the weak piling were caused by Central Caissons’ negligent deployment of the concrete.

The “faulty workmanship” would be that negligence. The direct physical damage would be the replacement of the defective pilings. [ 95 ] Arguably, one could claim that the faulty workmanship ‘destroyed’ the supplied wet concrete - that presumably would be Inland’s $345,701.00 claim. However, according to Ploutos a subcontractor cannot claim for the costs that flow directly from its providing faulty materials or services. Thus, the key issues to assess Inland’s surviving claim is whether the concrete was defective. D. Evidence of Defective Concrete i.

Commonwealth Expert Evidence [ 96 ] Commonwealth called an engineering expert, David M. Rogowsky Ph.D., P.Eng., whose bottom line opinion was that the concrete supplied by Inland that was incorporated into the rejected pilings was defective, probably because that concrete was either improperly mixed or hydrated [Exhibit 51]. Dr.

Rogowsky admitted under cross-examination that other causes can result in under strength concrete, and that those alternative causes may be the responsibility of parties other than Inland: 1. improper concrete strength testing - EBA, 2. improper concrete placement - Central Caissons , 3. on-site addition of an improper amount (either too little or too much) of water - Central Caissons , 4. segregation of concrete materials as concrete works its way through the rebar cage - Central Caissons , and 5. improper compaction - Central Caissons . [ 97 ] In aggressive cross-examination Commonwealth’s expert admitted that there were alternatives explanations for the testing results which did not involve defective concrete.

Some piling may have had adequate strength but were improperly identified as defective. Dr. Rogowsky admitted that not all pilings poured with Inland concrete were defective, and some pilings poured around the same time as failed ones were of adequate strength. [ 98 ] This expert was also obliged to admit that after suspicion arose about the overall quality of the pilings all of the participants “pulled up their socks” and worked harder to ensure uniform standards of placement and testing. The Commonwealth expert agreed that the EBA testing initially had left much to be desired.

In this regard, I accept the very fair evidence from EBA provided by a witness who actually worked on the project that initially the test cylinders may have been improperly taken and therefore some of the failed tests could well have been a result of improper testing. The EBA employee who was charged with collecting and compressing the test cylinders was removed from the project part way into it. ii. Inland Expert Evidence

[ 99 ] The Plaintiff does not have a burden to prove that the concrete they supplied was a satisfactory product. It is the Defendant who must prove on a balance of probabilities that the product defect existed and can be traced to Inland. The Plaintiff called an engineering expert, Dr. Langley, who opined that his review, testing, and analysis led him to conclude that the concrete supplied by Inland met the target specification, and the specification met the contract requirement [Exhibit 34]. [ 100 ] Dr. Langley is Canada’s foremost expert on ‘Franki pilings’, the type used on this project.

He also had the advantage of attending and actually taking core samples from one of the pilings that NAIT identified as defective. His analysis of the core sample which he randomly selected revealed that core sample to be of adequate strength. [ 101 ] Dr. Langley also draws to the court’s attention that the gold standard to assess in-place piling strength would be load testing. This too was done on at least one piling, and that load testing revealed that the piling had adequate strength to carry more than its design load. Dr.

Langley points out this piling also failed the LST piling test and that supports his thesis that LST testing is potentially inadequate or at a minimum, an unreliable method to evaluate Franki piles in-situ . [ 102 ] Dr. Langley concludes that the product supplied was therefore of proper design mix and if handled in place properly the concrete should have hardened to the goal strength.

In fact, in his role as the leading expert on these type of pilings, he reinforces that Franki pilings are an extremely difficult construction design to work with, and that if problems develop they are often problems with the placement of the concrete rather than its initial preparation. His penultimate conclusion is that there is no reliable evidence to support Commonwealth’s argument that the product supplied by Inland was defective. In his view, the evidence is to the contrary.

He opined that the apparently defective piles were probably a consequence of several causes; an initial failure by EBA to conduct adequate testing, and poor concrete placement that caused the concrete’s components to separate as the concrete was poured out of the truck and into the rebar cage. iii. Conclusion - Concrete Defects [ 103 ] The various test results available indicate there is a possibility that if each of the 212 defective pilings had been subjected to the absolute load bearing test some which were replaced may have proven adequate.

I accept the trial evidence that it was simply impractical to load test every piling; the cost would have been prohibitive. Nor was it economically practical to core every in-place piling. The cost and labour requirements were unwarranted, and in any case core data would only provide an incomplete and inconclusive reflection of the piling’s true strength. [ 104 ] If all I had in this case were the opinions of the two experts it would be difficult for me to conclude on a balance of probabilities that Commonwealth had proven Inland provided a defective concrete product.

Both experts were credible in an area of objective opinion. In short, both experts, although aggressively cross-examined, were able to support their opinion. Commonwealth’s expert opined that the concrete in the failed piles was probably mixed incorrectly and that error (by Inland) was what led directly to the failed LST tests. Conversely, Inland’s expert expresses an equally persuasive opinion on an objective basis that the product supplied was adequate. [ 105 ] The weakness in the opinion of both experts is that neither of them could test all of the failed columns.

In fact, the Commonwealth expert tested nothing! However, despite this observation I have been able in this case to conclude that Commonwealth has, on a balance of probabilities, established that Inland supplied defective concrete product that ended up in the failed piles. I come to this conclusion because of what would otherwise be an astounding circumstance, which I simply cannot ignore nor dismiss as a mere coincidence. [ 106 ] First, I accept that the LST testing was a valid way to assess piling strength. There was controversy on that point, and Dr.

Langley presented a credible argument that LST testing should not be the absolute standard on which piling strength is evaluated. Despite this from the evidence presented I conclude on a balance of probabilities that LST testing is sufficiently accurate that it was a fair way to evaluate whether there are issues with the concrete in certain of the NAIT building foundation pilings. [ 107 ] That leads to a pattern in those pilings that failed the LST test. Inland did not supply all the concrete that was delivered to this project under their supply contract with PCL.

There were three discrete concrete sources, identified as Mix 1A , Mix 1B , and finally Mix 2. To supply Mix 1B and Mix 2 , Inland turned to one of their competitors.

[ 108 ] The Langley report [Exhibit 34] summarizes this variable at the top of page 8: Concrete mixture 1A was batched at the Inland Acheson plant. This concrete mixture was used between September 15 and November 16, 2000. On September 14 and from November 17 to December 1, 2000 concrete mixture designated 1B was used and produced at the [Competitor’s] plant. ... Concrete mixture 2 was used on December 2, 2000 and until the end of the project on January 7, 2001. ... [ 109 ] Inland supplied only the first portion of the concrete [the Mix 1A group] mixed out of their plant.

The Mix 1B group and the Mix 2 group were supplied by an Inland subcontractor utilizing a different process. Mix 2 , supplied later in the project, and which was also prepared by the competitor, also had the modified recipe which increased the percentage of cement and sand, and included a chemical admixture to increase the likelihood that target strength would be achieved. Nothing turns on this modification. [ 110 ] The concrete supply industry identifies two type of plants: “dry batch” and “wet batch”.

In a “wet batch” plant all of the materials, including water, are placed together in a mixing drum on the plant site and after the ingredients are both batched and mixed, the mixed product is transferred into the trucks for delivery to the site. In a “dry batch” plant the raw materials are placed dry into the hopper of the cement truck, water is then added, and the rotating drum of the cement truck is what actually performs the mixing.

Here one of the plants was a “dry batch” plant, the other a “wet batch” plant. [ 111 ] The experts were clear that in theory batching and mixing at a ‘dry batch’ plant vs. a ‘wet batch’ plant should not affect the result. Nevertheless, the correlation between piling defects and source plant must be addressed. One of the possible range of reasons for concrete failure is that the concrete was not properly mixed; the ingredients are not equally distributed and can be segregated in the mix so target strength cannot be achieved.

If improper mixing was the source of the low-strength concrete, then that error would have occurred at Inland’s facility. [ 112 ] It is an amazing evidentiary circumstance that every failed piling was identified to contain Mix 1A concrete which had been supplied from the Inland plant. Stated another way, every piling which was supplied with concrete identified as Mix 1B or Mix 2 , both of which came from Inland’s subcontractor, passed the quality control test required by NAIT . [ 113 ] Both, Inland and their expert opined that the pattern of LST test failure and source plant is simply a coincidence.

The Defense expert argued that this pattern must be more than a coincidence and that the change of concrete source and associated change of mixing method had an apparent effect. The implication that flows from that observation is that, unlike Mix 1B and Mix 2 that were from the subcontractor’s plant, the Mix 1A concrete supplied from the Inland plant was not properly mixed. [ 114 ] That is not to say that the evidence indicates all concrete in Mix 1A was problematic. Both experts advise me that not all of the Mix 1A pilings were rejected.

This indicates that at least some of the concrete supplied directly from the Inland plant was capable of meeting the design specification. That observation is not unexpected, the experts agreed that the Mix 1A concrete recipe itself was appropriate for the Franki piling application. [ 115 ] The observation that some Mix 1A pilings appear satisfactory still does not weaken the compelling weight of this coincidence. All it does is leads me to conclude that the Inland plant was, at that time, unable to provide a consistently reliable product.

It is reasonable and flows directly from the evidence that I conclude that the Inland plant had inconsistently mixed the concrete’s components, and that inconsistency was avoided by the competitor who produced both Mix 1B and Mix 2. [ 116 ] Further, Inland is in the business of supplying concrete. Their subcontractor was a competitor. No real explanation was given that I find satisfactory or compelling as to why Inland subcontracted out an activity that represents the very core of their business.

That observation creates a suspicion that Inland knew or anticipated that there were going to be quality control issues on manufacture of this very complicated zero slump concrete. When testing evidence suggested that the anticipated issue had possibly emerged, Inland may have logically concluded that it was better that their competitor, as a subcontractor, deliver product for the remainder of the NAIT project. [ 117 ] The opinion evidence provided by the Defendant’s expert, asserting a mixing problem, plus the compelling factual pattern that

all failed pilings were created with concrete from Mix 1A , leads me to conclude on a balance of probabilities that the problem on this job was due to a defectively mixed product supplied by Inland out of their plant. Once the plant and producer changed, the problem went away! [ 118 ] I came to this conclusion cautiously, because I clearly recognize that the evidence reflected the notion that once the strength issue arose everyone “pulled up their socks” to head off further issues. I also recognize that the testing evidence provided is not absolute.

LST, the test methodology ultimately chosen to detect and reject substandard pilings, is not free from scientific controversy. [ 119 ] Finally, it became painfully obvious that there was a potential here for Inland to be unfairly branded as having supplied a defective product when so many strength issues can be affected by handling and on-site water addition, all which would have been in the domain of Central Caissons .

Despite factoring all of these issues into the decision-making crucible, I recognize that this is a civil trial, not a scientific review, and on a balance of probabilities the compelling pattern that one source provided all the concrete for all of the failed pilings, and that a change of source ended all apparent concrete strength problems, and in turn the piling problems, leads me to the conclusion that Inland supplied defective material.

It is a coincidence that I can simply not ignore. [ 120 ] The Defendant has proven an exclusion to coverage, namely that the losses incurred by Inland relate to their faulty product. [ 121 ] Despite the exclusion to coverage, the Plaintiff still has an opportunity prove that the losses fall within the exception and thus receive compensation under the Policy. This issue was touched on in my analysis of the Ploutos case above (paras. 91-95 ). Here, I reach the same conclusion. The losses are not “resulting” damage, instead, just as in Ploutos , Inland’s losses are a direct result of its own defective product.

There is another key reason that Inland has not satisfied me that their loss comes within the exception. I have restricted their loss to the actual value of the concrete supplied and not paid for - thus it is by ruling, a direct not resulting loss. 9. Conclusion - Damages Claimed by Inland [ 122 ] Inland’s claim fails entirely: 1. it supplied defective concrete, triggering the Clause 6(

c) exclusion; 2. none of the other claimed losses allowed are ‘resulting physical damage’; and 3. the non-concrete replacement losses claimed are also excluded as those items are not covered as “insured property”. 10. Proof of Loss [ 123 ] Commonwealth points out that this is an insurance contract between the parties and they are entitled to rely on the strict wording of the policy and that a formal proof of loss was not filed by Inland. [ 124 ] I do not need to consider this issue, however Inland’s approach was shaped contextually by the direct repudiation of coverage by the Defendant.

In light of this repudiation I would relieve against any failures on the part of Inland to provide a proof of loss. I conclude the failure to file a proof of loss document is more of a formality in this case. Commonwealth was sufficiently informed about the losses and the type, manner, and characterization that Inland’s losses would take. To deny Commonwealth’s liability (if it was liable) on this basis ignores that Inland functionally met its obligation to notify of the alleged loss.

[ 125 ] Proof of loss formalities are an area where relief from forfeiture is often granted. Here, Commonwealth had been fully informed and was not prejudiced by a failure to file a formal proof of loss. 11. Conclusion [ 126 ] I conclude that while Inland has proven that they were insured under the Commonwealth policy, and that they suffered a loss caused by an accident (fortuitous event), Inland’s claim for insurance coverage against Commonwealth fails due to the fact that Inland supplied a defective product, which in fact led to the loss. Inland’s claim is one that is excluded from the Policy.

The action must be dismissed. [ 127 ] Had I not found a product defect that negated coverage, Inland’s damage would have been limited to the actual amount of unpaid concrete or $345,701.00. [ 128 ] This case was skilfully presented by competent legal counsel and I thank them for the assistance they have given me throughout the case. 12. Costs [ 129 ] Costs would normally follow the cause but if the parties require discussion or adjudication on the issue of costs I invite them to return to me.

Heard on the 21 st , 22 nd , 23 rd & 28 th days of June, 2010, the 9 th day of July, 2010 and the 3 rd , 4 th & 9 th days of March, 2011. Dated at the City of Edmonton, Alberta this 15 th day of June, 2011. A.W. Germain J.C.Q.B.A. Appearances: Kenneth W. Fitz for the Plaintiffs

Jerri L. Cairns David P. Wedge for the Defendant