954470 Alberta Ltd., 892516 Alberta Ltd., v. 852819 Alberta Ltd.,, 2016 ABQB 185

Court of Queen ’ s Bench of Alberta Citation: 954470 Alberta Ltd (Centre South) v Sovereign General Insurance Co, 2016 ABQB 185 Date: 20160330 Docket: 1203 05348 Registry: Edmonton Between: 954470 Alberta Ltd., 892516 Alberta Ltd., and 852819 Alberta Ltd., Operating As Centre South Plaintiffs - and - The Sovereign General Insurance Company, Aviva Insurance Company of Canada, AXA Pacific Insurance Company (also known as AXA Insurance Company of Canada), AXA Insurance Company of Canada, Intact Insurance Company, Intact Insurance Company (also known as Intact Insurance Company of Canada) Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice Don J. Manderscheid _______________________________________________________ I. Overview

[ 1 ] The Plaintiff, 852819 Alberta Ltd., (“852”) seeks indemnification from the defendant insurers for costs associated with modifications it made to the roof of a building subsequent to a fortuitous event that caused a loss. The Defendants apply to dismiss the claim by way of

summary trial, pursuant to the Alberta Rules of Court , AR 124/2010,

Part 7, Division 3. [ 2 ] Plaintiffs 954470 Alberta Ltd. and 892516 Alberta Ltd. have no interest in the property that forms the subject of this claim, nor did they sustain any loss. Aside from being parties to the claim, they presented no position nor did they make any arguments. Any reference to “the Plaintiff” in singular form in this decision is reference solely to 852. [ 3 ] The parties submitted briefs, affidavit evidence, and read-ins from questionings. They appeared before this Court on January 26, 2016 to give arguments. The Plaintiffs did not object to this claim being disposed of by way of

summary trial. There are no hard-and- fast rules for determining whether a matter is suitable for a

summary trial. Given that, on the evidence before me, I am able to find facts necessary to decide the issues of law and fact, and that I see no reason why it would be unjust to dispose of this matter finally by way of

summary trial, I grant the Defendants’ application. [ 4 ] For the reasons below, the Plaintiff’s claim is upheld. II. Facts [ 5 ] The Plaintiff owns a multi-tenant shopping centre in Edmonton (the “Building”). Like many strip malls, the Building consists of one structure with multiple bays leased to commercial tenants. It was likely built in 1972. [ 6 ] The Defendants issued to all three Plaintiffs an all-risks commercial property insurance policy (the “Policy”) in relation to three locations, one of which was the Building. The Policy period was one year, beginning December 5, 2010.

The Policy contained a number of endorsements describing various coverage and exclusion provisions. In particular, these coverage and exclusion provisions purport to address costs, losses, and damages arising out of the enforcement of any by-law, regulation, ordinance, or law, as well as an exclusion for wear and tear, faulty or improper design, and so forth. [ 7 ] Late in December 2010 and into January 2011, one of the Plaintiff’s tenants was renovating its rear vehicle door using the services of a contractor.

During his work, the contractor had tarped an overhead door to provide insulation while the door was being replaced. The contractor heated the area under the tarp, causing snow and ice to melt. Water flowed into an unheated roof drain, and froze and expanded, thereby damaging two portions of the roof. Five joists were damaged in one area, and two were damaged in another. On January 29, 2011, the tenant reported the roof damage to the Plaintiff’s building manager, Jeff Dobrescu. [ 8 ] On January 31, 2011, Mr.

Dobrescu attended at the Building along with Jeff DiBattista, P.Eng., a principal of DIALOG, an engineering, interior design, and planning firm. Following the site visit, Mr. DiBattista recommended that the immediate area should be evacuated, the damaged joists be shored immediately, and that the remainder of the Building be reviewed to determine whether roof damage existed elsewhere. [ 9 ] Mr. Dobrescu also reported the damage to the Plaintiff’s insurance broker, which advised Mr. Dobrescu to retain an engineer for the purposes of inspecting the damage.

The Plaintiff engaged DIALOG to conduct a structural engineering investigation of the damage. Blair Bisson, P.Eng., of DIALOG, inspected and reviewed the roof structure. He was unable to undertake a visual review of the roof structure in certain areas of the Building because of the presence of drywall ceilings. [ 10 ] In a letter dated February 7, 2011, Messrs.

Bisson and DiBattista issued preliminary findings: • there was existing roof joist damage in several locations of the Building • “typical roof areas” generally appeared to have been designed in accordance with the 1970 National Building Code (“1970 NBC”) • the roof was experiencing damage from overload, probably caused by these factors: o the 1970 NBC did not adequately account for snow loads in Edmonton; o the roof joists were deficient, even given the requirements of the 1970 NBC; o the weight of rooftop mechanical equipment, and the consequent weight of additional snow drifting due to rooftop mechanical equipment; and o the build-up of roofing materials, which is commonplace in the building maintenance industry, adds to roof load. [ 11 ] The engineers made a number of recommendations relating to immediate occupant safety as well as repairing and strengthening the roof.

These included, inter alia : • perform a visual review of roof joists throughout the Building in areas currently unobservable due to the presence of drywall ceilings; • notify the Chief Building Inspector for the City of Edmonton (“City”), even though such notification was not necessarily required under the 2006 Alberta Building Code (“2006 ABC”); and • strengthen undamaged areas of the roof to meet the requirements of the 2006 ABC, being that the current strength of the roof was unacceptable. [ 12 ] Based on other recommendations relating to occupant safety, Mr. Dobrescu immediately installed shoring beneath the

damaged joists and cleared snow from the roof to reduce the possibility of localized roof collapse. [ 13 ] Mr. DiBattista contacted and described the situation to Mark Brodgesell, a Safety Codes Officer employed by the City. Mr. DiBattista also sent him a copy of the February 7, 2011 preliminary findings letter. Mr. DiBattista advised Mr. Dobrescu of this by email on February 8, 2011, and passed along Mr. Brodgesell’s opinion to Mr. DiBattista that the situation may need to be reported to the Chief Building Administrator for the Province of Alberta, and that indeed Mr.

Brodgesell intended to prepare and send a report to that effect. (There is no evidence on the record showing whether Mr. Brodgesell sent such a report.) [ 14 ] The insurance broker, meanwhile, had arranged for an insurance adjuster to coordinate the repair of the seven damaged joists, at a cost of approximately $7,300. The contractor applied to the City for a building permit, which scope was limited to structural repair to the damaged roof joists. [ 15 ] The contractor substantially completed this work by early May of 2011. In June, Mr.

DiBattista gave written assurance to the City that the contractor’s repair of the seven damaged joists substantially complied with the 2006 ABC. However, Mr. DiBattista included the following statement as part of his assurance: “Owner has not arranged access for inspection of the entire roof structure”.

In August, the City inspected the work relating to the seven damaged joists and approved it as “acceptable”. [ 16 ] The Plaintiff was and remains satisfied with the settlement of its insurance claim for losses arising from the inspection and repair of the seven damaged joists, being payment of $8,235. [ 17 ] As of July of 2011, the Plaintiff had not arranged for an inspection of the roof areas behind the drywall, likely because of the anticipated cost of doing so. [ 18 ] On July 9, 2011, Mr. DiBattista sent Mr. Dobrescu an email enquiring as to the status of the roof repairs. Mr.

DiBattista stated that, while DIALOG was satisfied with the repair work on the seven damaged joists, they were concerned that many other areas of the roof structure had not been inspected, and that it was imperative to inspect the remainder of the roof structure prior to winter’s arrival. Mr. DiBattista advised Mr.

Dobrescu as follows: [T]he roof as a whole might not be designed and constructed adequately to provide appropriate safety for the occupants. … With respect to the issue of the roof as a whole, it might be prudent to ask for a second engineering opinion. … Simply put, I am not comfortable with the thought of the roof having to survive another winter without it being examined very thoroughly for structural adequacy. [ 19 ] On the weight of that advice, the Plaintiff retained Five Star Engineering (“Five Star”) to provide further advice.

For reasons which are not entirely clear, DIALOG remained involved on this file. [ 20 ] Sometime in the summer of 2011, the Plaintiff asked Twister Developments Ltd. (“Twister”), a construction and renovation company, to assist with inspecting joists behind the drywall. In mid-September, Twister bore a hole into the drywall, inspected certain joists by means of a fibrescope, and provided images to DIALOG. Based on the nature of an opinion which an engineer from Five Star would later give, it appears that Five Star also obtained the images. [ 21 ] On October 31, 2011, Mr.

DiBattista sent a letter of non-engagement to Mr. Dobrescu, which letter he copied to Mr. Brodgesell with the City. Mr. DiBattista acknowledged that the Plaintiff was proceeding with certain repairs to the roof, but that the Plaintiff was not engaging DIALOG in that regard. Mr. DiBattista summarized the history of DIALOG’s involvement with the matter. This

summary included notice of issues which had not been addressed since February 7, 2011 when DIALOG provided its preliminary report. Namely, these issues were

(1) DIALOG was only able to gain access to about one-half of the total area of the roof to conduct visual inspections, and that other areas of damage may exist that had not yet been detected, and (2) the strength of the roof was unacceptable, appeared to meet neither the 2006 ABC nor the 1970 NBC, and as such Mr. DiBattista recommended “that the entire roof system likely requires strengthening in order to provide an appropriate level of safety”. [ 22 ] Mr.

DiBattista closed with the following: “Because DIALOG is no longer directly involved with the investigation and repair work, we are obligated under law to inform the authority having jurisdiction”, thus accounting for his copying the letter to Mr. Brodgesell. [ 23 ] On November 4, Mr. Brodgesell sent a letter to the Plaintiff, most of which I reproduce below: We have recently been advised of concerns with the existing roof structure on your building … We are aware that a building permit … was issued for roof structure repair in June of 2011 however this permit only covered a select group of roof joists.

Based on the concerns noted in the February 7, 2011 letter from Dialog, we believe the roof structure may still be at risk and a possible danger to the occupants. The following articles of the 2006 Alberta Building Code state as follows; [the author cites Articles 2.2.14.1.(1); 2.4.2.1.(8); and 2.2.9.1. (1)–(3)] Given the above noted concerns, You are required to submit a letter of verification from a structural engineer confirming that the entire roof structure and related materials has been inspected and; 1. The building is safe to occupy or 2.

Remedial work is required to repair or upgrade the existing roof structure to maintain a safe environment for the occupants If the engineers report indicates remedial work is required, you must obtain a building permit prior to any work starting . If we do not receive a satisfactory response to this letter on or before November 18, 2011, we will issue an Order to vacate the building [emphasis in original].

[ 24 ] On November 18, 2011, Albert Biel, P.Eng., of Five Star, provided a report to the Plaintiff. (The report referred to the 1970 building code as the Alberta Building Code, and not the National Building Code, which is how DIALOG referred to it.) Mr. Biel made a number of findings: • The roof joists span 19 feet, 6 inches, whereas the building code in 1970 allowed joists to span 19 feet, 2 inches.

For this reason, the Building did not meet the requirements of the building code when it was constructed in 1972 and does not meet the requirements of the current building code. • The failure of the seven damaged joists was due to the renovation mishap, and not snow load. • The Building is safe to be occupied providing the snow and ice load does not exceed approximately 20 pounds per square foot. [ 25 ] Mr. Biel recommended, inter alia , that the Plaintiff add additional joists or beams to bring the roof into compliance with the current building code. [ 26 ] The Plaintiff provided to the City a copy of Mr.

Biel’s November 18, 2011 letter. In response, Mr. Brodgesell called Mr. Biel to clarify certain things, confirming that “the changes to the roof structure” were required. Mr. Brodgesell advised the Plaintiff to begin the process of applying for a building permit as soon as possible, which application should include drawings showing the proposed structural changes. [ 27 ] On or before February of 2012, the Plaintiff retained Five Star to install new, supplementary roof joists, “doubling up” many of the existing joists.

Five Star supervised and Twister performed this work to the satisfaction of the City, at a cost of approximately $527,500. [ 28 ] The Plaintiffs claim that they are entitled to indemnification from the Defendants for costs associated with installing the supplementary roof joists. III. Issues [ 29 ] There are two issues: 1) Is the Plaintiff entitled to indemnity under the by-law coverage provisions of the Policy? 2) Can the Defendants rely on any exclusion in the Policy to avoid having to provide coverage for the cost of upgrading the undamaged portion of the roof? IV.

The Insuring Agreement [ 30 ] The Policy insured the Building pursuant to the following grant of coverage: 4. PERILS INSURED This Form, except as herein provided, insures against all risks of direct physical loss of or damage to the property insured. [ 31 ] The Policy included a comprehensive property extension endorsement (the “Endorsement”), with the following relevant coverage: 2. Building By-laws: This Policy shall, and only as a result of a peril insured against, extend to indemnify the Insured without increasing the amount of insurance stated on the “Declarations Page” … for: (

i) loss occasioned by the demolition of any undamaged portion of the building or structures; or (ii) the cost of demolishing and clearing the site of any undamaged portion of the building or structures; or (iii) any necessary increase in the cost of repairing, replacing, constructing or reconstructing the building, or structures, on the same site or on an adjacent site, of like height, floor area and style, and for like occupancy; arising from the enforcement of the minimum requirements of any by-law, regulation, ordinance or law which: (

a) regulates zoning or the demolition, repair or construction of damaged buildings or structures; and (

b) is in force at the time of such loss or damage. This extension, however, does not insure against: (

i) the enforcement of any by-law, regulation, ordinance or law which prohibits the Insured from rebuilding, or repairing on the same site or adjacent site or prohibits continuance of like occupancy … [ 32 ] The Policy contained the following relevant exclusions: 5.B. PERILS EXCLUDED This Form does not insure against loss or damage caused directly or indirectly:

… (

l) proximately or remotely, arising in consequence of or contributed to by the enforcement of any by-law, regulation, ordinance or law regulating zoning or the demolition, repair or construction of buildings or structures, which by-law, regulation, ordinance or law makes it impossible to repair or reinstate the property as it was immediately prior to the loss. NOR DOES THIS FORM INSURE: (

m) wear and tear, gradual deterioration, latent defect, inherent vice, or the cost of making good faulty or improper material, faulty or improper workmanship, faulty or improper design, provided, however, to the extent otherwise insured and not otherwise excluded under this Form, resultant damage to the property is insured V.

Positions of the Parties 1) Position of the Plaintiff [ 33 ] The Plaintiff argues that its claim arises from a fortuitous event, that being the partial roof collapse that was discovered on January 29, 2011, resulting in a professional engineer recommending that the entirety of the roof of the Building needed to be brought into compliance with the 2006 ABC, which materially caused the City to demand that the Plaintiff make those upgrades. [ 34 ] It submits that its claim is not for costs to upgrade a faulty roof, and that there would have been no claim to upgrade it but for the fact that a contractor behaved in a way that caused insurable damage to the roof in two locations.

It specifically denies that the roof was faulty, but that, regardless, the claim arose from a chain of events, linked to the peril which caused the failure of the roof in the areas supported by the seven damaged joists. [ 35 ] The Plaintiff stated that the City’s demands arose from the failure of the seven damaged joists and the resultant determination by Mr. DiBattista that the entire roof needed to be upgraded to comply with the 2006 ABC.

It argues that the “peril insured against” was not the failure of the balance of the roof, but rather the collapse of the seven damaged joists. [ 36 ] The Plaintiff argues that it has met the onus required to prove that the claim is covered under the by-law coverage provisions because it has showed that the work done to the entire roof was necessary to ensure that the roof complied with the “minimum requirements of any … regulation, ordinance or law which regulates … repair … of damaged buildings”. [ 37 ] The Plaintiff emphasizes that the additional fibrescope inspection leading to the discovery of the non-compliant joists was necessary, not elective.

It also notes that, once the seven damaged joists had been repaired, the matter was not over. It points to the City’s letter of November 4, 2011, which states, “We are aware that a building permit … was issued for roof structure repair in June of 2011 however this permit only covered a select group of roof joists . … [W]e believe the roof structure may still be at risk and a possible danger to the occupants” [emphasis added]. [ 38 ] The Plaintiff further argues that the Defendants have not shown that any relevant exclusion applies.

Specifically, the Plaintiff opposes the Defendants’ position that the Building in general, or roof in particular, suffered from inherent vice, faulty or improper material, faulty or improper workmanship, or faulty or improper design so as to bring the claim within exclusion 5.B.(m). [ 39 ] According to the Plaintiff, the roof had survived many record snowfalls since being built, and there would have been no need to have upgraded it but for the fact that a contractor caused ice to build up in a roof drain. In response to the opinions of Messrs.

DiBattista and Bisson in February of 2011 that the entirety of the roof was suffering damage due to overload, the Plaintiff points to their own suggestions that there were four possible explanations for the cause of the damage, only one of which pointed to deficient material, workmanship, or design. 2) Position of the Defendants [ 40 ] The Defendants argue the following: (1) the Plaintiff has not met the onus of proving that its claim relates to direct physical loss or damage which occurred during the Policy period and that such loss was fortuitous; and (2) the expenses the Plaintiff incurred fall within the exclusion of the Policy for latent defect, inherent vice, and the cost of making good faulty or improper material, workmanship, or design.

Their arguments on these two points are intertwined. [ 41 ] They submit that the Plaintiff bears the onus of establishing that the alleged substandard condition of the roof joists (other than those specifically damaged due to a frozen drainpipe) constituted direct physical loss or damage that occurred during the Policy period.

They assert that the evidence shows that the roof was either designed or constructed improperly, being that it did not comply with the 2006 ABC and possibly did not comply with the 1970 NBC. [ 42 ] As a result, the Defendants’ position is that the loss that is the subject-matter of this claim is not fortuitous. They state that the seven damaged joists neither caused nor constituted direct physical loss or damage to the balance of the remainder of the roof.

Rather, the damage to the joists simply provided an opportunity for the discovery of the state of the roof which had existed for an untold period of time before the Policy came into effect. [ 43 ] The Defendants point to uncontradicted evidence showing that the initial involvement of the jurisdiction and authority of the City were in regards to the seven damaged joists.

Where they part ways with the Plaintiff is by suggesting that the Plaintiff voluntarily and separately decided to retain a contractor to inspect the remainder of the roof, which in turn led to the City’s becoming aware that the roof was not in compliance with the 2006 ABC. The Defendants maintain that inspecting the remainder of the roof was not a necessary component of repairing and seeking the City’s approval for the damage to the seven joists. [ 44 ] The Defendants assert that the only reason the City became involved after the seven joists were repaired was because of

Mr. DiBattista’s report wherein he stated “because we’re no longer directly involved with the investigation or repair work, we areobligated under law to inform the authority having jurisdiction”.

The Defendants emphasize that the Plaintiffs bore no legal obligation tohave reported anything to the City after the initial repairs were certified, and consequently the way in which the City became aware ofthe condition of the remainder of the roof was not causally connected to the peril which damaged the seven joists. [45] The Defendants argue that, because there would have been no policy coverage had the Plaintiff—absent the fortuitous icedamage—chosen to inspect the roof as part of its due diligence, provoking the City thereafter to insist that it incur upgrade costs, therecannot be coverage in this case, where insurable ice-induced joist damage predated the Plaintiff’s inspection of the remainder of theroof. [46] The Defendants stress that the Policy was not a warranty contract that the Building was free of defect.

Rather, it was a Policythat provided coverage for direct—not indirect—physical loss and damage from a fortuitous event, and that there can be no question thatthe unsafe roof condition was inherent when the Policy came on risk. VI.

Burdens of Proof [47] The issue of burdens of proof must be addressed specifically as a preliminary issue because the positions taken by the partiesdo not reflect the subtlety of the appropriate burdens in a case such as this. [48] The Plaintiff and Defendants share the position that an insured bears the onus of proving the loss was fortuitous and fallswithin the insuring agreement, and that an insurer bears the onus of proving an exclusion applies. On first blush, there is nothingremarkable about this. Any standard textbook on Canadian insurance law will echo these principles.

However, this case stands as anexample of the circularity that can emerge when one attempts to reconcile the burdens on the insured and insurer. [49] The Defendants argue, in part, that the Plaintiff has failed to prove that the loss was fortuitous because the roof of theBuilding was designed or constructed improperly, and therefore the source of the loss was internal to the property. On the Defendants’approach to the Plaintiff’s burden of proof, the exclusion clause 5.B.(

m) is redundant. [50] If the Plaintiff meets the onus of showing the loss was fortuitous because the Building was not designed or constructedimproperly, then the Plaintiff has assumed the reverse of one of the burdens properly shouldered by the Defendants, that being to provethat the Building was designed or constructed improperly.

On the other, if the Plaintiff fails to prove that the loss was fortuitous becausethe Building was designed or constructed improperly, then there is no need for the burden to shift to the Defendants to prove that the lossfalls within the exclusion. [51] This precise conundrum was addressed squarely in Feuiltault Solution Systems Inc v Zurich Canada, 2012 FCA 215, 12CCLI (5th) 23, leave to appeal to SCC refused, 35010 (20 December 2012) [Feuiltault]. The facts in that case were that Feuiltaultmanufactured specialized machinery, which it sold to a customer in Germany.

The goods were in good condition when they were loadedonto a ship in Montreal. The containers were off-loaded in Germany and transported to the customer. When the containers were opened,the machines were rusted very badly and eventually declared a total loss. [52] Feuiltault made a claim under its all-risks marine insurance policy, which contained an exclusion for “loss, damage or expensecaused by insufficiency or unsuitability of packing or preparation of the subject matter insured”.

The insurer denied the claim on thebasis of the exclusion clause. [53] The trial judge found that the high-moisture-content wood in which Feuiltault had packed the machinery was responsible forthe condensation which caused the machinery to rust. The lower court concluded that Feuiltault had the onus of showing that the losswas caused by a fortuity, and that it had not succeeded in showing that. [54] On appeal, the Court considered the line of insurance law cases which addressed the principles of burden of proof in thecontext of fortuitous loss (see e.g.

British and Foreign Marine Insurance Co v Gaunt, [1921] 2 AC 41 (HL) [Gaunt]; ContinentalInsurance Co v Dalton Cartage Co, (SCC), [1982] 1 SCR 164). In particular, the Court considered the degree to whichthe insured is responsible for proving a fortuitous loss where the insurer excludes non-fortuitous losses, such as losses caused by inherentvice.

The Court’s statements are equally applicable to other non-fortuitous losses, such as faulty or improper design, construction, orworkmanship. [55] The Court recognized the conflict between two ordinarily unremarkable propositions: (1) an insured under an all-risks policymust show, if only by inference, that the loss was caused by a fortuity; and (2) the insurer must prove the application of the exclusion,including non-fortuitous losses, on which it relies to deny coverage.

The Court noted the same circularity that appears in the case at bar.The entire reasoning bears reproducing: 25 … An insured who cannot show that the loss was caused by a fortuity will have, in effect, shown that the loss was caused by inherentvice, since, by definition, inherent vice is the deterioration of the cargo without the intervention of any fortuitous external accident orcasualty.

This reverses the onus with respect to proof of the cause of loss, since requiring the insured to show that the loss was due to afortuity imposes on the latter the onus of disproving inherent vice [emphasis in original]. 26 In my view, the jurisprudence with respect to the burden on the insured to prove a fortuity as a condition of recovery under an all-risks policy must therefore be read carefully. It is trite law that insurance policies must be read as a whole so as to give effect to all termsof the contract: see BG Checo International Ltd. v.

British Columbia Hydro and Power Authority, (SCC), [1993] 1S.C.R. 12. In practice, this means that the scope of coverage is determined by the interplay between the insuring agreement and theexclusions. Where the question of coverage falls to be decided solely on the scope of the insuring agreement, in the absence ofexclusions, Gaunt is authority for the proposition that the insured must show his loss is fortuitous. But where the question of coveragedepends upon both the insuring agreement and the exclusions, then Gaunt and the jurisprudence that follows it must be read subject to

the following caveat: where the insurer has specifically excluded non-fortuitous losses, especially inherent vice, then it must be taken to have accepted the burden of proving lack of fortuity [emphasis added]. 27 This is also consistent with the rule that all terms of the policy must be given meaning … Requiring the insured to prove that the loss was due to a fortuity effectively renders the exclusion of non-fortuitous losses superfluous. If the insured can prove that the loss was caused by a fortuity, the exclusions cannot apply.

If the insured cannot prove that the loss was cause by a fortuity, his claims fails and the issue of the exclusions for non-fortuitous losses will never arise. The only way to give both the insuring agreement and the exclusions their proper scope is to hold that the insured under an all-risks policy needs only show that the cargo was in good condition when the insurance attached and that the goods were damaged while the insurance was in force.

It is for the insurer who wishes to deny coverage to prove that the exclusion with respect to inherent vice or other non-fortuitous loss applies. [ 56 ] In Feuiltault , the Court concluded that the trial judge erred by imposing on the insured the burden of proving that the loss was caused by a fortuity. In doing so, the trial judge failed to give effect to the entire insurance contract.

The Court, however, dismissed the insured’s appeal, agreeing with the trial judge that the circumstances fell within an exclusion clause in the policy. [ 57 ] Despite the Court’s conclusion on the exclusion issue, the case at bar is similar with respect to the nature of the policy and the need to establish clearly each party’s burden of proof. Here, the insured has made a claim for a loss that the insurers say is not fortuitous because of faulty or improper design or construction.

The question of fortuity is inseparable from the question of inherent vice, and the fitness of design and construction. [ 58 ] In light of the all-risks nature of the Policy, the endorsement covering losses due to the application of a by-law, and the exclusion for inherent vice, and so forth, the burdens of proof must be specifically articulated in advance: 1) the Plaintiff must show that a peril caused direct physical loss of or damage to the Building; 2) the Plaintiff must show that, as a result of the peril, the Plaintiff incurred increased costs of repairing, replacing, constructing, or reconstructing the Building, such increased costs being necessary due to the enforcement of the minimum requirements of any by-law, regulation, and so forth; and 3) the Defendants must show that the loss was not fortuitous, in that it was caused by inherent vice, faulty or improper design or construction, and so forth. [ 59 ] The Defendants also argue that exclusion clause 5.B.(

l) applies; it is not disputed that they bear the burden of proving that as well. VII. Coverage due to operation of a law [ 60 ] There is no question that a peril caused direct loss of or damage to the Building. The Defendants accepted the Plaintiff’s claim for costs incurred in inspecting and repairing the seven damaged roof joists.

The peril that caused this was the fortuitous accumulation of ice in a drain attached to the Building. [ 61 ] The main question which gives rise to this litigation is whether the costs for installing supplementary joists are covered by operation of the by-law coverage clause in the Policy. 1) Canadian jurisprudence [ 62 ] There is a paucity of Canadian jurisprudence that addresses this question. Counsel for the Plaintiff cited as one example the case of Bell Pole Co v Commonwealth Insurance Co , 2000 BCSC 601 , 19 CCLI (3d) 13, aff’d 2003 BCCA 7 , 10 BCLR (4th) 90 [ Bell Pole ].

In that case, the insured installed a treatment tank in an industrial facility. The policy insured the replacement cost of the tank, and included by-law coverage which insured the additional cost of replacing that property to the minimum standards required by any law, by- law, regulation, or ordinance. [ 63 ] A consultant recommended the construction of a new facility to reflect the modernization of provincial legislation addressing industrial contamination. The government advised the insured that the tank was inadequate and was contaminating the surrounding environment.

A management committee of the insured recommended that the facility be upgraded to a modern treatment plant at significant cost. [ 64 ] Within months, and before the insured upgraded the tank, a fire destroyed it. Following the fire, the government stipulated that if the vault in which the tank had been situated were to be used as the foundation for the new facility, the ground would have to be remediated or the insured would be required to post a bond. The insured chose instead to construct a new facility out of range of any existing contamination.

The cost was ten times the replacement value of the tank destroyed by the fire. [ 65 ] Upon receiving a claim, the insurer argued that, but for the fire, the insured would have ceased using the tank in the near future, and therefore the fire did not cause the portion of the claim resulting from the requirement to comply with the law by way of building a new treatment facility. [ 66 ] At trial, the judge gave judgment to the insured based on the principle that, notwithstanding the existence of an intention to demolish, property that is not legally condemned, or required to be demolished, removed or decommissioned, is subject to indemnity in the event of damage or destruction by an insured peril.

The judge specifically declined to address what the result would have been if a regulatory authority had made a binding order to demolish or discontinue use before the fire. On appeal, the Court addressed the by-law coverage clause only in terms of whether coverage was limited by the insurer’s statement of values, filed years prior to the loss. [ 67 ] Bell Pole is not particularly helpful for the parties in the case at bar. The property was totally destroyed and replaced, and in

any case the courts did not resolve the case on the issue of, or even directly consider, whether or not the increased cost of replacing thetank was covered by the by-law coverage clause. [68] There is also the case of Meyers v Royal Insurance Co of Canada, 1984 CarswellOnt 3434 (Ont Sup Ct (HCJ), reversed onappeal by the consent of the parties ( (ON CA), 55 OR (2d) 63 (CA)). In that case, a fire damaged the insureds’ storeand residence.

They had a policy of insurance which provided by-law coverage. [69] After the fire, it was learned that there had been damage in the attic of the building from a fire that had occurred before theinsureds had purchased the property, which had not been known to them and had not been repaired.

When the insureds applied to themunicipality for a permit to repair the building, they were advised that, because of the amount of the total damage from the two fires,they could get a permit only if they reconstructed their building so that it complied with a by-law in force at the time of the second fire.The insureds decided that it would be cost prohibitive to repair or rebuild the property, so they demolished it. [70] The Court addressed a preliminary question: were there two losses—one caused by fire and the other by the enforcement of alaw—or was there one loss, caused by two things?

The Court concluded the latter, accepting that where the damaged part of the propertycould not be repaired at a cost that made any sense having regard for the value of the building, the whole building was lessened in valueor damaged. The value of the damaged property was the value of the building that had to be demolished. The Court found that theinsureds’ loss caused by fire was the actual cash value of-the building before the fire. [71] This decision is not particularly helpful.

Although it specifically contemplated that the by-law could operate to cause a loss,the Court considered that only in the context of determining whether there were one or two losses. I also question the persuasive value ofthe decision, being that it was overturned on the consent of the parties. 2) American jurisprudence [72] Given the dearth of Canadian insurance jurisprudence which addresses the matter of bylaw coverage, I turn for guidance tocase law south of our border.

This Court has maintained that “there is a long Canadian jurisprudential tradition of accepting Americanauthorities” in insurance law, without the intervention of an expert, because Canadian and American economies are both similar andinterrelated (Federal Business Development Bank v Continental Insurance Co (1991), (AB KB), 116 AR 26 atparas 17, 21, Veit J (Alta QB)). [73] The Supreme Court of Canada has noted that insurance law is “a body of fundamental rules found in several countries” whichare nearly uniform in all commercial states (Caisse populaire des Deux Rives v Société mutuelle d’assurance contre l’incendie de laVallée du Richelieu, (SCC), [1990] 2 SCR 995 at 1004 [Caisse populaire], citing Civil Code of Lower Canada: Sixthand Seventh Reports and Supplementary Report (Quebec: George E Desbarats, 1865) at 240).

Indeed, the Supreme Court has routinelyconsidered American case law in interpreting insurance contracts (see e.g. Leepo v Western Assurance, (SCC), [1973]SCR 171; Firth v Western Life Assurance Co, (SCC), [1957] SCR 428; Co-operative Fire & Casualty Co v Saindon, (SCC), [1976] 1 SCR 735). [74] Citing Caisse populaire and noting the dearth of Canadian jurisprudence on the

interpretation of the Standard MortgageClause in an insurance policy, the Ontario Court of Appeal noted that it was “essential” to consider American jurisprudence (Pinder vFarmers’ Mutual Insurance Co, 2009 ONCA 831 at para 32, 100 OR (3d) 200). The Court recognized the “importance of consistencywith the general scheme of North American insurance law”. [75] There are a number of American appellate cases which are persuasive, given their factual circumstances.

The relevantcoverage clauses—so-called “ordinance or law coverage”—tend to be worded fairly consistently, although their construction isnoticeably different from the by-law coverage clause in the case at bar. [76] This sample clause reflects quite well the “ordinance or law” clauses at issue in the American cases: With respect to the building that has sustained covered direct physical damage, we will pay for the loss in value of the undamagedportion of the building as a consequence of enforcement of an ordinance or law that requires demolition of undamaged parts of the samebuilding.

With respect to the building that has sustained covered direct physical damage, we will pay the increased cost to (1) repair or reconstruct damaged portions of that building, and/or (2) reconstruct or remodel undamaged portions of that building, whether or not demolition is required when the increased cost is a consequence of enforcement of the minimum requirements of the ordinance or law. [77] Although American jurisprudence serves to guide my analysis, I must exercise caution in relying on it for at least two reasons:(1) the coverage clauses are noticeably different from the by-law coverage clause in the case at bar; and

(2) Canadian courts must applyCanadian legal principles. The second point is not a great concern in this case because of the high degree of similarity between Americanand Canadian legal principles.

However, because this case requires the Court to interpret an insurance contract, I remain cognizant thatthe American cases were decided given different underlying contractual language. [78] Given this Court’s determination to resort to American jurisprudence, I gave the parties an opportunity to make writtensubmissions on the American jurisprudence cited below. [79] In Houston Specialty Insurance Co v Meadows West Condo Association, No 15-30140 (5th Cir 2016) [Meadows West], theinsured property was a 124-unit condominium comprised of 18 buildings.

A fire damaged two units in a single building, leaving theremaining property undamaged. The fire department concluded that the layout and construction of the duct work could have contributed

to the fire. The fire department advised the Chief Building Official that the property presented a serious fire hazard that needed to beaddressed. The Official informed the insured that the duct work in the buildings likely contributed to the fires and requested that it hirean engineer to design a repair and a contractor to perform it.

The Official further told the insured that it was obligated to see that theproperty’s potential fire hazards had been repaired and indicated that the building code authorized him to resolve the problem. [80] There was no evidence that the insured failed to comply with the building code prior to the fire. Specifically, the officials didnot identify the duct work as an unsafe condition and mandate its removal until after the fire. The insured replaced the duct work andthen sought coverage under its insurance policy, which included ordinance or law coverage.

The insurer denied coverage. [81] On appeal, the Court noted that, while the Official did not mandate a specific type of repair aside from the removal of the ductwork, the repair plans still had to be approved by the Planning, Zoning, and Codes Department, and the repair itself was subject toinspection by the fire marshal.

Thus, the insured was required, by law and through the application of the building code, to remove andreplace the flex duct work, triggering the ordinance or law provision. [82] The Court concluded that costs to upgrade the ductwork were covered under the ordinance or law provision in the policy. [83] The Plaintiff submits that this case is directly applicable in this instance because the bylaw coverage wording in bothinsurance policies is nearly identical and the ultimatums that the governing authorities gave are equally blunt.

The Plaintiff also submitsthat the same general principles of insurance apply in the United States and Canada. [84] The Defendants take a different position. They submit that the coverage clauses are not similar, and that in fact the coveragein the case at bar is more restrictive. The Defendants accurately note that the coverage clause in this American case specifically coversan undamaged portion of an insured building, whereas in the case at bar, the endorsement simply refers to “the cost of repairing,replacing, constructing or reconstructing the building, or structures”.

On a clear reading, the application of this clause is restricted neitherto undamaged nor to damaged buildings, or portions thereof. The wording is unambiguous, referring to "the building, or structures". Thisreadily and reasonably allows for coverage to damaged parts of the Building, undamaged parts, or both. If the Defendants had intendedto limit its application by applying a single adjective, they could have. [85] The Defendants also submit that the Court in Meadows West relies on an interpretive principle which is inconsistent withCanadian law.

The principle cited by the Court is this: “The test for construing an insurance policy is not what the insurer intended thewords to mean, but, how the words would have been understood by a reasonable person in the shoes of the insured” [emphasis inoriginal]. [86] This indeed is distinct from the main interpretive principles in Canadian law, in the absence of ambiguities: (1) the Court mustsearch for an

interpretation from the whole of the contract which promotes the true intent of the parties at the time of entry into thecontract; and (2) where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention ofthe parties will be selected (Brissette Estate v Westbury Life Insurance Co, (SCC), [1992] 3 SCR 87 at 92).Notwithstanding the subtle differences between the American and Canadian principles, the case at bar does not turn on this, nor did theparties make submissions regarding the true intentions of the parties at the time they entered into the Policy. [87] In Markwest Hydrocarbon Inc v Liberty Mutual Insurance Co, 558 F (3d) 1184 (10th Cir 2009) [Markwest Hydrocarbon],the insured owned and operated a natural gas pipeline.

A valve failed, resulting in the release of gas, which caught fire and caused anexplosion which destroyed five homes and caused injuries. The explosion inflicted very little damage to property covered under thepolicy—only a small

section of the pipeline required replacement. [88] The government agency charged with ensuring the safe and reliable operation of pipelines identified corrosion of the pipelinearound the failure site and concluded that the continued operation of the pipeline without corrective measures would be hazardous to life,property, and the environment.

The official required appropriate field testing, inspections, and evaluations to determine whether and towhat extent the conditions associated with the failure, or other integrity threatening trends, were present along the remainder of theaffected segment or elsewhere on any portion of the pipeline. [89] The official did not seek to tell the insured whether and how to repair the small stretch of damaged pipeline. The official wasconcerned about preventing future problems regarding the safe operation of the entire pipeline.

The insured sought coverage for the costof upgrades to the pipeline based on its ordinance or law coverage. [90] The Court found that the official was regulating the terms for the safe operation of the entire pipeline. It was not aimed atdictating a fix for the minor damage done to a valve or pipeline segment. To read the policy as covering the insured’s costs of complyingwith safety regulations would be to convert the policy against unforeseen fortuities into a maintenance contract.

A pipeline operatorcould run the least-safe, least-modern, and least well-run pipeline in the country, a pipeline in violation of every regulation in the books. [91] Yet, under the insured’s reading of the contract, if an accident exposed these problems to the safety officials, the insurerswould be liable for repairing and modernizing the entire pipeline.

Construing an all-risk policy in the manner the insured suggests thuswould misallocate the ordinary costs of doing business from the company to the insurer. [92] The policy protects against fortuities but not the upkeep necessary for an old pipeline to remain safe to operate. Expensesincurred as a result of meeting safety standards are the cost of doing business properly internalized by a business, not the sort ofunexpected fortuity all-risk policies are designed to cover.

The Court denied coverage. [93] The Plaintiff submits that this American case is distinct from the case at bar, where there was a direct structural failure whichbrought into question the fundamental strength of the roof.

The Defendants suggest that the reasoning in Markwest Hydrocarbon ispersuasive, given that the City’s demand on November 4, 2011 had nothing to do with the damage to the seven trusses, being that thosetrusses had already been repaired, inspected, and approved by the City in August of 2011. [94] As I will discuss later, the Defendants are asking the Court to read more into the timing of events than is appropriate in

considering causation. The question is not whether the immediate peril-induced damage had been repaired prior to the City making its demand. The question is one of causation, namely, whether the City’s demand was a result of the peril. [ 95 ] In Deb Associates v Greater New York Mutual Insurance Co , 407 NJ Super 287 (App Div 2009) [ Deb Associates ], a storm damaged the seventh floor of a building. Officials inspected the damaged area and discovered that the walls were unstable. They concluded that the building would be unsafe unless it was brought up to current code standards.

The officials made an order to vacate the building and that, as a condition of re-occupancy, the walls on floors two through eight be secured to be made compliant with the code. The building had been “grandfathered in” from an old code.

The insured sought coverage under the ordinance or law endorsement. [ 96 ] The trial judge had found as a fact that the repairs to the other floors would not have been required if the seventh floor wall had not collapsed, and there was no evidence of any pre-existing code violations prior to the wind damage. [ 97 ] On appeal, the Court noted that there was a clear causal connection between the collapse of the seventh floor wall and the code official’s mandate that the insured bring the remaining floors into compliance to prevent them from collapsing.

The official did not fortuitously discover these building code problems, unrelated to the peril-induced damage. Instead, there was a direct connection between the covered damage and the additional work required in the building. It was the wall collapse that proximately caused the authorities to look specifically for similar problems elsewhere in the building and to designate the building as an “unsafe structure” when they found them.

Further, the required upgrades concerned the same structural part of the building (the walls), the same building code provision, and the same type of repair implicated in the direct damage caused by the storm. [ 98 ] The Plaintiff submits that this case is directly applicable to the case at bar because the Building’s roof was damaged as a result of a fortuitous event for which there was coverage, as was the situation in Deb Associates . [ 99 ] The Defendants take the position that the coverage endorsement in this American case—which apparently does not require a causal connection between the insured peril and the enforcement of the bylaw—is much more expansive than the endorsement in the case at bar, which does require a causal connection.

I agree with the Defendants’ noting that the endorsements can be distinguished on the basis of the causal connection required, although it does not logically follow that the coverage is more “expansive”. In other words, the thresholds for finding coverage applies are different as between the two coverage endorsements, but the scope of coverage is nearly identical. [ 100 ] However, nothing turns on this point, because the trial judge in Deb Associates found that the “remedial work … was required as a direct result of the collapse of the seventh floor wall” [emphasis added].

This finding was affirmed on appeal, with the Court finding “a clear causal connection [based on the proximate cause test] between the collapse of the seventh floor wall and the code official’s mandate that plaintiff bring the remaining floors into compliance to prevent them from collapsing”.

Considering this “clear causal connection”, it is unnecessary to compare the finer points of what threshold was required by the endorsement in Deb Associates . [ 101 ] The Defendants also distinguish the case at bar from Deb Associates , where the Court found that “the prior non-conforming condition was considered legally acceptable before the disaster occurred”.

In the present matter, the Defendants state that the undamaged portion of the roof complied with neither the 1970 nor the 2006 building code “because the span of the roof joists was too wide to provide the strength requirements stipulated” and that “the undamaged portion of the roof in this case could not be considered as legally acceptable”. [ 102 ] The Defendants are proposing factual conclusions that are more properly the purview of this Court, based on the evidence.

As discussed below, there is a deficit of evidence on the question of whether or not the Building did or did not comply with the 1970 or 2006 building code. The Defendants did not introduce any expert opinion evidence on this point.

In the absence of such evidence, this Court may presume that a building complies with the building code in effect at the time the building was constructed. [ 103 ] In Regents of the Mercersburg College v Republic Franklin Insurance Co , 458 F (3d) 159 (3rd Cir 2006) [ Regents ], lightning struck the insured property, igniting a fire that caused damage to the roof and the fourth floor of the building, and smoke and water damage to lower floors. The insured made a discretionary decision to renovate undamaged portions of the property, triggering application of building codes as to that renovation.

The insured sought coverage under the ordinance or law endorsement. [ 104 ] On appeal, the insured failed to point to any provisions of the building codes that mandated or required it to upgrade or renovate undamaged portions of the property.

The Court denied coverage, noting that when voluntary repairs are undertaken to undamaged portions of the building, there may be costs imposed by enforcement of a law or ordinance, but those costs are not a “loss.” Only when some actual covered cause of loss has caused damage to the building, the repair of which must legally be accompanied by changes to the undamaged portion of the building, can the law or ordinance be said to have caused a “loss.” [ 105 ] Bearing these decisions in mind, I now turn to the case at bar to consider whether or not the Plaintiff has met its burden of establishing that the by-law coverage clause is triggered. 3) Analysis [ 106 ] The issues to be decided are whether the Plaintiff has proven the following: (1) the increased cost of repairing the roof of the Building was as a result of the peril insured against; (2) the cost increase was necessary; and (3) the cost increase arose from the enforcement of the minimum requirements of a by-law, regulation, ordinance, or law which, at the time the peril occurred, regulated zoning or the demolition, repair, or construction of damaged buildings or structures. [ 107 ] The relevant interpretive principle that applies is that, when the language of the policy is unambiguous, the Court should give effect to clear language, reading the contract as a whole ( Progressive Homes Ltd v Lombard General Insurance Co of Canada , 2010 SCC 33 at para 22 , [2010] 2 SCR 245). i.

Was the increased cost a result of the peril insured against?

[108] Whether the increased cost of repairing the roof was a result of the ice-filled roof drain is a question of causation. Causation is,of course, fundamental to insurance policies because insurers cannot agree to take on an unlimited risk (Martin v AmericanInternational Assurance Life Co, 2001 BCCA 130 at para 15, 149 BCAC 249, aff’d 2003 SCC 16, [2003] 1 SCR 158).

The causalquestion, like all insurance policy interpretive questions, is directed by the language of the policy as it evidences the true intent of theparties at the time of entry into the contract (Consolidated-Bathurst Export Ltd v Mutual Boiler and Machinery Insurance Co (1979), (SCC), [1980] 1 SCR 888 at 901). [109] Working backward, the end result loss being claimed is the cost incurred to inspect and buttress the roof, apart from repairingthe seven damaged joists.

Accordingly, the question is whether the ice in the drain was necessarily involved in bringing about the endresult? [110] There is no dispute that the ice caused a

section of the roof to fail. This failure prompted the Plaintiff to engage DIALOG toinspect and report on the damage to the roof. DIALOG advised the City of the damage to the roof, the apprehended risk to occupants,and also flagged the possibility that the remainder of the roof might be structurally unsound and likewise pose a safety risk. Relying onthis advice, the City demanded that the Plaintiff inspect and repair the remainder of the roof. [111] There is no doubt that the Plaintiff had not been contemporaneously planning to upgrade the roof.

In fact, the evidence showsthat the Plaintiff was reluctant and even resistant to inspecting the roof behind the drywall for fear that it would discover deficiencieswarranting costly repairs.

Nor did the Plaintiff use the occasion of the damage to the seven joists as an opportunity to embark onunnecessary repairs or upgrades to the Building. [112] The case at bar can be distinguished from Regents, where the Court found in favour of the insurer because the insured had,subsequent to the peril which damaged the property, embarked voluntarily on upgrades to undamaged parts of the property. [113] I note the temporal dimension of the series of events leading from the initial peril to the City demanding that the Plaintiffinspect and repair the roof.

The circumstances unfolded during a span of less than one year. I also note the absence of any othersufficient causes or triggers that led the City to demand that the Plaintiff repair the roof. There were no intervening or concurrent causesto complicate the causal analysis. [114] Meadows West and Deb Associates are particularly instructive. In both cases, an insured peril caused damage to discrete partsof the properties, but left significant portions undamaged.

As a direct result of the damage, officials learned that there were aspects of theproperties that warranted remedial attention. [115] In Meadows West, the ordinance or law coverage clause covered the cost to upgrade the ductwork.

The court did not refer to thelocal building code or compliance therewith, except for the Chief Building Officer stating that he was authorized by the code to see thatthe property’s potential fire hazards had been repaired, and he believed he was obligated to do so. [116] The Court concluded that the costs to upgrade the ductwork were covered by the policy, despite its language being“enforcement of the minimum requirements of the ordinance or law”.

This tells me that the reference to “ordinance or law” wasinterpreted broadly enough to encompass the order of a building official who was operating under genuine belief that the building codeobligated and authorized him to make the order. [117] In Deb Associates, the Court noted the clear causal connection between the damage to the property and the official’s demandthat the insured bring the undamaged parts of the building into compliance with the current building code, even though the property hadbeen properly “grandfathered in” from an old code.

The Court also noted that the upgrades involved the same structural part of thebuilding as was the subject of the damage caused by the peril. [118] In the case at bar, the damage caused by the ice was limited to seven roof joists.

The consequence of further inspection and theCity’s demand was that the remainder of the roof joists—otherwise undamaged by ice repair—be supplemented and strengthened by theaddition of extra joists. [119] The Defendants, in a supplemental brief, emphasize that the wording of the coverage clause reads “This Policy shall, and onlyas a result of a peril insured against, extend to indemnify…” [emphasis added]. Being that the word “only” means “solely” or“exclusively”, and because the City became further involved with the Building because of the October 31, 2011 letter that Mr.

DiBattistasent to it, the Defendants argue that the expenses incurred to strengthen the undamaged portion of the roof did not arise only as the resultof a peril insured against. [120] The Defendants suggest that the City’s direction of November 4, 2011 did not result only as a result of the damage to the trussesdiscovered in January of 2011.

Instead, the Defendants argue that the City’s direction occurred because the Plaintiff decided to enter intoa contract with DIALOG not only for the purposes of inspecting and approving repairs to the seven damaged trusses, but also to inspectthe rest of the roof. [121] I do not find this argument persuasive. The Defendants are suggesting an

interpretation of the clause that is too narrow and doesnot reflect an

interpretation that would better reflect the intentions of the parties when they entered into this agreement. Theircharacterization of the circumstances is such that the Plaintiff’s entering into a contract with DIALOG was an intervening event thatbreaks the chain of causation between the insured peril (i.e., the ice damage) and the City’s direction to repair the entirety of the roof. [122] I find it unnecessary to parse the meaning of the word “only”. As Lord Esher, MR said, “the word ‘only’ means ‘only’” (Wilksv Wood (1892), 8 TLR 465 at 466 (CA)).

The word “only” in this clause immediately precedes the words “as a result of a peril insuredagainst”. I interpret this to mean that coverage in this endorsement will be triggered not just in any circumstance where there is a nexuswith an insured peril, but instead only where the increased cost of repairing the property is caused by an insured peril (i.e., “as a resultof”). [123] Indeed, I find not only that, but for the insured peril, the City would not have directed the Plaintiff to upgrade the roof, but that

there was an unbroken chain of causation linking the insured peril to the City’s demand, which reflects a higher threshold of causation(Citadel General Assurance Co v Vytlingam, 2007 SCC 46 at para 12, [2007] 3 SCR 373). [124] In oral argument, counsel for the Plaintiff referred to the interpretive principle that the contra proferentem rule applies asagainst the insurer when the rules of general contract construction fail to resolve an ambiguity.

Counsel did not strenuously argue that thePolicy is ambiguous, nor did the Defendants take a position on this point. [125] A contractual term is not ambiguous unless it can be read in either of two opposing senses, and courts should not search for orcreate ambiguities if none exist (Equitable Trust Co v Lougheed Block Inc, 2012 ABCA 261 at para 29, 536 AR 190).

As our Court ofAppeal has stated, “[m]erely because the application of the policy to particular fact situations might be tricky does not mean that there is‘ambiguity’ in the policy wording” (Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2015 ABCA 121 at para 58, 386DLR (4th) 482).

Only where ambiguities are found should the contra proferentem rule be used (ibid). [126] This Court is not to seek out ambiguities if none exist, and I find that there are none on the face of the Policy to warrant furtherinquiry. [127] Accordingly, I find that the increased cost to repair the Building was a result of the peril insured against. ii. Was the cost increase necessary? [128] This question is subsumed by the other two. Had the City not demanded that the Plaintiff inspect and repair the entire roofstructure, the City would have issued an order to vacate the Building.

The Plaintiff had not been independently contemplating upgradingthe roof, nor did it take advantage of the City’s demand by deciding to undertake unnecessary repairs. [129] Therefore, I answer this question in the affirmative. iii. Did the cost increase arise from the enforcement of the minimum requirements of a by-law, etc.? [130] In this contract of adhesion, the insurer chose to use the language “any necessary increase in the cost … arising from theenforcement” [emphasis added].

It could have used words that implied a clear sense of causation, but it chose not to do so. [131] Similar language was considered at length in Amos v Insurance Corp of British Columbia, (SCC), [1995] 3SCR 405 [Amos]. In that case, the Court considered the phrase “an accident that arises out of the ownership, use or operation of avehicle” in the context of no-fault automobile insurance legislation. The two-part test outlined in Amos is not directly applicable to thecase at bar because it is in the context of the ownership, use, or operation of a vehicle.

However, suffice to say that the words “arising outof” were construed much more broadly than “caused by”. [132] To paraphrase Major J. who wrote for the Court in Amos (at 415), the question to ask in the case at bar is as follows: Is theresome nexus or causal relationship (not necessarily a direct or proximate causal relationship) between the cost of repairing the Buildingand the enforcement of the minimum requirements of any by-law, regulation, ordinance or law which the repair of damaged buildingsand was in force at the time of such loss or damage? [133] I find there is a clear nexus between the cost of repairing the Building and the enforcement of the 2006 ABC.

Mr. DiBattistanotified the City of the damage to the Building and of his suspicion that the remainder of the roof was deficient and could pose a risk tooccupants. Mr. Brodgesell adopted Mr. DiBattista’s concerns and demanded that the Plaintiff inspect and, if necessary, repair the entiretyof the roof so that it complied with the 2006 ABC. [134] This can be distinguished from Markwest Hydrocarbon. In that case, the government agency’s order to make certain upgradesdid not arise from the enforcement of laws “regulating the repair or reconstruction of the damaged property”.

The agency did not requirethe insured to form, build, repair, or construct anything. Instead, the agency required only that the insured test and take remedial actionsto maintain the safety of the pipeline. [135] In the case at bar, on the other hand, the City required the Plaintiff to repair and make changes to the roof structure, adoptingMr. Biel’s proposal to add supporting roof joists in the undamaged part of the Building. The official making this demand was a SafetyCodes Officer, relying on certain provisions of the 2006 ABC in making his demand.

These provisions relate to buildings in an unsafecondition and the requirements for permits for the construction, alteration, installation, or repair related to work governed by the 2006ABC and in accordance with regulations pursuant to the Safety Codes Act, RSA 2000, c S-1. [136] The Defendants did not challenge Mr.

Brodgesell’s authority under that legislation or the 2006 ABC to make those demands,nor his genuine belief that the repairs were required under those instruments. [137] As a result, I find that the cost increase arose from the enforcement of the 2006 ABC and in accordance with regulationspursuant to the Safety Codes Act. iv. Conclusion [138] Having answered all three of the above questions in the affirmative, I find that the costs incurred by the Plaintiff to repair theentirety of the roof of the Building are covered by the by-law coverage clause in the Policy. VIII.

Exclusion clause 5.B.(l) [139] The Defendants plead the operation of exclusion clause 5.B.(

l) to defeat the Plaintiff’s claim. In order to do so, they must provethat the loss or damage falls within the meaning of the exclusion clause.

[140] Subject to exclusions, the Policy insures against “all risks of direct physical loss of or damage to the property”. The propertyextension endorsement indemnifies the Plaintiff for necessary increases in the cost of repairing, replacing, or reconstructing the Building,or structures, which increase in cost arises from the enforcement of the minimum requirements of any law. Exclusion 5.B.(

l) preventsrecovery for loss or damage caused, arising in consequence of, or contributed to by the enforcement of any law which law makes itimpossible to repair or reinstate the property as it was immediately prior to the loss. [141] The coverage and exclusion provisions can be read together as a whole without resort to interpretive principles that addressambiguities in an insurance policy. Clause 5.B.(

l) contemplates the situation where an insured is prevented by law from repairing orreinstating the property to the state it was in immediately prior to the loss. This exclusion restricts the operation of the bylaw coverageclause. [142] Clause 5.B.(

l) contains three elements: (1) the insured is prevented by a law (2) from repairing or reinstating the property (3) asit was immediately prior to the loss. I imagine that this clause might be material in circumstances where an insured’s property wasdamaged or destroyed by a peril, and the insured was prevented by a building code, or the like, from returning the property to the samestate it was in prior to the peril. [143] The Plaintiff was not prevented by a law from doing anything. Instead, the City required that he take some positive action in theform of certain repairs.

Even if it is argued that the City’s demand that the Plaintiff take positive action was, in effect, a prohibitionagainst the Plaintiff’s repairing the Building in a way that left it unchanged—which is illogical—the Plaintiff was not attempting toreturn the Building to a pre-loss state. Rather, it embarked upon a repair plan to modify the roof of the Building such that it was in adifferent and improved form, compared to the prior condition it was in. [144] Accordingly, I find that the Defendants have not shown that the Plaintiff’s loss falls within exclusion clause 5.B.(l). IX.

Exclusion clause 5.B.(m) [145] The Defendants also plead that the loss falls within the exclusion in clause 5.B.(m). In argument, Counsel emphasized “inherentvice” and “faulty or improper material or design”. The Defendants bear the onus of showing that this exclusion applies.

Even if theDefendants meet this burden and show that one of the causes of loss was inherent vice, or faulty or improper design or material, theexclusion will not defeat the claim if the effective cause of the loss was fortuitous, without which the loss would not have occurred (CCRFishing Ltd v British Reserve Insurance Co, (SCC), [1990] 1 SCR 814 at 822–23 [CCR Fishing Ltd]). 1) Inherent vice [146] The inherent vice exclusion is a narrow one.

Courts in Alberta have stated that inherent vice is a “weakness” in a thing thatexists without negligence on the part of anybody, and that it could apply to perishable as well as non-perishable things, but in any case isa quality that is “necessarily incidental to the property rather than occasioned by an adventitious cause” (Triple Five Corp v Simcoe &Erie Group (1997), 1997 ABCA 92 , 196 AR 29 at para 23 (Alta CA); American Home Assurance Co v Canadian PacificRailway Co, 2004 ABQB 758 at para 43, 373 AR 292). [147] After reviewing the authorities, the Ontario Court of Appeal defined inherent vice as referring “to some internal decompositionthat made deterioration of the thing inevitable because of qualities inherent in [it]” (Canadian National Railway Co v Royal and SunAlliance Insurance Co of Canada, 2007 ONCA 209 at para 125, 85 OR (3d) 186, rev’d on other grounds 2008 SCC 66, [2008] 3 SCR453 [Canadian National Railway Co]). [148] In CCR Fishing Ltd, the Supreme Court of Canada considered a case where a ship sank due to the ingress of sea waterattributable to two causes: (1) the failure, due to corrosion, of cap screws which permitted sea water to enter the engine room; and (2) thefailure to close a valve which would have stopped the ingress of the water.

The insurer argued that the loss was not fortuitous in that itfell within inherent vice. [149] Justice McLachlin, as she then was, stated for the Court that “the concept of inherent vice in the context of marine insurancerefers to loss stemming from qualities inherent in the thing lost” (at 821). She concluded that the corrosion and subsequent failure of thecap screws was not due to purely inherent qualities of the ship, but instead was caused by negligence of repairmen. [150] Inherent device is not applicable in the case at bar.

Even if, for the sake of argument, the original wooden joists or the design ofthe roof were deficient, there is no evidence showing that such deficiency was “necessarily incidental” or “inevitable” because ofqualities inherent in the joists.

I make no comment on whether inherent vice can even apply to the design of a building, except to say thatsuch deficiency would fit better under the heading of “faulty or improper design”. 2) Faulty or improper material or design [151] In Canadian National Railway Co, the Supreme Court of Canada considered the exclusion for “faulty or improper design” in acase where the insurer denied coverage based on that exclusion. The insured had designed and built the largest tunnel boring machine ofits kind in the world for use in the construction of a tunnel under a river.

The insurance policy covered all risks of direct physical loss ordamage to the machine, plus any consequent economic loss occasioned by delay in the opening of the tunnel, excluding the cost ofmaking good faulty or improper design. [152] After a tunnel was partially bored, operators discovered that some of the seals meant to prevent contamination had been worn ordestroyed due to excessive deflection of the cuttinghead. Repairs to the machine resulted in a substantial delay in opening the tunnel,greatly increasing costs. The insurers denied coverage on the basis of the “faulty or improper design” exclusion.

The trial judge foundthat the machine was defective, evidenced by its failure, but despite this, the design accounted for all foreseeable risks encountered in thedigging conditions in the tunnel.

[ 153 ] On appeal to the Supreme Court of Canada, the main issue was identifying the standard of design quality that would defeat the insurer’s argument that the exclusion applied. Justice Binnie for the majority stated that, even if a loss were caused by the design of the thing that is insured, the insurer must show that the design of the thing was faulty or improper (at para 31). The words “faulty or improper” require an insurer to establish that the design fell below a “realistic” standard, and such a standard can require no more than that the design comply with the state of the art (at para 53).

A design is not “faulty or improper” simply because it falls short of perfection in relation to all foreseeable risks (at paras 35, 51). [ 154 ] In my view, Justice Binnie’s words about faulty or improper design are just as applicable to faulty or improper material .

The Defendants arguing this point must show that the original roof joists themselves were faulty or improper, namely that something about them—perhaps the assigned grade, moisture content, or wood species—fell below a realistic standard and did not comply with the “state of the art” at the time the Building was constructed. 3) Analysis [ 155 ] The Defendants bear the burden of proving that the loss was caused, arose in consequence of, or was contributed to by inherent vice, or faulty or improper material or design.

The Defendants point to reports authored by professional engineers with DIALOG and Five Star, and addressed to the Plaintiff, and in particular suggestions that the roof of the Building did not meet the requirements of the 1970 NBC, that the roof was susceptible to failure, or both. [ 156 ] The DIALOG and Five Star reports were not admitted for the proof of the truth of their contents, but instead were admitted as true copies of what the engineers communicated to the Plaintiff contemporaneously.

Their authors are not expert witnesses in this litigation, nor did the Defendants present sworn evidence from experts in regard to the condition of the roof of the Building. [ 157 ] Richard Imai, P.Eng., a civil engineer, swore an affidavit, although he was not certified as an expert. He had attended the Building in early 2000 for the purposes of conducting visual inspections, limited to what was readily accessible for view. He attached to his affidavit two contemporaneous structural reports he issued to the Plaintiff. In those reports, Mr.

Imai reports that “no signs of any serious problems were found”, “the building is structurally sound”, and “the supporting steel beams [to the roof] are of sufficient size to support the design loads currently required by the Alberta Building Code”. [ 158 ] Although the City relied on the DIALOG and Five Star reports to conclude that “the roof structure may still be at risk and a possible danger to the occupants”, I am not prepared to infer from that what the Defendants would want, namely that the reports and the City’s reliance thereon suffice as proof that the roof suffered from faulty or improper material or design.

Although the engineers and City were exercising due caution in flagging risk, there is insufficient evidence before me showing that the roof suffered from a condition which would bring it within the scope of the exclusion in question. [ 159 ] The Defendants could have retained an independent professional engineer to assess the original roof joists and provide an expert opinion as to whether the design, material, or workmanship was faulty or improper, given the state of the art standard applicable when the Building was constructed.

They chose not to do so and must therefore bear the consequences of not providing any evidence on this point. [ 160 ] Even if the Defendants had proved that inherent vice, or faulty or improper design or material had contributed to the loss the Plaintiff suffered, I am satisfied that the effective cause of the loss was fortuitous, without which the loss would not have occurred. [ 161 ] Accordingly, I find that the Defendants have not proven that exclusion clause 5.B.(

m) defeats the Plaintiff’s claim. X.

Conclusion [ 162 ] In the result, I find that: 1) the costs incurred by the Plaintiff to repair the entirety of the roof of the Building are covered by the by-law coverage clause in the Policy; and 2) the Plaintiff’s loss does not fall within any exclusion in the Policy. [ 163 ] Accordingly, the Plaintiff is awarded: 1) $527,497.46, being the costs it incurred to repair the roof of the Building, above and beyond the indemnified costs to repair the seven damaged roof joists; plus 2) interest pursuant to the Judgment Interest Act , RSA 2000, c J-1 and amendments thereto. [ 164 ] If the parties cannot agree as to costs, they may speak to them within 60 days.

Heard on the 26 th day of January, 2016. Dated at the City of Edmonton, Alberta this 30 th day of March, 2016.

Don J. Manderscheid J.C.Q.B.A. Appearances: Roger C. Stephens Simons and Stephens for the Plaintiff 852819 Alberta Ltd., Operating As Centre South Paul J. Stein, Q.C. Gowling Lafleur Henderson LLP for the Defendants