Surespan Structures Ltd. Petitioner v. Lloyd’s Underwriters, QBE Lloyd’s Syndicate 1886 and, 2018 BCSC 1058

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Surespan Structures Ltd. v. Lloyd’s Underwriters, 2018 BCSC 1058 Date: 20180627 Docket: S178116 Registry: Vancouver Between: Surespan Structures Ltd. Petitioner And Lloyd’s Underwriters, QBE Lloyd’s Syndicate 1886 and QBE Lloyd’s Syndicate DCH 386 Respondents - and - Docket: S1710837 Registry: Vancouver Between: HGS Limited Petitioner And Lloyd’s Underwriters, QBE Lloyd’s Syndicate 1886 and QBE Lloyd’s Syndicate DCH 386 Respondents Before: The Honourable Madam Justice Winteringham Reasons for Judgment Counsel for the Petitioner, Surespan Structures Ltd.: D.L.

Miachika K. Johanson Counsel for the Petitioner, HGS Limited: J. Meadows A. Way D. Lambert, A/S Counsel for the Respondents, Lloyd’s Underwriters, QBE Lloyd’s Sundicate 1886 and QBE Lloyd’s Sundicate DCH 386: D.J. Smith Place and Date of Hearing: Vancouver, B.C. December 4, 2017 January 31, 2018 Place and Date of Judgment: Vancouver, B.C. June 27, 2018 I. INTRODUCTION [ 1 ] The Petitioners, Surespan Structures Ltd. (“Surespan”) and HGS Limited (“HGS”) seek a declaration that they are “insureds” under a project professional liability insurance policy issued by the Respondents.

The Petitioners provided engineering design and related services for parkades as a part of a larger construction project of two hospitals in Campbell River and Comox, B.C. In late 2016, the contractor notified the Petitioners about alleged defects in both parkades. These Petitions relate solely to the issue of whether the Petitioners are insureds under the insurance policy. At this time, the court is not asked to determine coverage generally or fault for any alleged parkade defects.

II. NATURE OF APPLICATION AND RELIEF SOUGHT [ 2 ] The Petitioners seek:

a) A declaration that Surespan and HGS are each an insured as defined in Professional Liability Policy No. SPR010778 (the “Policy”) issued and underwritten by the Respondents;

b) A declaration that on or before January 30, 2017, the Respondents received a notice of claim and a claim for coverage under the Policy from the Petitioners;

c) A declaration that the Respondents, having received the notice of claim, are required to provide the Respondents’ written position on coverage and the reasons for it, and pay all covered claims within sixty days of the date of this Order; and

d) Costs. [ 3 ] A preliminary objection was raised regarding the admissibility of affidavit material filed by the Respondents. I address that objection at paras. 52 and 53 of these reasons. III. BACKGROUND A. The Project [ 4 ] The Petitioner Surespan is a design-build contractor. The Petitioner HGS is an architectural and engineering firm. Both participated in the design and/or construction of the parkades associated with the hospitals. Surespan and HGS each filed a Petition seeking declaratory relief.

By order entered November 29, 2017, the parties agreed that the Petitions be heard at the same time. [ 5 ] In 2014, Vancouver Island Health Authority entered into an agreement with THP Partnership (“Project Co.”) to, among other things, design and build two hospitals, including parkades in Campbell River and Comox, B.C. (the “Project”). [ 6 ] What follows is an overview of the relationship between the various entities involved in the Project.

This overview is necessary to understand the scope of the Project and to understand the Petitioners’ role in it and place the insurance issue in context. [ 7 ] Project Co. subcontracted the design-build portion of the Project to Graham Design Builders LP (“Graham”). Graham subcontracted the design-build work for the Project parkades to Surespan.

Surespan subcontracted much of the design work for the Project parkades to HGS. [ 8 ] In its Amended Petition, Surespan set out these details regarding the building and design arrangements: [14] On or about June 25, 2014, Project Co. entered into a design-build agreement with Graham, whereby Graham agreed to design and construct the Comox Valley facility and the Campbell River facility for the Project. [15].

Pursuant to a Design Services Agreement, Graham engaged Stantec Architecture Ltd. (“Stantec”) to undertake the design portion of the Project and to retain the necessary sub-consultants, including a structural engineer, to achieve this. Stantec’s scope of work excluded some items, such as the design of the heliport, but it did not exclude the design of the two parkades. [16] Surespan proposed to Graham that the parkades be designed and built by Surespan based on precast rather than cast-in-place structures in order to reduce the construction schedule, thereby reducing cost and

schedule risk. [17] Graham agreed and entered into subcontracts with Surespan whereby Surespan agreed to perform certain obligations regarding the construction of the two parkade structures for the Project, including the design of the precast concrete components as well as their supply and installation … [18] On or about August 12, 2014, Surespan entered into a subcontract or subcontracts with HGS whereby HGS agreed to perform engineering design services and portions of the Surespan Professional Services for each of the parkades … [ 9 ] Surespan prepared architectural concept sketches for the cast-in-place foundation and the pre-cast structure for the two parkades.

Surespan provided the sketches to Graham on July 17, 2014 and Graham subsequently approved them. [ 10 ] HGS provided engineering services for the precast concrete components of both parkades, including structural engineering design. The HGS structural drawings were sealed by a structural engineer.

Further details are set out in Surespan’s Amended Petition: [22] Under this arrangement, Stantec, as the Registered Professional of Record, had overall professional responsibility for the structural design of the Project including the parkades; however, the structural design of the precast concrete components of the parkade structures was undertaken by HGS as the Supporting Registered Professional. [23] Stantec was responsible for and undertook the design of the cast-in-place foundation for the parkades, although Stantec relied on load data provided by HGS.

Graham constructed this foundation. [24] Following construction of the cast-in-place concrete foundations by Graham, Surespan erected the pre-cast concrete parkade

structures in accordance with the HGS design drawings between August 2015 and November 2015. [ 11 ] On November 22, 2016 and December 1, 2016, Graham informed Surespan that cracks had been discovered at both parkades. On January 24, 2017, Graham demanded that Surespan repair the alleged defects. Because the defects were said to present an imminent risk, Surespan was required to take immediate preventative steps. [ 12 ] Graham informed Surespan that the parkade defects were the result of errors or omissions in the design by Surespan and/or HGS.

Various steps were taken between April 30, 2017 and August 31, 2017 to complete the parkade remediation work. [ 13 ] In August 2017, Surespan filed a notice of civil claim against HGS alleging negligence and breach of contract relating to the alleged parkade defects. B. The Policy Application Process [ 14 ] In their written submissions, the Petitioners describe the application process relating to the Policy: [59] Stantec submitted an application for the Policy dated 12 July 2014 (the “Application Form”).

Under the space for “Main proposer’s role in the Project”, Stantec wrote: ARCHITECTURE BUILDING ENGINEERING CIVIL ENGINEERING LANDSCAPE ARCHITECTURE [60] A “Breakdown of Professional duties” required to be performed by or on behalf of the Proposer in connection with this Project included structural engineering (with gross fees of $3,297,000), as well as architectural, civil engineering, mechanical engineering, electrical engineering, project management, landscape design, LEED, and other services. [61] Under the space for “the estimated gross professional fees for all parties to be included for this insurance” the application stated “30,000,000. [62] The application form contained a list of “high risk work types” to be checked if applicable.

Item “q”, “multi-storey car parks” was checked “yes” and “(two parkades)” was handwritten on the form , along with the construction value of $11,400,000. [63] Under the space for “brief

summary of the proposer’s works to be insured under this policy”, Stantec wrote: “Architecture and engineering design services as defined within the [Design Services Agreement] between Stantec Architecture and Graham.” [64] As of July 12, 2014, when Stantec signed the application form, the whole design of the parkades was still within Stantec’s scope of work.

As set out above, Surespan subsequently submitted its proposal to perform the work on July 17, 2014 and Graham executed the Surespan [design business agreement] in November 2014, with an effective date of July 28, 2014. [Emphasis in original.] [ 15 ] Further details relating to the application process and issuance of the Policy were set out in HGS’ written submissions as follows: [32] Stantec submitted an application form as part of the process for issuance of the Policy. The application form is dated July 12, 2014 (the “Application Form”).

The Application Form is a document created by the respondents that provides information in order to allow them to issue the Policy. [33] There appear to have been two “versions” of the Application Form submitted by Stantec, although both are dated July 12, 2014. The second version of the Application Form only contains minor changes to the names of the listed sub-consultants or sub-contractors (sections 5 and 8 of the Application Form), with the pages containing the changes initialled in the bottom right-hand corner.

The pages with the changes appear to have been slip-sheeted into the original Application Form submitted by Stantec. Otherwise, the document remains the same. [34] In both versions of the Application Form, Stantec describes its role in the Project inclusive of the following professional services: Architecture; Building Engineering; Civil Engineering; Landscape Architecture. … [38]

Section 5 of the Application Form asks the proposer to set out a list of “professional duties to be performed by or on behalf of the proposer in connection with this project”. Included in this list is “Structural Engineering” with a total gross fee, including any amount sub-contracted, of $3,297,000. Importantly, there are other professional services set out in the list which are not stated as being professional duties to be performed on the Project. This includes, for example, “Environmental Engineering”, “Heating and Ventilation” and “Quantity Surveying”. [Emphasis in original.] C. The Policy

[ 16 ] The Respondents issued the Policy for the Project effective June 25, 2014 through September 30, 2018. The premium for the Policy was $1,078,235 and the limit of liability was $10,000,000. [ 17 ] Relevant to the issues raised in the Petition, the Policy contains a number of

definitions. Any terms that have been defined in the Policy are written in all capital letters:

PART I –

DEFINITIONS Throughout this POLICY certain words have been capitalized to indicate that they have a specific meaning as shown below: THE INSURER The Insurance Companies and/or Syndicates as subscribed. FIRST NAMED INSURED The person or organization so designated in the

Schedule of this Insurance POLICY. NAMED INSURED The person(

s) or organization(

s) so designated in the

Schedule of this Insurance POLICY. INSURED(S) 1. The FIRST NAMED INSURED; 2. The NAMED INSURED; 3. Any other firm(

s) which have or will provide PROFESSIONAL SERVICES in regard to the PROJECT; 4. Any present or former partner, executive officer, director, shareholder or employee of the first named insured or of the named insured while acting within the scope of that person’s duties for the first named insured or the named insured; 5. Any other firm(

s) which have or will provide professional services in regard to the Project provided that such additional firms are reported and accepted by the Insurer along with details of the professional services to be provided, the date on which the firm is to commence the provision of services, and their professional fees . PROJECT The PROJECT as described in the

Schedule of this insurance POLICY. … CLAIM (

a) a written or an oral demand for money or services, or (

b) a written or oral allegation of breach in the rendering or failure to render PROFESSIONAL SERVICES; received by the INSURED and resulting from a single error, omission or negligent act. All CLAIMS arising from a single error, omission or negligent act shall be considered a single CLAIM regardless of the number of INSUREDS or the number of persons or organizations making a CLAIM.

DAMAGES Compensatory DAMAGES payable to claimants but does not include interest, fines, penalties, (whether contractual or other), or liquidated, punitive or exemplary damages, or fees which have either not been paid to the INSURED or which the INSURED has been asked to return. … PROFESSIONAL SERVICES Whether as part of or incidental to the INSURED’S business as building or engineering contractors or as otherwise stated in the written application made to the INSURER the PROFESSIONAL SERVICES in respect of which cover is granted under this POLICY shall be defined as those services specifically described in the application which the INSURED is legally qualified to perform for others, including but not limited to PROFESSIONAL SERVICES as an: architect or engineer …

PART II – INSURANCE COVERAGE THE INSURER’S OBLIGATIONS DAMAGES

In excess of the INSURED’S EXCESS, THE INSURER will pay on behalf of the INSURED all sums which the INSURED becomes liable to pay as DAMAGES arising out of a CLAIM in regards to the PROJECT, provided the INSURED’S liability is the result of an error, omission, or negligent act of the INSURED or those employees or sub-consultants or sub-contractors for whom the INSURED is legally liable, in the performance of the PROFESSIONAL SERVICE.

The maximum amount THE INSURER will pay for each CLAIM and in the aggregate for all CLAIMS made against the INSURED during the POLICY PERIOD and covered by this POLICY is, no matter how many INSUREDS there are under this POLICY or how many persons or organizations make a CLAIM, as shown on the

SCHEDULE page of this POLICY as the Limits of Liability per CLAIM and Aggregate Amount Payable respectively. … 3 DEFENCE The INSURER has the obligation and right to defend the INSURED in any civil suit or arbitration proceeding arising out of a CLAIM in regard to the PROJECT for which coverage is provided by this POLICY, even if the allegations against the INSURED are groundless, false or fraudulent. [Emphasis added.] [ 18 ] The Petitioners did not participate in the application process.

The Policy does not identify by name either Petitioner. [ 19 ] Relevant to the insurance issues here is the fact that “professional services” is a defined term in Clause 3. It is not a defined term for Clause 5. D.

Notice to the Insurer and Denial of the Claim [ 20 ] The Petitioners delivered notice of the potential loss regarding the parkades on January 13, 2017 and explained the “urgency of the remedial work required” and “sought consent to incur repair costs without prejudice to the Insurer’s other rights and requested a response as soon as possible”. [ 21 ] Having received no response, the Petitioners delivered a second correspondence to the Insurer on January 30, 2017 and again noted the urgency of its request for coverage. [ 22 ] No response was delivered until March 31, 2017 when the Respondents wrote to Surespan acknowledging the claim for coverage made on behalf of Surespan and HGS but denying coverage for the claim on the basis that Surespan and HGS were not named in the Policy.

IV. POSITION OF THE PARTIES A. The Respondents [ 23 ] The Respondents state that the Petitioners do not qualify as insureds under the Policy and say neither is entitled to insurance coverage under the Policy.

Relying on Clause 5 of the Policy, the Respondents put their position this way: [3] The Policy was issued to “[Stantec] and consultants declared in the application.” Neither [Surespan] nor HGS were declared in the application or named as insureds by endorsement. [ 24 ] The Respondents contend that Clause 3 of the Policy “was included in error and does not reflect the intent of the parties with respect to the scope of coverage provided by the Policy”. [ 25 ] To explain the “error”, the Respondents rely on an Affidavit of Scott Pidduck wherein he describes the negotiations between the insurance broker, Aon Risk Solutions (“Aon”) and Stantec. [ 26 ] The Respondents contend that the Policy reflects the intention that the limits found in Clause 5 with respect to unnamed insureds govern the scope of coverage. [ 27 ] With respect to Clause 3 of the Policy, the Respondents says that its inclusion in the Policy was the result of inadvertence in the preparation and/or printing of the Policy and that the parties intended Clause 5 to govern the scope of the term “insureds” and that Clause 3 be deleted from the Policy. [ 28 ] To correct the error, the Respondents do not seek rectification of the Policy.

Rather, the Respondents submit that the court can simply ignore Clause 3. [ 29 ] Relying on Clause 5 of the Policy, the Respondents submit that the Petitioners do not qualify as insureds: [22] The fact that the [Petitioner Surespan] entered into a contract with [Graham] does not entitle them to insurance coverage under the Policy [23] Clause 5 requires that any person or entity to be covered under the Policy had to be reported to and accepted by the Respondent, following the Respondent’s receipt of a brief description of the professional services to be provided, the date on which the firm is to commence the provision of services, and their estimated professional fees.”

[24] As set out in the August 5th, 2014 email sent by the Respondent to Aon, the Policy was a fixed premium policy. If any additionalsubconsultants or sub-contractors were to be added to these policies, they would only be added once the Respondent had vetted anddeemed the additional party to be suitable to the risk initially underwritten. Adding such party would come with additional premiumbeing charged. [25] The Respondent was never provided with such information about the Petitioner or HGS and never accepted the Petitioner orHGS as insureds under the Policy.

No additional premium was ever charged. [26] There is no provision in the Policy which grants coverage to an entity on the basis that Graham (who is not a party to the Policy)agreed to provide insurance coverage to that entity for work provided with respect to the [Project]. The application form was signed byStantec and Stantec is the named insured. B. The Petitioners [30] The Petitioners assert that they are insureds under the Policy because it insures all firms providing professional services inregards to the Project against liability arising from errors or omissions in providing such services.

The Petitioners submit there is nodoubt that they provided professional services with regards to the Project. [31] Furthermore, the Petitioners submit they are insureds under the Policy because they fit under the clear and unambiguousdefinition of insured as provided in Clause 3 and when the Policy is read as a whole, Clause 3 can only be reasonably interpreted assubmitted by the Petitioners. In addition, the Petitioners submit Clause 3 is consistent with the reasonable expectations of the parties andClause 5 and/or the endorsement do not expressly override Clause 3.

If there is any ambiguity in Clause 3 (which the Petitioners saythere is not), it should be construed broadly in favour of coverage for the Petitioner. [32] The Petitioners next address the Respondents’ submission that Clause 5 reflects the parties’ intentions and Clause 3 does not(even though both are terms of the Policy). Here, the Petitioners say that submission cannot stand because it is contrary to the principlesof

interpretation of insurance policies and contrary to the plain and ordinary wording of the Policy. [33] The Petitioners object to the admissibility of the Respondents’ evidence regarding “negotiations in emails from an incompleteunderwriting file”.

If found to be admissible, the Petitioners submit such evidence is not relevant to interpret the Policy because theDefinition of Insured is not ambiguous and, even if it were, extrinsic evidence of negotiations cannot be relied on to contradict a policy’swritten terms. [34] Lastly, the Petitioners address the Respondents’ submission that Clause 3 was left in the Policy in error. The Petitioners notethat the Respondents did not seek to rectify the Policy and, even if they had, the evidence tendered here falls short of meeting the highburden of “clear, convincing and cogent evidence” of mutual mistake. V.

LEGAL PRINCIPLES A.

Interpretation of Insurance Policies [35] The parties rely on the multitude of authorities governing the

interpretation of insurance policies. [36] The Petitioners start by identifying the purpose of a project liability insurance policy as similar to that of a project course ofconstruction policy. That is to provide broad coverage to insure all project design professionals against insured losses. A project policy isintended to cover all project participants to ensure that there are funds available to the parties performing the insured services in order torebuild in case of loss by professional negligence and to avoid litigating amongst themselves.

For this proposition, the Petitioners rely onCommonwealth Construction Company Limited v. Imperial Oil Ltd. et al., (SCC), [1978] 1 S.C.R. 317 at pages 323-324 and 328: On any construction site, and especially when the building being erected is a complex chemical plant, there is ever present the possibilityof damage by one tradesman to the property of another and to the construction as a whole. Should this possibility become reality, thequestion of negligence in the absence of complete property coverage would have to be debated in court.

By recognizing in all tradesmenan insurable interest based on that very real possibility, which itself has its source in the contractual arrangements opening the doors ofthe job site to the tradesmen, the courts would apply to the construction field the principle expressed so long ago in the area of bailment.Thus all the parties whose joint efforts have one common goal, e.g.,the completion of the construction, would be spared the necessity offighting between themselves should an accident occur involving the possible responsibility of one of them.

As already noted, the multi-peril policy under consideration is called in the contract between Imperial and Wellman-Lord a course ofconstruction insurance. In England, it is usually called a “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 torebuild in case of loss and to the contractors the protection against the crippling cost of starting afresh in such an event, the wholewithout 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 a minimum the difficulties that are bound to be created by the large number ofparticipants in a major construction project, the complexity of which needs no demonstration.

It also recognizes the realities of industriallife. [37] The leading authority on the

interpretation of insurance policies generally is the decision of the Supreme Court of Canada inProgressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, where the Court stated: [22] The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear

language, reading the contract as a whole (Scalera, at para. 71). [23] Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction(Consolidated-Bathurst, at pp. 900-902). For example, courts should prefer

interpretations that are consistent with the reasonableexpectations of the parties (Gibbens, at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901), so long as such an

interpretationcan be supported by the text of the policy. Courts should avoid

interpretations that would give rise to an unrealistic result or that wouldnot have been in the contemplation of the parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst, at p.901). Courts should also strive to ensure that similar insurance policies are construed consistently (Gibbens, at para. 27). These rules ofconstruction are applied to resolve ambiguity.

They do not operate to create ambiguity where there is none in the first place. [24] When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem — against theinsurer (Gibbens, at para. 25; Scalera, at para. 70; Consolidated-Bathurst, at pp. 899-901). One corollary of the contra proferentem ruleis that coverage provisions are interpreted broadly, and exclusion clauses narrowly (Jesuit Fathers, at para. 28). [38] The B.C. Court of Appeal recently provided a useful

summary of the interpretative approach in Coburn v. Family InsuranceSolutions, 2014 BCCA 73 at para. 28: [28] The general principles governing

interpretation of insurance contracts are settled law. The provisions of an insurance contractthat provide coverage are to be construed broadly. Ambiguity in the language is resolved in the insured’s favour. Provisions of aninsurance contract that exclude or limit coverage are to be construed narrowly. Contracts are construed contra proferentum for the reasonthat the language chosen is that of the insurer. Where the policy is ambiguous, effect should be given to the reasonable expectation of theparties: Reid Crowther & Partners Ltd. v.

Simcoe & Erie General Insurance Co., (SCC), [1993] 1 S.C.R. 252, 99D.L.R. (4th) 741. While any ambiguity in the contract should be resolved against the insurer a court must first find ambiguity beforeapplying the contra proferentum rule: Kinnear v. Canadian Recreation Excellence (Vernon) Corp., 2012 BCCA 291, 352 D.L.R. (4th)57. [39] In Economical Mutual Insurance Company v. Gill, 2017 BCCA 351, Frankel J.A. reminded that courts must be cautious aboutsearching for or creating ambiguity where none exists. An ambiguity only exists where, on a fair reading of a policy as a whole, tworeasonable

interpretations emerge such that it cannot be objectively said what agreement the parties made. This analysis must be rootedin the wording of the policy: [28] Courts must be cautious against searching for or creating an ambiguity where none exists: Pacific Rim Nutrition Ltd. v.Guardian Insurance Co. of Canada (1998), (BC CA), 54 B.C.L.R. (3d) 111 at para. 22 (C.A.); Riordan v. LombardInsurance Co., 2003 BCCA 267 at para. 20, 13 B.C.L.R. (4th) 335. “An ambiguity can be said to exist only where, on a fair reading ofthe agreement as a whole, two reasonable

interpretations emerge such that it cannot be objectively said what agreement the partiesmade”: Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 at para. 26, 57 B.C.L.R. (4th) 212 (per Lowry J.A.). [40] In Gill, Frankel J.A., relies on an earlier case of the B.C. Court of Appeal, Riordan v. Lombard Insurance Co., 2003 BCCA 267,where Hollinrake J.A. further warned against creating ambiguities where none exist: [11] The first thing I deal with is the judge relying on the reasonable expectations of the parties as he did.

This is an interpretativetool used by the judge to conclude, as I read his judgment, there was an ambiguity as to the word "insured" within the exclusion clause.

Itis significant here that the exclusionary clause does not refer to "insured" as being the person whose intentional or criminal act avoidscoverage but rather that clause refers to "any person insured by this policy." The judge concluded, again as I read his judgment, thatSchab was a person who falls within the definition of "you" and "your" and thus, while not saying so, for the purpose of coverage andwithout reference to any exclusionary clause is an insured. [12] The position of the appellant on the issue of reasonable expectations is that this doctrine "is a tool to resolve, rather thancreate, an ambiguity" citing Reid Crowther (above). [13] I agree with this submission and, with respect, I conclude that the judge below fell into error on this aspect of his analysisand, in my opinion, that that error is critical to his conclusion. [41] In its written submissions, HGS summarized the Petitioners’ contention that the court cannot search out or create an ambiguity.HGS put it this way: [71] This point was made clear by the British Columbia Court of Appeal in Water Street Pictures Ltd. v.

Forefront Releasing Inc.,2006 BCCA 459 [“Water Street Pictures”], at para. 23: It is only when the intentions of the parties cannot be objectively determined from the words they have chosen to employ, such that thereis ambiguity, that the law permits consideration to be given to evidence of their conduct in making their agreement and in fulfilling theirobligations.

If it were otherwise, the certainty that is essential to documenting commercial transactions would be seriously undermined. [72] In Water Street Pictures, the Court of Appeal also emphasized two additional points germane to this matter: (1) courts must notsearch for an ambiguity where none exists based on the wording of the contract; and (2) the rules which exist to resolve ambiguitiescannot be invoked in order to create an ambiguity that is not there when looking at the wording.

The Court of Appeal summarized atpara. 25 [Emphasis added]: … But there must be a true ambiguity before recourse can be had to evidence of the way in which the parties conducted themselves. It iswell recognized that a court is not to search for ambiguity. In Melanesian Mission Trust Board v. Australian Mutual Provident Society,[1996] UKPC 53, [1996] J.C.J. No. 63 at para. 9, Lord Hope of Craighead expressed the caution a court must exercise in this regard, asfollows: The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the

parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have beenused according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them becausethat is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist

interpretation in the eventthat there is an ambiguity. But it is not the function of the court, when construing a document, to search for an ambiguity. Nor should therules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of thewords, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is ofcourse legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context mayaffect the meaning of the words.

But unless the context shows that the ordinary meaning cannot be given to them or that there is anambiguity, the ordinary meaning of the words which have been used in the document must prevail. [42] The above authorities make clear that the primary interpretive principle is that when the language of a policy is unambiguous,the court should give effect to clear language, reading the contract as a whole. Where the language of an insurance policy is trulyambiguous such that two reasonable

interpretations exist, the court relies on general rules of contract construction such as preferringinterpretations that are consistent with the reasonable expectations of the parties so long as the

interpretation can be supported by the textof said policy. The court is not, however, to use the rules of construction to create an ambiguity where none exists. B. Determining Intent of the Contracting Parties [43] The Respondents invite the court to examine the circumstances surrounding the issuance of the Policy. In so doing, theRespondents suggest that the surrounding circumstances support the Respondents’

interpretation that Clause 5 governs and “when readas a whole, it is clear that the Policy is intended by the parties to provide professional liability insurance with respect to the [Project] toonly those entities identified in the Policy”. In light of the Respondents’ submission, I will review, in addition to the authoritiesmentioned above, the principles that provide guidance regarding the court’s role in determining the intention of the parties. [44] The Supreme Court of Canada explained the reliance that can be placed on surrounding circumstances to determine intention inSattva Capital Corp. v.

Creston Moly Corp., 2014 SCC 53: [57] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed tooverwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence isto deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of thecontract. The

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract(Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them todeviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility CellularInc. (1997), (BC CA), 101 B.C.A.C. 62). … [60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances.

Such evidence is consistent withthe objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosenby the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts thatreasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does notarise. [45] In King v.

Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, the Manitoba Court of Appeal explainedthe use, recognizing its limitations, that could be made of evidence regarding surrounding circumstances. The Manitoba Court of Appealput it this way: [70] While the surrounding circumstances may be referred to even in the absence of an ambiguity, those circumstances, or factualmatrix, should consist of objective evidence of the background facts at the time of the execution of the contract, not the subjectiveevidence of one party's intention or of the negotiations leading to the final contract.

See Eli Lilly at para. 54, Moore Realty Inc. at para.19, and Prenn v. Simmonds at p. 240. [71] Doherty J.A. explains this in the case of Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59 ,85 O.R. (3d) 616 (C.A.) (at para. 50): In my view, when interpreting written contracts, at least in the context of commercial relationships, it is not helpful to frame the analysisin terms of the subjective intention of the parties at the time the contract was drawn. This is so for at least two reasons.

First, emphasison subjective intention denudes the contractual arrangement of the certainty that reducing an arrangement to writing was intended toachieve. This is particularly important where, as is often the case, strangers to the contract must rely on its terms. They have no way ofdiscerning the actual intention of the parties, but must rely on the intent expressed in the written words. Second, many contractualdisputes involve issues on which there is no common subjective intention between the parties.

Quite simply, the answer to what theparties intended at the time they entered into the contract will often be that they never gave it a moment's thought until it became aproblem: see Kim Lewison, The

Interpretation of Contracts, 3rd ed. (London: Sweet & Maxwell, 2004) at 18-31. [72] So, generally, the factual matrix will include, among other things: - evidence of the commercial purpose of the contract, its aims and objectives: Langley Lo-Cost Builders Ltd. v. 474835 B.C. Ltd., 2000BCCA 365 at para. 29, [2000] 7 W.W.R. 46; - evidence of the nature or custom of the market or industry in which the contract was executed: Kentucky Fried Chicken Canada v.Scott's Food Services Inc. (1998), (ON CA), 41 B.L.R. (2d) 42 (Ont. C.A.); and - evidence of the objective intention of the parties.

But not, - evidence of the subjective intention of the parties; - evidence of the negotiations; and - evidence of the subsequent conduct of the parties after the contract was entered into. [73] In

summary, when interpreting a contract, the court's search for the intention of the parties is aided by reference to thesurrounding circumstances or factual matrix at the time of the execution of the contract as viewed objectively by a reasonable person atthe time of the signing of the contract. See Fridman at p. 478; MacMillan Bloedel Ltd. v. British Columbia Hydro & Power Authority, (BC CA), [1993] 2 W.W.R. 127 (B.C.C.A.); and Moore Realty Inc., Hamilton J.A. at para. 18. [46] In the

interpretation exercise, the B.C. Court of Appeal commented similarly about the use to be made of “surroundingcircumstances” and “factual matrix” in Langley Lo-Cost Builders Ltd. v. 474835 Ltd., 2000 BCCA 365 at para. 29: [29] In considering this question it is important to remember that negotiations between the parties are not relevant in determining themeaning of the language used by the parties. This is because parties often change their views and positions during negotiations.

The factthat the parties were in negotiations, and the reasons for these negotiations, however, including the commercial objectives of the partiesis relevant as a part of the factual matrix, or factual underpinning of the agreement [citation omitted]. … [47] To determine the parties’ intentions, the above authorities suggest that the court can consider evidence of the commercialpurpose of the contract and its aims and objectives; evidence of the nature of the industry in which the contract was executed; andevidence of the objective intention of the parties.

The court should not consider the subjective intention of the parties or evidence ofnegotiations. C. Interpretative tools where there is an ambiguity [48] If the Policy is found to be ambiguous then the court is to use general rules of contract construction to resolve that ambiguity.The Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 provided, at paras. 50-52: [50] Where, however, the policy's language is ambiguous, general rules of contract construction must be employed to resolve thatambiguity. These rules include that the

interpretation should be consistent with the reasonable expectations of the parties, as long as thatinterpretation is supported by the language of the policy; it should not give rise to results that are unrealistic or that the parties would nothave contemplated in the commercial atmosphere in which the insurance policy was contracted, and it should be consistent with theinterpretations of similar insurance policies. See Progressive Homes, at para. 23, citing Scalera, at para. 71; Gibbens, at paras. 26-27; andConsolidated-Bathurst Export Ltd. v.

Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, at pp.900-902. [51] Only if ambiguity still remains after the above principles are applied can the contra proferentem rule be employed to construethe policy against the insurer: Progressive Homes, at para. 24, citing Scalera, at para. 70; Gibbens, at para. 25; and Consolidated-Bathurst, at pp. 899-901.

Progressive Homes provides that a corollary of this rule is that coverage provisions in insurance policies areinterpreted broadly, and exclusion clauses narrowly. [52] It is also important to bear in mind this Court's guidance in Progressive Homes on the "generally advisable" order in which tointerpret insurance policies (para. 28). Although that case involved commercial general liability policies and not builders' risk policies,the two types of policies share a similar alternating structure: they set out the type of coverage followed by specific exclusions, withsome exclusions containing exceptions.

As such, the insured has the onus of first establishing that the damage or loss claimed fallswithin the initial grant of coverage. The parties in these appeals have conceded that this particular onus has been met: trial judge'sreasons, at para. 9. The onus then shifts to the insurer to establish that one of the exclusions to coverage applies. If the insurer issuccessful at this stage, the onus then shifts back to the insured to prove that an exception to the exclusion applies: see ProgressiveHomes, at paras. 26-29 and 51.

Contrary to the Court of Appeal's statement at para. 26 of its reasons that the exclusion and exception inthis case must be interpreted "symbiotically", I see no reason to depart from the generally accepted order of

interpretation in analyzingthe Policy and the Exclusion Clause. [49] Given that the Respondents were the drafter of the Policy, it is uncontroversial that contra proferentem would work againstthem, thereby further supporting the broad

interpretations put forth by Surespan. D. Rectification [50] In their submissions, the Petitioners included authorities about the equitable remedy of rectification and what is required torectify an agreement. However, the Respondents unequivocally asserted that they were not seeking to rectify the Policy. As I understandthe submission, the Respondents stated they were not seeking rectification because it was unnecessary stating: “there is clear evidence ofthe underwriting file, coupled with the clear conflict between these two clauses, the clear statements between Aon and Mr.

Thompson[an underwriter employed with the Respondents] and the evidence of Mr. Thompson that Clause 3 was left in through inadvertence”. Assuch, the Respondents contend that Clause 3 can be ignored “because the Supreme Court of Canada authorities allow for a review ofsurrounding circumstances that requires an

interpretation of the Policy consistent with the commercial terms that were agreed at the timeof the negotiation, which is Clause 5”. [51] In the circumstances and in light of the Respondents’ position, it would not be appropriate to embark on an analysis regardingrectification and I decline to do so.

VI. ANALYSIS [ 52 ] I deal first with the Petitioners’ objection regarding the admissibility and/or use to be made of extrinsic evidence tendered by the Respondents. The objectionable evidence is found, for the most part, in the exhibits attached to the Affidavit of Scott Pidduck, filed November 1, 2017, and the Affidavit of Jamie Thompson, filed November 28, 2017. The Petitioners submit: [83] The extrinsic evidence adduced by the Respondents is not admissible to interpret the terms of the Policy and ought not to be considered.

Only in the event of an ambiguity would extrinsic evidence be admissible and there is no ambiguity here. Even if there was an ambiguity, much of the evidence led by the Respondents is still inadmissible or should be given no weight, and the evidence of negotiations is unreliable. Asserted facts are set out and relied on in the Insurers’ Petition Response.

Surespan says that there is no admissible or reliable evidence, include[ing] without limitation paras. 1-3, 5-6, 7, 9-13, 14, 15, 17-18, 20, 21, and 24-25. [ 53 ] In the authorities cited above, I agree that it would be impermissible for the court, in the circumstances presented here, to use the evidence of negotiation for anything beyond the fact that the parties were in negotiations. As such, and in these reasons, I have referenced some of the evidence specified in the preceding paragraph.

However, I have used the evidence solely for the purpose of demonstrating that the Respondents negotiated the terms of the Policy over several months and then issued the formal Policy. In other words, this evidence does not affect the

interpretation of the language of the Policy. [ 54 ] I turn to the court’s

interpretation of the Policy and, in particular, whether the Petitioners are insureds under the terms of the Policy. [ 55 ] Clauses 1 and 2 of the

definitions in the Policy deal with the first named insured and the named insured and they are specifically listed in the

Schedule of the Policy. Clauses 3 through 6 of the

definitions in the Policy then address those who may not specifically be named in the Policy, but are nonetheless covered as an insured. [ 56 ] Clause 3 in the Policy states that it provides coverage to: “Any other firm(

s) which have or will have provided professional services in regards to the Project”. [ 57 ] The definition of professional services relates to those services as described in the Application Form. The Application Form describes the Parkades as falling within the scope of work to be insured under the Policy. The Parkades are specified in a list of “high risk work types” to be undertaken in respect of the Project.

In addition, the notation “two parkades” was handwritten on the Application Form. [ 58 ] Moreover, the type of the professional services performed by the Petitioners were expressly contemplated in the Application Form which describes the scope of professional services and the associated gross fees to be performed on the Project.

These included work in the nature of what the Petitioners performed. [ 59 ] Clause 3, on its plain reading, provides coverage for firms that provide professional services (which would thus include design and construction of the parkades) with respect to the Project. [ 60 ] Notably, the Respondents did not raise any issue with respect to any ambiguity in the wording of Clause 3. Consistent with their position that Clause 3 be ignored, the Respondents do not suggest that the Petitioners do not fall within the definition of insured in Clause 3.

In their denial letter, the Respondents, noting Clause 5 only, deny the claim on the basis that the Petitioners do not fit the definition of Insured. In the denial letter, the Respondents did not state that Clause 3 had been included in the Policy in error or by inadvertence. [ 61 ] There is no dispute as to the nature of the work performed by the Petitioners. I accept that Surespan contracted with Graham to perform the design (and construction) work for the precast concrete parkade structures forming part of the Project.

Surespan contracted with HGS to provide the structural design of the precast components for the parkades. The work performed by both Petitioners constituted professional services, as defined in the Policy, and these professional services were both part of or incidental to the Petitioners’ business as building (Surespan) and engineering (HGS) contractors. [ 62 ] Importantly, the professional services provided by the Petitioners were a component of services contemplated in the Application Form.

The Application Form specifically references parkades. [ 63 ] I do not accept the Respondents’ position that it was not the parties’ intention to include Clause 3 and Clause 5 and that Clause 3 was included in the Policy in error. In this regard, on a plain reading of the Policy, Clause 5, unlike Clause 3, does not include the defined term of “professional services”. Clause 5 suggests that coverage could be provided here for professional services performed on the Project other than those described in the Application Form.

As HGS submits, and which I accept, this is consistent with Clause 5 requiring the insurer to be informed of and accept the details of the additional professional services to be provided before it agrees to provide coverage, including the details of the services to be provided, by whom, the date on which the firm is to commence the provision of services, and the associated professional fees.

Clause 5 would allow the insurer to insure additional professional services (not a defined term in Clause 5) beyond the original scope of the professional services contemplated for the Project as set out in the Application Form. [ 64 ] With respect to the

interpretation issue before this court, I am satisfied that the language in the Policy generally and Clause 3 specifically is unambiguous. The Petitioners fall within the parameters of this part of the definition of an insured which does not require that it be specifically named in the Policy. [ 65 ] I do not accept the Respondents’ submission that Clause 3 results in a windfall recovery.

The Clause 3 definition of an insured is tied to the definition of professional services, which limits the scope of professional services covered by the Policy to those “specifically described in the application which the insured is legally qualified to perform”. The Application Form details the scope of the professional services to be performed on the Project, including the associated fees. Therefore, the scope of coverage is limited by the

nature of the professional services to be performed as part of the Project. [ 66 ] I accept the Petitioners’ submission that Clause 3 and Clause 5 of the definition can be read harmoniously. To fall within the definition of professional services (and Clause 3) the professional services must have been described (as they were including details of the type of professional work and the associated costs) in the Application Form.

As the Petitioners suggest, and I agree, it would be redundant if Clause 5 required every firm performing professional services on the Project, including those performing services specifically contemplated in the Application Form (as the parkades were and the associated professional fees had already been provided to the Respondents), had to be accepted by the Respondents before coverage was afforded. [ 67 ] In

summary, I am satisfied that when reading the Policy as a whole, the meaning of insured is clear and unambiguous in the circumstances presented here. As such, the court is required to give effect to the ordinary meaning of the words used because that is what the parties are taken to have agreed to by their contract. While I have considered the surrounding circumstances giving rise to the Policy and its terms, I decline the Respondents’ invitation to simply ignore Clause 3 in the interpretative exercise.

Based on the materials before me, it is my view that to do so would have the court use the surrounding circumstances to “deviate from the text such that the court effectively creates a new agreement”. [ 68 ] Further, the Respondents’ position is tantamount to creating an ambiguity where none exists. I do not accept the Respondents’ submission that their

interpretation (that Clause 5 stands alone) reflects the reasonable expectations of the parties. I am satisfied that this

interpretation, limiting coverage to only those entities specifically named in the Policy, is not supported by the wording of the Policy as a whole. The court may resort to the doctrine of reasonable expectations so long as such an

interpretation can be supported by the text of the Policy. I agree with the Petitioners that the Respondents’ coverage position is not supported by the words of the Policy. VII.

SUMMARY [ 69 ] I am satisfied that the language of the Policy is unambiguous in the circumstances presented here. As such, the court grants the relief sought by the Petitioners:

a) A declaration that Surespan and HGS are each an insured as defined in Professional Liability Policy No. SPR010778 issued and underwritten by the Respondents;

b) A declaration that on or before January 30, 2017, the Respondents received a notice of claim and a claim for coverage under the Policy from the Petitioners; and

c) A declaration that the Respondents, having received the notice of claim, are required to provide the Respondents’ written position on coverage and the reasons for it, and pay all covered claims within sixty days of the date of this Order. [ 70 ] The Petitioners will have their costs of the Petitions, subject to there being any agreement which would negate that order. “Winteringham J.”