KELLY PANTELUK CONSTRUCTION LTD. PLAINTIFF - v. -, 2022 SKKB 227

KING’S BENCH FOR SASKATCHEWAN Citation: 2022 SKKB 227 Date: 20 22 10 17 Docket: QBG-RG-00742-2020 Judicial Centre: Regina BETWEEN: KELLY PANTELUK CONSTRUCTION LTD. PLAINTIFF - and - LLOYD’S UNDERWRITERS DEFENDANT Counsel: David L. Miachika for the plaintiff Mark R. Frederick and Peter T. Bergbusch, Q.C. for the defendant JUDGMENT LAYH J. October 17, 202 2 THE ISSUE [ 1 ] The plaintiff, Kelly Panteluk Construction Ltd. [KPCL], seeks

summary judgment asking the court to issue a declaration that its insurer, the defendant, Lloyd’s Underwriters [Lloyd’s], has a duty to defend an action Canadian Pacific Railway [CP] commenced against KPCL in December 2017 [CP Action]. In the CP Action, CP claims damages of $41 million resulting from the collapse of an earth embankment that KPCL built to construct a railway crossing over the Qu’Appelle Valley. [ 2 ] The preliminary issue, as with all

summary judgments, is whether the

summary procedure permitted by Rule 7-5(1) of The Queen’s Bench Rules is suitable to resolve this application. KPCL has brought this application for

summary judgment, so it necessarily accepts that

summary judgment provides a suitable framework to determine the issue at hand. Lloyd’s agrees that KPCL’s application is suited for

summary determination. [ 3 ] I have found no material conflict in the evidence presented to the court. Accordingly, I accept the positions taken by Lloyd’s and KPCL and will adjudicate this matter summarily without delving into the frequently repeated test whether

summary judgment is the appropriate mechanism to resolve the issue at hand. [ 4 ] The resultant and sole issue is whether the insurance policy held by KPCL, called a “Course of Construction Wrap-Up Policy” [Policy], obligates Lloyd’s to defend the action initiated by CP, a common question in insurance litigation. [ 5 ] Lloyd’s accepts that CP’s claim advanced against KPCL falls within the initial grant of coverage, but relies upon two exclusions in the Policy which, Lloyd’s states, excludes coverage. Lloyd’s says that the “Operations Exclusion” and the “Property Damage Exclusion” disqualify KPCL from coverage.

KPCL says that Lloyd’s bears the onus of proving that the entire loss claimed against it is excluded from the Policy and that Lloyd’s has failed to meet this onus. Therefore, Lloyd’s must defend the action that CP has initiated against it.

KPCL further states that Endorsement 22 of the Policy is an exception to the exclusions and, consequently, brings the claimed loss within coverage. [ 6 ] In the alternative, Lloyd’s states that if the court rules in KPCL’s favour, the declaration should be without prejudice to an allocation of the costs of defence between claims that are covered and claims that are not covered and without prejudice to Lloyd’s right to control the defence and appoint defence counsel.

AN ANALYTICAL ROADMAP A Three Step Analysis [ 7 ] In Progressive Homes Ltd. v Lombard General Insurance Co. of Canada, 2010 SCC 33 , [2010] 2 SCR 245 [ Progressive Homes ] Justice Rothstein provided instruction to determine whether an insurer has a duty to defend an action against an insured. [ 8 ] In Progressive Homes , the insured, Progressive Homes, was the general contractor hired to build several housing complexes. After completion of construction, Progressive Homes faced four lawsuits alleging water damage caused rot and deterioration to the buildings.

Lombard, the insurer, issued policies that required it to defend and indemnify Progressive Homes in instances where Progressive Homes was legally obligated to pay damages because of property damage caused by an “occurrence” or “accident.” Lombard said that it did not have a duty to defend because the claims were not covered under the insurance policies and, if initially covered, were excluded under certain exclusions found in the various policies that Progressive Homes had purchased. Progressive Homes brought an application for a declaration that Lombard had a duty to defend the four actions.

The Supreme Court reversed the lower courts’ decisions and found that Lombard had a duty to defend the action against Progressive Homes. [ 9 ] In an introductory statement, Justice Rothstein provided a brief but comprehensive framework to determine whether a duty of defend has been established.

He wrote: [6] The issue of the duty to defend requires the consideration of the pleadings in the actions against Progressive to determine if there is a possibility of the claims falling within the insurance coverage. [ 10 ] From this sentence, I glean certain steps that the court must undertake to determine whether a duty to defend has been made out. First, the court must examine the nature of the claim against the insured, in this instance the claim against KPCL in the CP Action.

Notably, Justice Rothstein extensively quoted the alleged causes of action and claim for damages that Progressive Homes faced in the actions against it, indicative that the court must carefully study the nature of the claims that KPCL faces. He explained that the court does not inquire into the strength of the claim but asks the question, assuming the facts alleged in the pleadings are accepted as true, whether the claim required the insurer to indemnify the insured. [ 11 ] Second, the court must examine the nature of the insurance policy.

Again, Justice Rothstein quoted several provisions of the insurance policy. If the claim squarely falls outside of the insurance policy, that is the end of the matter – the insurer has no duty to defend. [ 12 ] Third, if the claim falls within the initial grant of coverage (as Lloyd’s admits it does), coverage might still be excluded if the insurer shows that an exclusion clause applies to the type of loss described in the claim. For example, in Progressive Homes , Lombard argued that an exclusion precluded coverage for damage to the insured’s own work once it was completed.

Notably, whether determining if the policy initially provides coverage or whether an exclusion clause excludes coverage, the court needs only to be satisfied that the claim possibly falls within insurance coverage.

As Justice Rothstein wrote at para. 19, “What is required is the mere possibility that a claim falls within the insurance policy.” Where the claim clearly falls outside the Policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, no duty to defend will arise. [ 13 ] Fourth, as Justice Rothstein cautioned, another layer, in addition to an exclusionary clause, might exist in an insurance policy. An exception to an exclusion might bring a claim back into coverage so long as the claim falls within the initial grant of coverage.

Exceptions do not serve to create coverage; they only bring an otherwise excluded claim back within coverage where the claim initially fell within the coverage: Progressive Homes at para 28 . [ 14 ] Justice Rothstein summarized this alternating structure of insurance policies and the consequential shifting burdens upon the insured and the insurer.

A policy should generally be interpreted in the following order: whether there is initial coverage for the loss, where it is the insured’s onus to prove that the loss possibly falls within the policy; whether there is an exclusion, where it is the insurer’s onus to prove that the loss is excluded from the coverage; and, finally, whether there is an exception to the exclusion, where it is the insured’s onus to prove that the claim against it falls within an exception to the exclusion clause. [ 15 ] I will follow this sequential inquiry in the application before me: examine the nature of the claim, examine the insurance policy, including any exclusions or exemptions, and determine if the claim is possibly covered by the Policy.

General Principles to Interpret Insurance Policies [ 16 ] In addition to the above analytical framework, Justice Rothstein provided general principles to interpret an insurance policy. Summarized, they are as follows. [ 17 ] Whether the court finds ambiguity in the terms of the insurance policy determines the court’s interpretative approach. In the absence of ambiguity, the court gives effect to the Policy’s clear language, reading it as a whole. In the presence of ambiguity, the court looks to general rules of contract construction. For example, courts prefer

interpretations that are consistent with the reasonable expectations of the parties, so long as such

interpretation is supported by the text of the policy. Courts also strive to ensure that similar insurance policies are construed consistently. Where these general rules of construction fail to resolve the ambiguity, courts should construe the policy contra proferentem or put slightly differently, coverage provisions are interpreted broadly and exclusion clauses narrowly.

[18] Additionally, if coverage has been initially triggered, moving the onus to the insurer to establish an exclusionapplies, the insurer must establish that all claims for damage are fully excluded. If this burden is not met, the insurer must defend allclaims against the insured. [19] So, given this framework I will proceed by first examining the nature of CP’s claim against KPCL in the CPAction. Second, I will examine the coverage under the Policy and any exclusions or exceptions to the exclusions. Finally, I willdetermine whether the allegations in the CP Action, if proven, would possibly fall within the insurance policy. When necessary, I willrefer to the general principles of

interpretation of insurance policies as described above. THE NATURE OF CP’s CLAIM IN THE CP ACTION A History of the Underlying Litigation [20] CP, through its Calgary counsel, Bennett Jones LLP, filed a statement of claim on December 1, 2017, namingKPCL and several other parties as defendants in an action commenced in the Alberta Court of Queen’s Bench, but later transferred byorder of Justice Krogan to the Court of Queen’s Bench in Saskatchewan, Judicial Centre of Regina.

CP sought damages of $41 millionarising from the failure of an earth embankment that collapsed during the construction of a 31-kilometre rail spur extension betweenCP’s mainline near Moose Jaw and K+S potash mine at Belle Plaine, Saskatchewan [Project]. [21] The Project necessitated construction of a 3.7-kilometre rail line to cross the Qu’Appelle Valley. The crossingincluded a multi-span bridge connecting the east and west banks of the valley requiring high grade earth embankments.

In 2014 KPCLwas awarded the contract as general contractor for the Project. [22] Between May and December 2015, KPCL constructed the embankments on the east side of the valley byplacing and compacting successive layers of fill over each other. Other defendants, Clifton Associates Ltd. and Altus Geomatics LimitedPartnership, monitored the stability of the embankment. On December 5, 2015, the embankment suddenly dropped by several metersover nearly one kilometre.

In total, CP alleged that approximately 3.2 million cubic metres of material was displaced. [23] KPCL’s legal counsel, Borden Ladner Gervais LLP of Vancouver, British Columbia, filed a statement ofdefence and counterclaim dated March 6, 2020 (as did other defendants). In turn, CP filed a defence to KPCL’s counterclaim. [24] Although not of immediate relevance to this application, pleadings became more complicated. On August 28,2017, KPCL issued a statement of claim against CP in QBG-RG-02177-2017 in the Judicial Centre of Regina [Second Action].

In theSecond Action, KPCL alleged that CP failed in its duty of care to KPCL, including CP’s failure to make the construction site reasonablyavailable to KPCL, to obtain necessary permits, to provide drawings and specifications, and to extend the target date for the earlycompletion bonus. CP defended against the claims in the Second Action. [25] Finally, to bring this application to the fore, KPCL initiated a third action, the within action, in QBG-RG-00742-2020, Judicial Centre of Regina, by statement of claim issued March 18, 2020 [Current Action].

In the Current Action, among otherrelief, KPCL sought a declaration that Lloyd’s has a duty to defend KPCL in the CP Action. Lloyd’s filed its statement of defence in theCurrent Action on November 6, 2020. [26] On February 2, 2022, KPCL filed its notice of application seeking a declaration that under the Policy, Lloyd’shas a duty to defend KPCL in the CP Action. Specifics of CP’s Claim [27] As Justice Rothstein did in Progressive Homes, the precise nature of CP’s claim against KPCL must beunderstood to determine whether allegations in the claim reveal losses or damages possibly covered by the Policy.

Understanding thetrue nature or substance of the claim and not necessarily the labels chosen by CP will determine whether the claims fall within the scopeof coverage. In gaining this understanding, pleadings must be given the widest latitude to determine whether the mere possibility of aclaim exists within the policy: Nichols v American Home Assurance Co., (SCC), [1990] 1 SCR 801 at 812. [28] The 36-page claim in the CP Action is detailed and complex. CP named four defendants, including KPCL.Relevant portions of the claim involving KPCL are as follows: 2.

CP retained the Defendant Contractors [Hatch Corporation, Thurber Engineering Ltd., Clifton Associates Ltd., KellyPanteluk Construction Ltd. and Altus Geomatics Limited Partnership] as engineers and contractors to design and construct CP’s portionof the rail spur (the “Bell Plaine Project”). … … 6. … Hatch was the main engineering and procurement contractor…. 7. … Thurber provided geotechnical investigation services... 8. … Clifton provided geotechnical investigation and engineering services... 9. … KPCL was the primary earthworks and construction contractor for the Belle Plaine Project. 10. … Altus provided ongoing geomatic engineering and survey services throughout the design and construction of the Belle PlaineProject. …

14. The Belle Plaine Project involved a crossing of the Qu’Appelle River Valley approximately 3.7 kilometers long. The crossing included a multi-span bridge connecting the east and west banks of the Qu’Appelle River Valley that required high grade earth embankments as part of its design. … 19. After considering available engineering approaches for the design of the Belle Plaine Project and the embankments at the Qu’Appelle River, Thurber recommended that CP proceed based on the observational method of engineering design, described below. 20.

In early 2013, CP retained Clifton to provide engineering oversight and review of Thurber’s geotechnical work on the Belle Plaine Project. Clifton recommended certain changes to the geotechnical and engineering design, including to the drainage design recommended by Thurber. Clifton endorsed Thurber’s recommendation that the Belle Plaine Project proceed based on the observational method of engineering design. 21. The observational method of engineering design involves continuous monitoring and review during design and construction.

Based on that monitoring and review, design modifications are implemented throughout the course of the project, including during construction, based on observation and analysis of field data, with the design model being adjusted on an ongoing basis by the entity tasked with implementing the observational method. 22. Construction of an embankment using the observational method involves building up height by adding controlled, specified amounts of fill where and when such placement is safe as determined by analysis of observed conditions.

The fill and foundation soils are monitored and the stresses within the foundation soils and existing fill created by the newly placed fill are measured and analyzed to determine the rate at which further fill can be safely added to the embankment structure. 23. The observational method incorporates a margin that is intended to ensure the safety of the design and construction known as a factor of safety (“FOS”).

In embankment construction, the FOS is intended to ensure that the design factors resisting an embankment failure outweigh the factors driving such a failure by a margin sufficient to ensure safe construction. … 26. …[O]n October 28, 2014, CP issued an RFP [Requests for Proposals] with respect to the construction and project management of the Belle Plaine Project. On December 5, 2014, KPCL submitted a proposal in response to this request in respect of construction, grading and earthworks for the Belle Plaine Project (the “KPCL Proposal”).

Based on the information and representations contained in the KPCL Proposal, CP selected KPCL as the general contractor for the Belle Plaine Project, with responsibility for all aspects of construction and project management. … 32. Construction of the Belle Plaine Project began on April 8, 2015, when KPCL and its subcontractors began preparing the site. 33. KPCL was responsible for construction of the Belle Plaine Project earthworks, including the embankments, as well as for overseeing the work of other construction contractors working on the Belle Plaine Project... 34.

Between May 2015 and December 4, 2015, KPCL carried out construction work on the embankment on the east side of the Qu’Appelle River... 35. KPCL constructed the Embankment by placing a series of lawyers or lifts of earth, referred to as fill, increasing the height of the Embankment with the addition of each lift. As additional layers were placed, the existing fill and foundational soils were compacted by pressure from the newly added fill, and by mechanical compaction of the fill after it was placed. … 38.

Clifton and Altus used the Monitoring Equipment to monitor the stability of the Embankment and the underlying foundation soils during the course of constructing the Embankment. Using that information, Clifton determined where additional work on the Embankment could and could not take place. Clifton was responsible for communicating that information to both Altus and KPCL so that available construction locations could be marked by Altus and then utilized by KPCL to continue construction of the Embankment. … 41. Based on the data collected from the Monitoring Equipment, and its professional analysis and

interpretation of that data, Clifton designated specific zones in the Belle Plaine Project area according to their availability for construction work by KPCL and its subcontractors. The designation indicated areas in which: (

a) No fill placement was permitted; (

b) Limited or restricted fill placement was permitted; and (

c) Fill placement was permitted. … 43. …. Subsequently, although pore water pressures in the Embankment did not decrease as much as expected during the period in which no fill placement was permitted, Clifton permitted KPCL to place an additional meter of fill in the Embankment area beginning after November 24, 2015.

44. Clifton and KPCL were aware that the pore water pressure readings in the vicinity of the Embankment were a concern. At several points during construction, including on October 29, 2015 and November 13, 2015, Clifton directed KCPL to refrain from placing further fill in specific areas along the Embankment due to the high pore water pressures. Moreover, Clifton was aware of the possibility that there was a clay layer in the foundation soils that was not adequately draining and which was contributing to the pore water pressure concern and that a weak layer such as this could cause instability. … 46.

Throughout this period, Clifton was aware that certain instruments in the Monitoring Equipment had not been operating properly since at least September 29, 2015. Defects in, and failures of, the Monitoring Equipment continued through October and November 2015. In the week prior to December 5, 2015, Clifton was aware that critical Monitoring Equipment in the Embankment area was not performing properly. Clifton nonetheless provided KPCL with directions to continue with construction in the area of the Embankment. … 50.

On December 5, 2015, CP personnel arrived at the Belle Plaine Project site at approximately 7:00 a.m. and discovered that the Embankment had dropped by several meters. The Embankment continued to drop through the day, eventually affecting close to a full kilometer of construction works and extending to approximately 25 m below the Embankment’s pre-failure height (the “Embankment Failure”). The Embankment Failure was sudden and progressive, with the berm failing first, followed immediately by the core of the Embankment. … 52. The occurrence of the Embankment Failure was immediately obvious.

By the end of December 5, 2015, an area approximately 170 meters wide, 630 meters long and between 10 and 30 meters deep had been affected. In total, approximately 3.2 million cubic meters of material was displaced as a result of the Embankment Failure. … The KPCL Agreement 98. …The general contractor was to be responsible for all aspects of construction, project management, safety, traffic management, testing and commissioning.

The RFQ also set out CP’s requirements as to specific types of insurance required of potential contractors, as well as the minimum amounts of coverage required. 99. …KPCL was selected the primary construction contractor for the Belle Plaine Project and was responsible construction of the Embankment. 100. CP entered into a Supply of Services Agreement with KPCL that was effective March 12, 2015 (the “KPCL Agreement”). The scope of KPCL’s work under the KPCL Agreement encompassed all services necessary for the construction of the Belle Plaine Project… 101.

KPCL’s Work included all aspects of construction, project management and safety, as well as supervision of the construction contractors on Belle Plaine Project. KPCL was also responsible for providing a quality management system to control construction quality and for daily tracking and reporting regarding the construction work that had been performed. 102. Under the KPCL Agreement, KPCL was responsible for providing the services necessary to complete the KPCL Work to the satisfaction of CP.

KPCL was also required to protect the KPCL Work from damage and was responsible for damage arising as a result of its operations. 103. At all times, KPCL controlled the KPCL Work and was responsible for determining the most effective and appropriate construction methods for the KPCL work, including for the construction of the Embankment. … 105.

The KPCL Agreement required KPCL to obtain insurance, including all-risk builder’s risk or course of construction insurance sufficient to cover events such as the Embankment Failure and covering the KPCL Work for the full replacement value of the KPCL Work and the material used therein. The KPCL Agreement also required KPCL to bear any loss or damage to incomplete KPCL Work that was not covered by the required policy of builder’s risk/course of construction insurance and required KPCL to restore any of KPCL work that sustained such loss or damage. … KPCL’s Breach of Contract and Negligence 109.

KPCL breached its contractual and common law duties to CP. KPCL’s breaches of its contractual and common law obligations included but are not limited to, failing to: (

a) ensure that the KPCL Work complied with all applicable professional, statutory and industry standards; (

b) select a construction method of the KPCL Work on the Embankment that was appropriate for the construction environment of the Belle Plaine Project and for the construction of the Embankment; (

c) obtain builder’s risk/course of construction insurance covering the full replacement value of the KPCL Work; (

d) ensure that adequate procedures to prevent damage to the Embankment were in place during the construction of the Belle Plaine

Project; (

e) ensure that adequate procedures to prevent damage to the Monitoring Equipment were in place during the installation of the Monitoring Equipment and/or during the construction of the Belle Plaine Project; (

f) comply with the directions and specifications developed by Clifton for the construction of the Belle Plaine Project, including those governing the placement of fill and the amount of fill that could be placed; (

g) obtain the information needed for compliance with directions as to fill placement developed by Clifton, and, in particular, the information necessary to eneure that KPCL was at all times performing the KPCL Work in areas designated as available for work by Clifton; (

h) implement and follow an adequate quality management program, including a program to track, monitor and ensure the placement of fill in accordance with Clifton’s directions; (

i) warn CP of the risks associated with the constructed method it had selected; and (

j) such further and other breaches as may be established at the trial of this action. … 111. Further, KPCL’s failure to obtain course of construction insurance as required by the KPCL Agreement has given rise to additional losses, damages, costs and expenses to CP. 112. Under the KPCL Agreement, in addition to other types of insurance coverage, KPCL was to obtain all risk course of construction coverage for the full replacement value of the KPCL Work that named both KPCL and CP as insureds.

Although KPCL obtained some of the requisite insurance through its insurance broker, Marsh Canada, it failed to obtain course of construction insurance. Had KPCL obtained the requisite insurance, CP would have been in a position to recoup its losses in relation to the Embankment Failure though that insurer. KPCL’s breach of its contractual obligation to obtain this coverage has resulted in the need for CP to seek recovery of its losses directly against those who were responsible.

This, in turn, requires CP to establish not only the occurrence of property damage, as it would have had to have done under a course of construction policy, but to establish fault on the part of one or more of the Defendants, which would have been unnecessary had the proper insurance been purchased as required under the KPCL Agreement. [ 29 ] If these allegations found in CP’s statement of claim are accepted as true and if they describe losses or damages that possibly fall within the coverage of the Policy, then Lloyd’s owes a duty to defend KPCL against the CP Action.

The Terms of the Insurance Policy Issued by Lloyd’s [ 30 ] Whether the Policy obligates Lloyd’s to defend the CP Action is solely dependent upon the

interpretation of the Policy. This statement seemingly makes the court’s task straightforward. However, as KPCL candidly states in its notice of application, “the wordings used in the grants of coverage, exclusions and indemnity provisions are often complex, convoluted, lack

definitions and/or are inconsistent with other provisions.” [ 31 ] The Policy contains the following provisions relevant to insurance coverage respecting the claims in the CP Action: CONTRACT NO. DR720515

(1) BOWRING MARSH RISK DETAILS TYPE: Course of Construction Wrap-Up Liability NAMED INSURED: Kelly Panteluk Construction Ltd…. … POLICY PERIOD: Effective Date: 1 st April 2015 Termination Date: ….[to completion, no later than] but in no event…later than 31 st August 2016 … PROJECT INSURED: Civil and Bridge Construction requirements for the new Belle Plaine Railway Spur from the existing Kalium Spur to the proposed K + S Potash mine near Findlater, Saskatchewan. Project located at approximately 30.3 km railway grade from Belle Plaine SK to TWP Road 194. LIMITS OF LIABILITY: CAD [$]10,000,000 each Occurrence … ESTIMATED PROJECTS COSTS: CAD [$]85,000.000. …

INSURING AGREEMENTS The Insurer agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages, but only with respect to the Project stated on the Declarations Page. … 2. PROPERTY DAMAGE LIABILITY because of physical damage to or destruction of or loss of use of tangible property during the Policy Period caused by an Occurrence, herein after called Property Damage. 3. DEFENCE, SETTLEMENT, INVESTIGATION AND NEGOTIATION With respect to such insurance as is afforded by this Policy, the Insurer shall: (

a) have the right, but not the duty, to investigate and settle such claims and defend such suits. In any case in which the Insurer elects not to investigate, settle or defend, the Insured under the supervision of the Insurer, shall make or cause to be made such investigation and defense as is reasonably necessary, and subject to prior authorization by the Insurer, will effect to the extent possible such settlement or settlements as the Insurer and the Insured deem prudent.

The Insurer shall reimburse the Insured as quickly as possible for the reasonable cost of such investigation, settlement or defence. [ 32 ] Most significant to this application are the exclusions to the insurance coverage respecting property damage liability. Lloyd’s relies on exclusions 8(c)(

i) and (iii), which read as follows: EXCLUSIONS This Policy does not apply to: …. 8. damage to or destruction including loss of use of: … (

c) that particular part of any property: (

i) upon which operations are being performed by or on behalf of the Insured at the time of the damage thereto or destruction thereof, arising out of such operations, or (ii) out of which any damage or destruction arises, or (iii) the restoration, repair or replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the Insured; [ 33 ] Lloyd’s quotes and relies upon a further exclusion, Exclusion 11, called the “Project Damage Exclusion,” which reads as follows: 11. property either forming part of or to form part of the Project Insured.

However, this Exclusion shall not apply with respect to such coverage as is afforded under the Completed Operations Hazard and the Product Hazard as defined; [ 34 ] As previously described, insurance policies often have three tiers of qualification for coverage, the initial policy, exclusions to the coverage and exceptions to exclusions. So, too, does the insurance policy provided by Lloyd’s. The exception to Exclusion 8 is found in Endorsement 22. It reads as follows:

SCHEDULE “A” ENDORSEMENT No. 21 [ sic ] Property Damage to Existing Property This Policy is amended in that Exclusion 8 shall not apply to Property Damage to the principals [sic] existing surrounding property, not forming part of the project works , but no coverage shall be provided for Property Damage to that part of property being worked upon when such Property Damage arises out of such work that is or would normally be considered as being covered by a Builders Risk/Course of Construction Insurance Policy. [Emphasis in original] [ 35 ] So, at this juncture, the evidentiary basis for the first two steps in the inquiry have been summarized: the nature of the claim in the CP Action and the insurance coverage in the Policy.

POSITION ADVANCED BY KPCL An Initial Understanding – Loss of Tangible Property Caused by an Occurrence

[ 36 ] Both Lloyd’s and KPCL agree that the claim under the CP Action falls within the initial coverage under the Policy because the failure of the embankment was inarguably damage done to tangible property. Neither party disagrees that the collapse of the embankment was “physical damage or destruction of or loss of use of tangible property…caused by an Occurrence.” [ 37 ] Accordingly, with this initial admission, the onus shifts to Lloyd’s to prove that either the Operations Exclusion under clause 8(c)(

i) or (iii) or the Property Damage Exclusion under clause 11 applies. Furthermore, if either clause of this exclusion applies, then the onus shifts to KPCL to prove that the exception to the exclusion found in Endorsement 22 returns CP’s claim within the coverage of the Policy. The Operations Exclusion (Subclauses 8(c)(

i) and (iii)) [ 38 ] In its brief of law, at paras. 28 and 29 and later at paras. 79 to 85, KPCL explains its position why the exclusions in subclause 8(c)(

i) and (iii) do not apply. Frankly, I have found the exact reasoning in these paragraphs challenging to follow. I am not certain if the reasons are independent of each other, sequential to each other, alternative to each other or augmentative to each other. Initially, in its introductory “Summary of KPCL’s Claim,” KPCL raises two points, seemingly in the alternative, stating: 28. The Operations Exclusion does not apply to avoid the duty to defend because all three subsections of the Operations Exclusion are limited to that “particular part” of any property out of which the damage arises.

The Foundation Failure occurred within the underlying pre-existing foundation soils, not the embankment constructed by KCPL. As such, all costs claimed by CP Rail are not fully excluded. 29. In the alternative, based on a fair reading of the pleadings in the CP Action, the Foundation Failure arose out of the uppermost lift of the embankment constructed by KPCL, not the entirety of the embankment below.

Moreover, CP Rail asserts that the damages occurred due to the other Defendants’ failure to adequately design the embankment and/or observe foundation issues detected by the monitoring equipment used on the Project and thereby advise KPCL to adjust its construction accordingly. As such, the damage does not arise from KPCL’s operations. [ 39 ] Later, in its brief, KPCL expands or modifies its argument, as follows: 79. The Operations Exclusion does not apply to the asserted claims or, alternatively, excludes coverage for only a small amount of the damages alleged, whereby the duty to defend is triggered. 80.

Firstly, all three subsections of the Operations Exclusion are limited to that “ particular part ” of any property out of which damage arises. 81. Secondly, the first sub-exclusion is limited to that “ particular part ” of the property upon which operations are being performed by the Insured at the time of the damage . As per the pleadings, no operations were being performed by KPCL at the time of the Foundation and Embankment Failure, which occurred before the start of work on 5 December 2015. 82.

Paragraph 50 of the CP Claim is clear on this point: “On December 5, 2015, CP [Rail] personnel arrived at the Belle Plaine Project site at approximately 7:00 a.m. and discovered that the Embankment had dropped by several meters.” 83. Thirdly, the next sub-exclusion is limited to that “ particular part ” of the property out of which the damage or destruction arises. The pleadings confirm that damage occurred in the pre-existing foundation soils underneath KPCL’s Work. Pursuant to Endorsement 22, that property is the principal’s existing surrounding property, not forming part of the Project works.

Accordingly, coverage is not excluded. 84. Further, as the Foundation Failure occurred within the underlying pre-existing foundations soils due to excess pore water pressures, which is the “ particular part ” out of which the damage arose, the resulting damage to the Embankment is covered. 85 Alternatively, the pleadings assert that the failure occurred within a specific lift of the Embankment constructed by KPCL (i.e. the last lift placed before failure initiated) and not the entirety of the Embankment.

Once again, that is the particular part out of which the damage arose, whereby the remaining Property Damage to the Embankment and foundations are covered. 86. CP Rail also asserts that the damage occurred due to Clifton’s and the other Consultants’ failure to adequately observe concerns raised in the Monitoring Equipment and advise KPCL to adjust its construction accordingly. Once again, that is the particular part which is excluded, whereby all other damage is covered. 87. Fourthly, the third sub-division excludes repair to “ that particular part of property ” by reason of faulty workmanship thereon.

Based on the allegations and the decision of the Supreme Court of Canada in Progressive Homes , the allegations of faulty workmanship are limited to only those particular parts of KPCL’s scope of work on the upper lift of the Embankment and not the entirety of the work. 88. A fair and reasonable reading of the pleadings confirms that. As such, only the alleged faulty components of the damaged work may be excluded, but these are separate from the non-faulty but damaged components of the work, which are all covered. 89.

The Supreme Court of Canada confirmed that the same Operations exclusion for “that particular part: of property on which operations are being performed must be interpreted narrowly, whereby a duty to defend is triggered for the entire claim.. The faulty components of the damaged work may be excluded, but these must be separated from the non-faulty but damaged components of the work, which are covered. 90. The construction of the Embankment must be considered in its “particular parts” as is identified in the pleadings.

As noted in the CP Statement of Claim, the Embankment was constructed in a series of successive lifts and the damage occurred more than 7 months after KPCL had successfully placed most of its lifts. ….

92. A fair and reasonable reading of the pleadings is that it was only the uppermost lift of the Embankment placed after 24 Novemberthat was the “particular part” of the property on which operations were being performed or out of which the damage arose. The allegedfaulty work could only be the latest lift, as all prior lifts did not result in damage. Further, no operations were being performed by KPCLwhen the Foundation Failure occurred.

As such, the Operations Exclusion does not apply to exclude coverage. [Footnotes omitted, emphasis in original] [40] I will later parse and analyse these positions to determine their merits.

POSITION ADVANCED BY LLOYD’S Preliminary Point – KPCL Failed to Purchase the Correct Insurance [41] Lloyd’s suggests that KPCL made an initial and fundamental mistake when it purchased a “Wrap-Up Course ofConstruction Liability Insurance Policy” and not a “Builders’ All-Risk Course of Construction Insurance Policy” [a BAR Policy].Lloyd’s states that a Wrap-Up Policy responds to claims for third party liability arising out of a construction project while a BAR Policyresponds to claims for damage to work being undertaken in the course of the construction project. [42] Lloyd’s also points out that in its contract with CP, KPCL was required to purchase all risk course ofconstruction insurance coverage but failed to do so.

Lloyd’s says that KPCL now seeks to contort and fit into the Policy the claim fordamages alleged against it. One sees this criticism of KPCL’s choice of insurance in paragraphs 111 and 112 of CP’s statement of claimwhere CP states: 112. Under the KPCL Agreement, in addition to other types of insurance coverage, KPCL was to obtain all risk course of constructioncoverage for the full replacement value of the KPCL Work that named both KPCL and CP as insureds. Although KPCL obtained someof the requisite insurance through its insurance broker, Marsh Canada, it failed to obtain course of construction insurance.

Had KPCLobtained the requisite insurance, CP would have been in a position to recoup its losses in relation to the Embankment Failure through thatinsurer. KPCL’s breach of its contractual obligation to obtain this coverage has resulted in the need for CP to seek recovery of its lossesdirectly against those who were responsible… [43] Lloyd’s cites Temple Insurance Company v Aberdeen Specialty Concrete Services, 2021 SKCA 94 as authoritythat a Wrap-Up Policy only provides coverage from lawsuits for property damage that contractors have caused third parties.

There thecourt wrote: [57] To state the obvious, a wrap-up policy is a liability policy that provides insurance coverage for owners, contractors andsubcontractors involved in a project from lawsuits that may be brought against them for property damage they caused.

Notwithstandingthe clear terms of the Wrap-Up Policy, which would not permit All Seniors to make a claim under the policy or claim for remediationwork, All Seniors wrote to the insurer, i.e., Temple’s agent, Encon, for the purposes of doing just that: making a claim for itself for suchwork. [44] In contrast to a Wrap-Up Policy, Lloyd’s states that the function of a BAR Policy was explained in LedcorConstruction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37 at para 1, [2016] 2 SCR 23, where the court stated: [1] …This type of insurance covers physical damage on a construction site.

It is usually issued to the owner of the property underconstruction and the general contractor, providing coverage for them as well as for all contractors and subcontractors working on theproject… [45] Paraphrasing Commonwealth Construction Co. v Imperial Oil Ltd., (SCC), [1978] 1 SCR 317at 328, Lloyd’s states that the function of a BAR policy – the type of policy that KPCL should have purchased – is to provide to ownersthe assurance that a contractor will have the funds to rebuild any work that they damage and to the contractor protection against thecrippling cost of starting afresh.

Lloyd’s states that the exclusion clauses were meant to exclude KPCL’s work because the Policy wasnot a performance bond or a BAR Policy. Although a Loss of Damage, Exclusions Apply [46] Lloyd’s accepts that the terms of the Policy initially provide coverage but that the exclusions remove coverage.Lloyd’s also accepts that the onus shifts to it to show that coverage is precluded by the exclusion clauses. [47] Lloyd’s looks to exclusions 8(c)(

i) and 8(c)(iii), which, it says, plainly, unambiguously and independentlyeliminate coverage. To ignore these exclusions, Lloyd’s says, would convert the Policy into a BAR Policy, contradict the insurancecontract, and make Lloyd’s indemnitors not of KPCL’s negligence vis-à-vis third parties, but rather of project conditions and KPCL’swork itself. [48] In its brief of law, Lloyd’s separates its position respecting clause 8(c)(

i) for 8(c)(iii), asserting that either clauseexcludes coverage. Clause 8(c)(i) [49] Lloyd’s first looks to the exclusion in 8(c)(i), which (as previously quoted) reads as follows: 8. [This Policy does not apply to] damage to or destruction including loss of use of …. (

c) that particular part of any property:

(

i) upon which operations are being performed by or on behalf of the Insured at the time of the damage thereto or destruction thereof, arising out of such operations, [ 50 ] Lloyd’s states that the exclusion is triggered because the embankment failed during the course of its construction while operations were being preformed by or on behalf of the insured at the time of the alleged damage. [ 51 ] Lloyd’s does not accept (as KPCL suggests) that the embankment failure can be broken into components of the completed work.

As plead in the CP Action, the naturally occurring foundational soils and each lift were intended to raise and to create the embankment and were an integral part of the embankment. The existing soils formed the foundation, and the lifts formed the successive layers of elevation to create the embankment. [ 52 ] Lloyd’s rejects the notion advanced by KPCL that the placement of the last lift before the failure caused the failure.

Instead Lloyd’s states that KPCL’s work necessarily included the monitored compacting of the existing foundational soils so that the entirety of the embankment, including the foundation, would support the weight of material comprising the embankment. Citing Murphy v Brentwood District Council, [1990] 2 All ER 908 (HL) at 928 as quoted in Progressive Homes para 32 , Lloyd’s rejects the notion that the Project can be subdivided into its component parts: [32] … The reality is that the structural elements in any building form a single indivisible unit of which the different parts are essentially interdependent.

To the extent that there is any defect in one part of the structure it must to a greater or lesser degree necessarily affect all other parts of the structure. Therefore any defect in the structure is a defect in the quality of the whole and it is quite artificial, in order to impose a legal liability which the law would not otherwise impose, to treat a defect in an integral structure, so far as it weakens the structure, as a dangerous defect liable to cause damage to ‘other property’.

A critical distinction must be drawn between some part of a complex structure which is said to be a ‘danger’ only because it does not perform its proper function in sustaining the other parts and some distinct item incorporated in the structure which positively malfunctions as to inflict positive damage on the structure in which it is incorporated. … [Emphasis in original] [ 53 ] In rejecting KPCL’s assertion that the existing foundation soils can be separated from the lifts placed upon the foundation soils, Lloyd’s states, in its brief of law: 66.

There was clearly a design to construct the Embankment involving alteration of the existing foundational soils, as well as a physical or systemic connectedness among the foundational soils and the lift placed upon it. … … 68. …[T]he object of the KPCL Agreement was to build the Embankment to support the rail spur; not simply to place the upper lift on the lifts which were already in place.

At para 77 of the Plaintiff’s Brief of Law, KPCL ignores that “particular property” is modified by not only the property itself but included property “upon” which operations are performed, in this case the foundational soils of the Qu’Appelle Valley. 69. The plain meaning of the phrase “that particular part of any property”, when read to mean the entire Embankment and the foundational soils, is consistent with the reading of the Policy as a whole.

The exclusion clauses were designed to exclude the work of KPCL, as the Policy is not a performance bond nor a BAR Policy. [ 54 ] Lloyd’s cites several American decisions with exclusion clauses similar to clause 8(c)(i).

Lloyd’s points to two decisions to discount KPCL’s argument that the exclusion is inoperative because the embankment failed when no one was performing work, a temporal disconnect between failure of the embankment and work upon the embankment. [ 55 ] In Advance Electric Inc. v United States Fidelity and Guarantee Company, 818 F.2d 378 (5th Cir 1987) [ Advance Electric ], a 1987 decision of the United States Court of Appeals, Fifth Circuit, none of the insured’s employees were on the job site when damage occurred.

The insured argued that the exclusion did not apply because no operations were being performed “at the time of the property damage.” The court rejected this argument, stating: … This argument forgets that the cooling stage is an essential part of the operation.

We have found no Louisiana cases that have considered this particular question, but agree with the district court that the plain meaning of the term “performing operations” does not require constant human activity. [ 56 ] Lloyd’s also cites a 1998 decision from the Supreme Court of Missouri, Columbia Mutual Insurance Company v Schauf , 967 S.W.2d 74 (1998) where the court stated that the issue had never come before the court to determine the scope of an exclusion for damage to property “on which you [the insured] or any contractor or subcontractor working directly or indirectly on your behalf is performing operations…” The court found that the present tense of is did not require any insured’s attendance at the time of damage.

The court stated, “To construe the exclusion so narrowly that it applies only at the moment an insured is intentionally touching the real property that is the object of this work would, in effect, read the exclusion out of the policy.” [ 57 ] Lloyd’s concludes its position respecting clause 8(c)(

i) stating, “The objective of the exclusion was to exclude claims arising from the alleged faulty workmanship of KPCL.” The embankment, and not separate lifts of fill, was “that particular part of any property” upon which operations were being performed. As well, operations were being performed “at the time” of the embankment failure because the Project was ongoing at that time. Clause 8(c)(iii)

[ 58 ] Under clause 8(c)(iii) claims are excluded where they allege “damage to…that particular part of any property… the restoration, repair or replacement of which has been made or is necessary by reason of faulty workmanship thereon by…the Insured.” [ 59 ] At para. 82 of its brief of law, Lloyd’s cites eight clauses in the CP Action that specifically allege KPCL’s breach of its duties to CP that necessitated restoration, repair or replacement: 82. … (a) …ensure that the work complied with all applicable professional, statutory and industry standards (para. 109(a)); (b) …select a construction method that was appropriate for the construction environment for the Belle Plaine Project and for the construction of the Embankment (para. 109 (b)): (c) …ensure that adequate procedures to prevent damage to the Embankment were in place during the construction of the Belle Plaine Project (para. 109(d)); (d) …ensure that adequate procedures to prevent damage to the Monitoring Equipment were in place during the installation of the Monitoring Equipment and/or during the construction of the Belle Plaine Project (para. 109(e)); (e) …comply with the directions and specifications developed by Clifton for the construction of the Belle Plaine Project, including those governing the placement of fill and the amount of fill that could be placed (para. 109(f)); (f) …obtain the information needed for compliance with directions as to fill placement developed by Clifton, and, in particular, the information necessary to ensure that KPCL was at all times performing the KPCL Work in areas designated as available for work by Clifton (para. 109(g)); (g) …implement and follow an adequate quality management program, including a program to track, monitor and ensure the placement of fill in accordance with Clifton’s directions (para. 109(h)); (h) …warn CP of the risks associated with the constructed method it had selected (para. 109(i)). [ 60 ] Lloyd’s concludes that these allegations make clear that the “restoration, repair or replacement of” the embankment was “made…necessary by reason of faulty workmanship thereon by [KPCL].” Endorsement 22 (Exception to Exclusion 8) [ 61 ] Lloyds addresses the effect of Endorsement 22, which states that Exclusion 8 “shall not apply to Property Damage to the principal’s existing surrounding property, not forming part of the project works.” Contrary to KPCL’s assertion that, minimally, damage to the foundation soils was damage to CP’s property and was never part of the Project, Lloyd’s states that the foundation soils formed part of the Project and were not CP’s surrounding property.

The foundation soils were immediately under the embankment and thus were not part of the property that “surrounds” the embankment. For these reasons, coverage under the Policy remains excluded even for damage to the foundation soils. [ 62 ] Lloyd’s cites Jet Line Services, Inc. v American Employers Insurance Co., 404 Mass 706 (Mass 1989) where the court considered a claim for insurance coverage arising from an explosion that caused damage to an underground tank.

Jet Line was hired to clean the entire tank and while it was working on the bottom of the tank, the explosion caused damage to the entire tank and not just the tank’s bottom.

The court referred to several cases where the insured was retained to perform work on only a portion of the unit but the court held that the exclusion applied to damage to the entire unit and concluded: … Where, as here, the insured was retained to perform work on an entire unit of property, and not just a portion of it, the applicability of the exclusion to damage to the entire unit is even more apparent than in cases in which the insured was retained to work on only a part of the unit.

Clause 11 – The Project Damage Exclusion [ 63 ] The exclusion under clause 11 states that the Policy does not apply to “property either forming part of or to form part of the Project Insured.” [ 64 ] Lloyd’s states that the analysis respecting the Operations Exclusion (clauses 8(c)(

i) and (iii)) apply equally to the

interpretation of the Project Damage Exclusion because both the embankment and the foundation soils were property forming part of the Project and thus excluded. ANALYSIS A Close Examination of Progressive Homes [ 65 ] Foremost in the court’s analysis is the need to primarily consider Canadian decisions that post date Progressive Homes, commonly known as the “leaky condos” case . Undoubtedly, in Progressive Homes the Supreme Court forged a broader approach to an insurer’s duty to defend, both in the

interpretation of the initial coverage under an insurance policy and, when applied to in the context of this application, to the

interpretation of exclusion clauses, particularly the “work performed” exclusions. [ 66 ] Progressive Homes, the insured, was hired to serve as general contractor to construct four residential condominium buildings. After construction was complete, the insured was sued in four separate actions, one for each housing unit, including allegations of construction deficiencies in framing, stucco, windows, flashings, venting and roofs, which permitted moisture to penetrate the building and cause rot and deterioration in each building.

[ 67 ] The Supreme Court first considered and reversed both the trial and appellate courts of British Columbia on the primary issue whether the policies (there were three successive policies) covered property damage occasioned by an “occurrence” or “accident.” The initial coverage under the policies was to “pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of property damage caused by accident.” [ 68 ] Justice Rothstein did not accept the insurer’s restrictive

interpretation of either “property damage” or “accident” and found that the claim was covered, subject to any exclusion clauses. At this point, then, Progressive Homes becomes instructive to the immediate application. [ 69 ] Complicating the analysis of the exclusion clauses in Progressive Homes was the existence of three different policy versions.

Essentially, after comparing these versions, Justice Rothstein found sufficient ambiguity in the “work performed” exclusion to determine that the insurer had a duty to defend. [ 70 ] The original policy excluded “ property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.” [Emphasis in original] (para. 55) This clause was replaced by an endorsement, which excluded “property damage to work performed by the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.” [Emphasis in original] (para. 55) Justice Rothstein found that the narrower modified exclusion in the endorsement, which deleted any reference to work performed on behalf of the insured, excluded coverage for property damage caused by the insured to its own work , but did not exclude coverage for property damage caused by a subcontractor’s work. [ 71 ] Another version excluded “ property damage to that particular part of your work arising out of it or any part of it and included in the products-completed operations hazard.” Justice Rothstein decided that the phrase “that particular part of your work” found in this version permitted the insured’s work to be divided into its component parts.

Accordingly, coverage for repairing defective components of the insured’s work would be excluded, while coverage for resulting damage would not. [ 72 ] Justice Rothstein found that the change in wording from “property damage to work performed….” to “property damage to that particular part of your work …” restricted the effectiveness of the exclusion. As he wrote: [64] Much like the first version of the policy, this version of the “work performed” exclusion was a specific endorsement which amended the standard version of the exclusion. The phrase “that particular part of your work” replaced the phrase “your work”.

The presumption must be that this change in language represents a change in meaning.

Lombard has not provided any contrary rationale for the change in language. [ 73 ] Justice Rothstein’s expansive view held that an insured’s “work” is capable of division into component parts when the insurance exclusion reads “that particular part of the insured’s work.” Consequently, coverage might remain intact for the non- defective components of the insured’s own work when the exclusion uses the phrase “that particular part of the insured’s work.” KPCL’s Reliance on “that particular part of any property” [ 74 ] Not surprisingly, KPCL leans heavily on Justice Rothstein’s

interpretation of the phrase “that particular part” in an exclusion clause. KPCL hinges this

interpretation to its assertion found at paras. 85 and 93 of its brief of law where it states that the failure occurred within a specific lift of fill and not upon earlier work on the embankment.

Accordingly, KPCL says, at most, “the exclusion may apply to the uppermost lift of soil with the resulting damage to the remainder of the constructed Embankment and Foundation Soils below covered.” (Para. 12 of reply brief of law.) In other words, only the uppermost lift was the “particular part” of the property on which operations were being performed and respecting which insurance coverage was excluded. [ 75 ] KPCL suggests that although the exclusion would not allow it coverage for the last lift – that particular part of its work – it would allow coverage for the failed embankment. [ 76 ] The court must determine whether CP’s pleading make such a specific allegation.

Do the pleadings possibly contemplate that KPCL’s work was separable into component parts so that each lift was a “particular part” of its work?

In its brief of law, KPCL makes a strong assertion that the last lift initiated the failure but does not reference a clause in CP’s statement of claim to support its assertion. [ 77 ] A review of the pleadings (certain clauses previously quoted) finds the following allegations, none of which suggest that construction of the embankment was sound but collapsed only when (and because) KPCL added the last catastrophic layer: 22. …[Both the] fill [the material used to add layers] and foundation soils are monitored…and existing fill created by the newly placed fill are measured...to determine the rate at which further fill can be safely added to the embankment structure. … 24.

Proper implementation of the observational method requires, amongst other things: … (

b) assessment of the most probable and most unfavorable conditions that will be experienced during construction; [and] … (

d) monitoring and evaluating the actual conditions during construction… …

33. KPCL was responsible for…overseeing the work of other construction contractors working on the…Project… … 35. KPCL constructed the Embankment by placing a series of layers or lifts of earth, referred to as fill, increasing the height of the Embankment with the addition of each lift. As additional layers were placed, the existing fill and foundational soils were compacted by pressure from the newly added fill, and by mechanical compaction of the fill after it was placed. … 39.

The Monitoring Equipment measured the lateral movement, soil settlement and pore water pressure in the foundation soils and the Embankment fill. The data from the Monitoring Equipment was to be collected every 24 hours. … 44. Clifton and KPCL were aware that the pore water pressure readings in the vicinity of the Embankment were a concern. At several points during construction, including on October 29, 2015 and November 13, 2015, Clifton directed KPCL to refrain from placing further fill in specific areas along the Embankment due to the high pore water pressures… … 46.

Throughout this period, Clifton was aware that certain instruments in the Monitoring Equipment had not been operating properly since at least September 29, 2015. Defects in, and failures of, the Monitoring Equipment continued through October and November 2015. In the week prior to December 5, 2015, Clifton was aware that critical Monitoring Equipment in the Embankment area was not performing properly.

Clifton nonetheless provided KPCL with directions to continue with construction in the area of the Embankment. [ 78 ] I do not find in these quoted pleadings any suggestion that CP alleged that all was well in the construction of the embankment until the last fateful lift was placed on the embankment.

Indeed, the pleadings allege that ongoing warning signs repeatedly indicated a predictable embankment failure, but those signs were ignored. [ 79 ] Aside from the pleading not alleging that the last lift of fill was the reason for the embankment failure, I find that successive and repetitive works of an identical nature (one must assume that building this embankment would have taken innumerable layers of fill) cannot be separated into particular or component parts. Implementing the

interpretation in Progressive Homes , an insured might reasonably argue for example, that improperly installed slate tiles under a roofing contract are a “particular part” of the building’s construction so that the insurance would cover all repairs to the collapsed building except the defective roof.

What KPCL is attempting to argue is that even the defective roof should be covered because the installation of each individual package of slate tile was a particular part of its work and the roof collapsed only after the last package of slate tile was installed. [ 80 ] Dividing indistinguishable, identical repetitive works into separate component parts (whether the last tile on a roof or the last fill on an embankment) defies a reasonable

interpretation of the exclusion clause. KPCL’s Reliance on “at the time of the damage” [ 81 ] Exclusion 8(c)(

i) excludes insurance coverage if KPCL was performing operations “at the time of the damage” to property. KPCL, at para. 81 of its brief, relies on the absence of any operations at the time of the embankment failure to restrict the exclusion: 81. Secondly, the first sub-exclusion is limited to that “ particular part ” of the property upon which operations are being performed by the Insured at the time of the damage .

As per the pleadings, no operations were being performed by KPCL at the time of the Foundation and Embankment Failure, which occurred before the start of work on 5 December 2015. [Emphasis in original] [ 82 ] Para. 50 of CP’s claim states that on December 5, 2015, CP personnel arrived at the site at approximately 7:00 a.m. and discovered that the embankment had dropped by several meters and continued to drop through the day.

The failure was “sudden and progressive, with the berm failing first, followed immediately by the core of the Embankment.” [ 83 ] I see nothing in the pleadings that specifically state that no personnel were at the site “before the start of work on 5 December 2015.” But, even accepting that the pleadings imply that KPCL was not on site or working at 7:00 a.m., little turns on such a fine point.

I agree with the cases that Lloyd’s has previously cited including Advance Electric where the court stated that construing the exclusion so narrowly that it applies only at the instant an insured is intentionally touching the property would read the exclusion out of the policy. Damages Occurred Due to Other Persons’ Failures [ 84 ] KPCL states at paras. 29 and 86 of its brief of law that damage occurred due to Clifton’s and other consultants’ failure to adequately observe concerns raised in the monitoring equipment and advise KPCL to adjust its construction accordingly.

This failure, KPCL argues, is not part of its work and should not be excluded under the insurance coverage.

[ 85 ] I agree that the pleadings claim against several other defendants.

However, CP’s statement of claim, at para. 33, states that “KPCL was responsible for construction of the…Project...as well as…overseeing the work of other construction contractors working on the…Project” and, at para. 98, states that KPCL “was to be responsible for all aspects of construction, project management, safety, traffic management, testing and commissioning” and, at para. 102, states that “KPCL was responsible for providing the services necessary to complete the KPCL Work to the satisfaction of CP [and]…was required to protect the KPCL Work from damage and was responsible for damage arising as a result of the operations” and, at para. 103, states that “KPCL controlled the KPCL Work and was responsible for determining the most effective and appropriate construction methods for the KPCL Work, including for the construction of the Embankment.” These claims in the CP Action show that KPCL’s obligation to CP was as a general contractor, responsible for the completion of the project. [ 86 ] Not only do the pleadings fail to support KPCL’s claim that other persons’ work, not its own, were the cause of the embankment failure, the exclusion quite plainly includes the work of such other persons.

Clause 8(c)(

i) excludes from coverage “operations…performed by or on behalf of the Insured.” [ 87 ] I might have found differently if the operations excluded were only those “performed by the Insured.” In Progressive Homes Justice Rothstein found two iterations of the exclusion clauses in the successive policies. The first excluded “property damage to work performed by or on behalf of the Named Insured,” similar to the clause at hand. However, the second iteration (clause Z) excluded “property damage to work performed by the Named Insured.” He wrote at para. 56: [56] The clause (

Z) exclusion is limited to work performed by the insured. Unlike the clause that it replaced, it does not apply to work performed on behalf of the insured. The plain language is unambiguous and only excludes damage caused by Progressive to its own completed work.

It does not exclude property damage: • that is caused by the subcontractor’s work; • to the subcontractor’s work, regardless of whether the damage is caused by the subcontractor itself, another subcontractor, or the insured. [Emphasis in the original] [ 88 ] In this application the result of the distinction drawn by Justice Rothstein works in reverse to the result in Progressive Homes . In this instance, the exclusion specifically covers operations done on behalf of KPCL.

Accordingly, because the pleadings clearly state that KPCL was responsible for the completion of the entire project, including the operations of others, and because the exclusion clearly covers the operations done on behalf of KPCL, the court cannot accept KPCL’s position that it has coverage under the Policy. The Effect of Endorsement 22 [ 89 ] In the tiered analysis of interpreting an insurance policy, the court must determine if initial coverage for loss or damage, although excluded by an exclusion, is re-incorporated into the initial coverage by an exemption to the exclusion.

KPCL asserts that Endorsement 22 has this effect because it expressly states that the policy “is amended in that Exclusion 8 shall not apply to Property Damage to the principals [ sic ] existing surrounding property, not forming part of the project works.” KPCL states at para. 83 of its brief of law that any damage to the “pre-existing foundation soils underneath KPCL’s Work” was “surrounding property” that belonged to CP.

Accordingly, to the extent that the CP Action seeks damages for having to repair the pre-existing foundation soils, KPCL asserts Endorsement 22 restricts the application of Exclusion 8 and brings the claim for the damage to the foundation soils into coverage. [ 90 ] The pleadings allege damage to the foundation soils.

At para. 55 of the statement of claim, CP states “the foundational soils in the areas were weakened significantly by the Embankment Failure [and] CP was required to redesign the Embankment so that it could be safely constructed on the newly weakened soils.” [ 91 ] Lloyd’s does not disagree that the foundation soils were and remain the property of CP.

However, Lloyd’s states that damage to the foundation soils is not part of the exemption in Endorsement 22 because, far from “not forming part of the project works” (as the endorsement requires), the foundation soils were an integral part of the construction of the embankment. [ 92 ] Again, I agree with Lloyd’s position. Not only were the foundation soils an integral part of the embankment, CP’s claim states that KPCL was responsible “for all aspects of construction, project management and safety, as well as supervision of the construction contractors on Belle Plaine Project” (para. 101).

Part of that responsibility was to “monitor the stability of the… underlying foundation soils” (para. 38) and to measure the “pore water pressure in the foundation soils and the Embankment fill” (para. 39).

The integral nature of the foundation soils to the Project and the need to continually monitor the soil’s response to additional layers of fill is an often repeated theme in the claim: “there was a clay layer in the foundation soils that was not adequately draining and which was contributing to the pore water pressure concern and that a weak layer such as this could cause instability.” (para. 44) [ 93 ] Furthermore, to suggest that the foundation soils were not part of the project works does not accord with the definition of “Project Insured” found in the Policy.

The project was described as the construction “for the new Belle Plaine Railway Spur from the existing Kalium Spur to the proposed K+ S Potash mine...” To suggest that the foundation soils under the embankment were not part of the Project does not accord with the definition of the “Project Insured.” [ 94 ] Lloyd’s not only suggests that Endorsement 22 is much narrower than KPCL suggests, but that Exclusion 8 explicitly states that coverage is not extended to “loss of use of…property upon which operations are being performed…” [emphasis added].

Lloyd’s takes a literal view of the preposition “upon,” as in the embankment was built “on top of” the foundation soils. I am not convinced that “upon” as used in Exclusion 8 was meant to have such a literal

interpretation.

[ 95 ] I might add that Endorsement 22 is not without potential application, if the appropriate loss had arisen to property not “part of the project works.” An example in which an exemption clause such as Endorsement 22 would aptly apply would arguably arise if the embankment collapse had damaged nearby equipment belonging to CP and not involved in construction of the Project. [ 96 ] In conclusion, I cannot accept, as KPCL suggests, that the foundation soils did not form part of the Project. The pleadings emphatically state otherwise.

CP claims damages for loss of the use of the foundation soils and alleges that KPCL was responsible for the monitoring of the foundation soils. BAR Policy or Wrap-Up Policy [ 97 ] Although Lloyd’s asserts that KPCL fundamentally erred by failing to purchase a BAR policy instead of a Wrap-Up policy, I have not anchored this decision on nomenclature of a policy. Progressive Homes makes clear that the court must interpret the unique wording of a policy to divine its meaning. Substance, not form, of the Policy has led to the conclusions I have reached.

CONCLUSION [ 98 ] Given the above analysis, I find that Lloyd’s does not have a duty to defend the CP Action. [ 99 ] Costs in favour of Lloyd’s shall be costs in accordance with the tariff of costs. J. D.H. LAYH