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OCA decision will have little impact on insurers' E&O coverage

Toronto litigator Natalie Leon says a recent Court of Appeal case, which dealt with the professional liability insurance coverage of an engineer, is limited in its scope and shouldn’t have an impact on the insurance companies involved or the wording of their policies.

In the matter of Hollowcore Incorporated v. Visocchi, 2016 ONCA 600 (CanLII), the appellants, professional engineer Michael Visocchi and his firm Visco Engineering Inc., were retained to prepare engineering drawings for an addition to a commercial parking garage by U.S.-based Prestressed Systems Inc. and Hollowcore Incorporated.

“The drawings had to be corrected and resubmitted multiple times, which delayed the completion of the project. Ultimately, the appellants simply withdrew from the project without completing their work,” the decision states.

PSI and Hollowcore brought an action against the appellants for damages, breach of contract, negligent performance of a service and negligent misrepresentation. The appellants added their insurers, who provided errors & omission (E&O) insurance, as third parties to the action.

At trial, Justice Mary Jo M. Nolan found Visco liable for breach of contract and both appellants liable in negligence, assessed the damages, and apportioned liability for the damages between the appellants and the insurers.

At appeal, the appellants argued the apportionment of liability for the damages and the insurers cross-appealed the assessment of damages and the exchange rate used by the trial judge to convert damages denominated in U.S. dollars.

At appeal, Justice Mary Lou Benotto for the three-judge panel allowed the appeal of Visco and Visocchi against the insurers and held that they are responsible for all the damages payable to Hollowcore and PSI under the trial judgment.

Leon, a partner with Forbes Chochla LLP, says the case raised concerns for insurers who issue E&O policies to engineers. Leon’s partner Morris Chochla acted for the insurers at trial and on appeal.

“The information we had and the evidence given at examinations was that some engineering drawings were simply not submitted without explanation,” she tells AdvocateDaily.com. “Some of the delays were because of errors — he had to keep resubmitting the drawings. But the evidence given at examinations and referred to by the trial judge was that some delay was caused by the engineer simply not doing the work that he contracted to do.

“As always, delays due to errors will be covered under the insurance policy, but there were quite a few drawings that were never started,” Leon adds.

Leon explains the E&O insurance covers negligence but not general delay unrelated to negligence.

“However, at appeal, the court only looked at what we already agreed was covered, which was the delay caused by negligence,” she says. “The Court of Appeal didn’t refer to the particular group of errors that were caused by unexplained delay. Because of that, this case is very limited to its facts. If a delay is caused by negligence, then it should be covered by the insurance policy with this type of wording. Our argument will still remain in other cases, that if the delay is not caused by negligence, but for personal reasons or some reason not covered by the policy, then it’s not covered.”

If a professional decides not to do the work they’ve undertaken to do, then it’s not considered an unforeseen circumstance and shouldn’t be covered by an insurance policy, Leon says.

“In light of this decision, we would still give the same advice to insurance companies as we always do — if your insured’s project has been delayed without any explanation or without any explanation related to what is covered under the policy, then you don’t have an obligation to cover it,” she says.

“This result shouldn’t have an impact on the long-term policy clause the insurers in this case have relied on for years,” Leon adds.

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