Indexed as:

Collavino Inc. v. Employers Mutual Liability Insurance Co. of

 Wisconsin

Between

Collavino Incorporated, plaintiff, and

Employers Mutual Liability Insurance Company of Wisconsin,

defendant

[1984] O.J. No. 1011

5 C.C.L.I. 94

7 C.L.R. 165

26 A.C.W.S. (2d) 197

 Ontario Supreme Court - High Court of Justice

 Windsor, Ontario

R.E. Holland J.

Heard: January 20, 23, 24, 1984.

 Judgment: January 24, 1984.

(22 pp.)

Counsel:

L. Paroian, Q.C. and R.G. Colautti, for the plaintiff.

R.G. Chapman and W. Kumberg, for the defendant.

1 R.E. HOLLAND J.:-- In the Spring of 1979 a temporary construction trestle on the North West River in Labrador was damaged by ice. This action is brought by the contractor who built the trestle against its own insurer under an All Risk policy of insurance to recover for the damage to the trestle. it is agreed that the damage, less deductible of $5,000.00, was $54,230.50, and it is also agreed that should Judgment go in favour of the plaintiff, the Judgment will carry interest at 12% from May 6, 1979.

2     At the conclusion of the plaintiff's case, the defendant elected to call no evidence and moved for Judgment dismissing the action.

3     There are two defences: (1) that the loss is excluded because it resulted from "error, omission or deficiency in design"; and (2) that the action, not having been commenced within 12 months of the loss, is barred by the provisions of the policy.

4     The plaintiff, Collavino incorporated (Collavino) is a General Contractor and carries on business in Canada and other parts of the world. It entered into a contract in June of 1978 with the Department of Transportation and Communications of the Province of Newfoundland to build a bridge across the North West River in Labrador. In order to facilitate the construction of the bridge, it was necessary to build a trestle across the river. By the time work stopped in 1978, the trestle had been built part way across the river from the south shore. The river runs east and west at this point with the current running from west to east. The area of construction is, to a small extent, affected by tide. The river at its deepest point was about 25 feet deep. The trestle was built with steel piles and wood timbers on top. The purpose was to carry workmen, material and cranes.

5     The trestle was designed by D. Law, a Consulting Engineer. His design was submitted to Fenco Consultants Ltd., the consulting engineers on the project. Fenco returned the plans for the trestle with a transmittal note dated August 22, 1978, appearing at page 143 of Exhibit 1, marked "Reviewed. Resubmit. Reviewed. Rejected." The reasons for the rejection appear at page 173 of Exhibit 1 and include, "investigation of piles for ice pressure is required."

6     Construction of the trestle had already started when the transmittal note was received from Fenco. The plans were not changed and there is no evidence that any investigation for ice pressure was carried out.

7     Work resumed on the trestle in April of 1979. Some minor repairs were made to the trestle. Some joints were rewelded and some of the timbers were nailed down.

8     The ice in the river and from the lakes above started to go out in the first week of May. The current was estimated by the construction superintendent at between 12 and 18 feet per second rather than the 6 feet per second which was the reported speed on September 17, 1977, referred to in the Soils Report (Exhibit 1 at pages 9 and 26). Large pans of ice came down river estimated by the Construction Superintendent at 4 to 7 feet in thickness and 100 to 200 feet in length. He said that a large pan of ice came down and dented one of the northern-most piles. As more ice came down the piles bent further until the timbers on the north-west corner of the trestle were submerged. Some of the timbers were torn away by the force of the ice and water. The break-up lasted for a week or two and the damage occurred over a day or two.

9     In the Spring and Summer of 1979, the trestle was rebuilt and continued across the whole width of the river. The distance between the piles was lengthened and some extra piling was installed up river of the piles holding the trestle with angle irons to break up the ice before the ice hit the weight bearing piles of the trestle. In addition, a crane was used at break-up time to break up the ice before it struck the piles holding up the trestle. There was no ice damage in 1980.

10     Was the damage caused by a design defect? The policy reads, in part, as follows:

"	THIS POLICY INSURES AGAINST:

All risks of direct physical loss of or damage to the property covered, except as provided elsewhere in this policy.

THIS POLICY DOES NOT INSURE LOSS, DAMAGE OR EXPENSE CAUSED BY OR RESULTING FROM ...

(f) Error, omission or deficiency in design, specifications or materials ... "

11     The burden is on the insurer to bring the loss within the exception. The damage was caused by ice flowing at a high velocity with the current striking the trestle. From the happening of the damage it appears to me that the trestle was not designed to withstand the Spring break-up of ice. With some changes made it withstood the break-up the following year. There is no evidence that the break-up in 1979 was in any way unusual.

12     The following question and answer on the Examination for Discovery of an officer of the plaintiff company is revealing:

"Q. 160.

And do you have any knowledge, information or belief that Mr. Law, when he prepared the design drawing for the trestle, took the ice factors into consideration?"

"A.	I'm sure he didn't take any ice factors into consideration because to my knowledge he wouldn't have had any information with respect to ice forces."

13     In Queensland Government Railways and Electric Power Transmission Pty, Ltd. v. Manufacturers' Mutual insurance Ltd. (1969) L.L.R. 214: A similar clause in a policy of insurance was dealt with by the Australian High Court. The headnote reads as follows:

"

Railway bridge in Australia was being constructed by E. P. T. for Q. G. R. (railway authority) to replace bridge built in 1897 which had been swept away by flood waters. Prismatic piers (similar to original piers but strengthened) were being erected when they were overturned by flood waters after exceptionally heavy rains. E.P.T. and Q.G.R. claimed to be indemnified by insurers under Contractors All Risks Policy, which provided (inter alia):

... this insurance shall not apply to or include: ...

(vii) cost of making good faulty workmanship or construction ...

(xi) loss or damage arising from faulty design and liabilities resulting therefrom.

Insurers denied liability contending that loss was due to faulty design of piers. Arbitrator found that, in state of engineering knowledge at that time, design of new piers was satisfactory but that investigations into cause of failure of piers showed that during floods piers were subjected to greater transverse forces than had been realized. Arbitrator held that loss was not due to faulty design, in that "faulty design" meant that "in the designing of the piers there was some element of personal failure or non-compliance with the standards which would be expected of designing engineers"; and that, therefore, the insurers were liable. On application by insurers to have award set aside or remitted on ground that arbitrator misconstrued "faulty design" Supreme Court of Queens land held that, in the context, "faulty design" implied some element of blameworthiness or negligence which had been negatived by arbitrator's findings; that subsequently acquired knowledge, revealing that piers were not strong enough, could not convert design, which would at the time have been accepted by responsible and competent engineers, into a "faulty design" and that, therefore, insurers were liable. On insurers' appeal to High Court of Australia, assured further contended that award was unimpeachable in that (i) arbitrator's reasons did not form part of award; and (ii) question of construction of policy was referred to arbitrator.

Held, ...

(2) that loss was due to faulty design, and it was erroneous to confine faulty design to personal failure or non-compliance with standards which would be expected of designing engineers."

At page 217, Chief Justice Barwick said this:

To design something that will not work simply because at the time of its designing insufficient is known about the problems involved and their solution to achieve a successful outcome is a common enough instance of faulty design."

14     This decision was followed in Canada in Simcoe & Erie General insurance Company v. Willowbrook Homes (1964) Ltd., 1980, C.I.L.R.876. The headnote reads, in part, as follows:

"

The insurer appealed a judgment that ordered it to indemnify the insured for losses suffered at its construction site. High winds blew the concrete walls of the buildings down. The insured was awarded damages under the policy of risk insurance maintained on the property. The insurer claimed the losses suffered were in the excluded perils listed in the policy. Specifically the insurer contended that the walls collapsed because of either faulty workmanship or faulty design. The insurer argued that the walls collapsed during construction because of a failure of the builders to adequately brace the walls. The insured contended that the walls were adequately designed and built ...

The walls collapsed due to the high winds around the construction site. This collapse was the result of the faulty bracing of the walls. The court held that it did not have to consider the standards being used by other contractors, but simply had to examine the evidence respecting this particular project. Analysing the evidence, it came to the conclusion that the design of the bracing was not adequate. It was not necessary to assess blame in order to reach a conclusion that the design was not adequate. As the design did not take into account the effect of the high winds on the walls during the construction period, the walls design was faulty or inadequate."

15     At page 82, Mr. Justice McDermid said this:

Thirdly I think it is very telling against the adequacy of the bracing used that subsequent to the walls falling down the amount of bracing used was doubled which, according to Ledi and Rodway, was what it should have been when the walls did collapse.

I would find that the bracing used was not reasonably adequate and there for the design was faulty and fell within an exception in the policy and the Insurance Company was not liable for the loss."

16     Having come to the conclusion that the loss falls within the exception, the action will be dismissed. However, I intend also to deal with the limitation defence.

17     The policy requires that any action be brought within 12 months of the loss. This was not done. The plaintiff pleads that the insurer is precluded from relying on the limitation period by reason of the doctrine of promissory estoppel. Certain sections of The insurance Act, R. S.O. 1980, Chapter 218, are important. Section 108 reads as follows:

"	(1) No term or condition of a contract shall be deemed to be waived by the insurer in whole or in part unless the waiver is stated in writing and signed by a person authorized for that purpose by the insurer.

(2) Neither the insurer nor the insured shall be deemed to have waived any term or condition of a contract by any act relating to the appraisal of the amount of loss or to the delivery and completion of proofs or to the investigation, or adjustment of any claim under the contract.

S. 112.

(1) An insurer, immediately upon receipt of a request, and in any event not later than sixty days after receipt of notice of loss, shall furnish to the insured or person to whom the insurance money is payable forms upon which to make the proof of loss required under the contract.

(2) An insurer who neglects or refuses to comply with subsection (1) is guilty of an offence, and in addition section 113 is not available to the insurer as a defence to an action brought, after such neglect or refusal, for the recovery of moneys alleged to be payable under the contract of insurance.

(3) The furnishing by an insurer of forms to make proof of loss shall not be taken to constitute an admission by the insurer that a valid contract is in force or that the loss in question falls within the insurance provided by the contract.

S. 113.

No action shall be brought for the recovery of money payable under a contract of insurance until the expiration of sixty days after proof, in accordance with the provisions of the contract,

(a) of the loss; or

(b) of the happening of the event upon which the insurance money is to become payable, or of such shorter period as is fixed by the contract of insurance."

18     No proofs of loss were furnished by the insurer until after the expiration of the limitation period.

19     All this means is that Section 113 is not available to the insured as a defence. By reason of Section 108 the insured cannot rely on waiver as a defence. It can still rely on promissory estoppel. See: Brown and Menzies Insurance Law of Canada (1982) page 302.

20     Promissory estoppel can prevent the insurer from relying on a limitation period where there has been either (1) an admission of liability or (2) a promise not to rely on the limitation period relied on by the insured. There is no evidence of an express promise not to rely on the limitation period.

21     Is there any evidence of an express or implied admission of liability or of an implied promise not to rely on the limitation period? Before the principle applies there must be some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced. See: John Burrows Ltd. v. Subsurface Surveys Ltd. et al. 68 D.L.R. (2d) 354.

22     What representations were made by or on behalf of the insurer to the insured? Correspondence appears in Exhibit 1. First is a letter of August 10, 1979, from Underwriters Adjustment Bureau, insurance Adjusters, appointed by the insurer to the plaintiff.

"	Further to my recent telephone discussion, it would be appreciated if you could arrange to contact the writer so that we might discuss the cost of the remedial work carried out at the site during the past short while.

It was the writer's understanding that we would be notified before this work commenced and be provided with preliminary estimates, and we regret that this procedure was not followed."

23     Next, is another letter from the adjusters to the plaintiff, dated October 31, 1979:

"	We attach for your file a copy of the time, material and equipment authorized during the repair period from June 18th until June 27th at the site near Goose Bay, Labrador.

We regret that we were unable to meet with Mr. Bortolin, your Project Engineer, due to circumstances beyond our control.

We understand that the time and equipment rental charges will be prices and that copies of the complete claim will be made available for auditing at any early date and your assistance in this regard would be appreciated.

During our visit to Newfoundland, we had several discussions with the supervising engineers, Golders & Associates, and we would like, if possible,your clarification regarding the project.

Could you advise whether or not there were any substantial changes in design or construction specifications which would have any effect in changing the critical path and/or original cost projections.

The original construction detail indicated that the trestle would be in place perhaps during the early Spring of 1980 and should this be the case, the exposure to a similar occurrence would exist with a potential of a loss considerably greater than the one under present deliberation.

I feel that we should be in a position to report to our principles what the construction plans are so that they could properly analyse the exposure at risk, particularly during the Winter of '79 and early spring months of 1980.

At this time, we are doing our utmost to arrange a personal meeting with Mr. Bortolin; However, we felt we should write you on the subject and supply you with some of the material we have accumulated in regards to the repair costs."

24     There is a letter to the plaintiff from the adjusters dated November 27, 1979:

"	Enclosed for your review is the cost breakdown of time and materials spend to reconstruct the portion of the temporary trestle which was damaged by ice floes during the thaw of 1979. Labour and equipment rates are based on a cost including overhead and materials are inclusive of shipping costs.

In response to your query concerning prevention of the damage reoccurring, it is our intention to either remove or protect the trestle by means of piled protection barriers prior to the thaw of 1980.

Please contact the undersigned should you have any questions regarding the enclosed."

25     There is a letter to the plaintiff from the adjusters, dated December 3, 1979:

"	We thank you for your correspondence of November 27th; however, we have some difficulty in relating the materials and equipment rentals with our original loss calculations.

We understand that Mr. Reno Bortolin will be in Sackville, Nova Scotia area on Monday, December 10th and we are forwarding a copy of this correspondence to Mr. Bortolin with the request that he contact the writer and we trust that at that time, we will be in a position to discuss and perhaps bring those outstanding claims to a conclusion."

26     There is a letter from the adjuster to the plaintiff, dated December 12, 1979;

"	We have just had a meeting with Mr. Bortolin and discussed the claim in general with one of your colleagues in Windsor.

First, dealing with the direct damage, the material and labour charges have been dealt with with Mr. Bortolin and at the present moment, the claim appears to stand at $59,230.50 subject to appropriate deductibles.

I believe that you may be of some assistance in clarifying some of the contractual arrangements you have with the Department of Transport and Commerce for the Province of Newfoundland and we would appreciate it if you could supply us with the following documentation

1) Copy of the General Conditions relating to the job tender or contract document as it relates to performance and insurance.

2) Any documents or correspondence relating to deliberations concerning pre-engineering studies and/or resulting construction problems arising out of same.

As an example, we are advised that the soil engineers, Nolan White & Associates may have failed to provide accurate information relating to the maximum water rate at the site, suggesting the maximum of 6' per second, whereas at the time of the casualty, it may have been as high as 12.

We understand that you may have had some discussions with Fenco regarding the lack of detail or correctness in the soil and site testing on which your contract was based and that there may be a breach of contact.

As you are no doubt aware, any monies paid out by your insurers are subject to subrogation rights if grounds are available.

Immediately following the casualty, we were informed that Golder & Associates were investigating on your behalf and we would appreciate it if you could advise us whether or not you intend to have the contract re-negotiated to recover extra and additional expenses incurred as a result of the lack of pre-construction information.

As aforestated, we are prepared to recommend a settlement based on the present claim detail. However, before proceeding further, we feel that we must inform our principals as to the circumstances regarding the above subject matter."

27     There is a letter marked "Without Prejudice" from the plaintiff to the adjusters, dated January 14, 1980:

"	As requested in your letter of December 12, 1979, we are enclosing a copy of the contract for the above-captioned project.

With respect to your queries concerning technical data relating to the soils and current velocities we can only offer the following:

After the results of a pile load test carried out in the Fall of 1978 the owner incorporated major changes in the design of the piled foundations for the piers and the north abutment. This would seem to indicate that the soils conditions encountered were inconsistent with those shown in the report prepared by their soils consultant.

Concerning the flow velocities we are enclosing a copy of the report obtained by Golder & Associates acting on our behalf.

Regarding your mention of a breach of contract or a re-negotiation of same, we can advise that the work is proceeding under the original contract. We have also informed the Owner of our intention to claim for all extras due us because of, the changes to the contract. We hope the preceding is the information you require and trust that any further action you might take will not delay payment of the claim for our loss.

Thank you for your co-operation."

28     A Professor Rottenberg, a Professional Engineer, was retained about February 3, 1980, by the insurer, and the insurance brokers for the plaintiff wrote to the plaintiff on February 11, 1980, as follows:

"	As you are aware a major loss occurred May 4th-5th, 1979 as a result of ice buildup.

After investigations have been made it has become apparent the location of the bridge itself dictates the same occurrence will take place any number of times in the future.

The insurer has taken the stand the peril of "ice" is no longer an unforseen fortuitous event but is in reality an inevitable circumstance. With this they require to delete this particular peril from the contract.

I can understand their point of view as this is not within the meaning of insurance. My suggestion is the government be written by Collavino outlining the stand and undoubtedly since the government did the engineering as to the placement of the structure they should then accept this particular responsibility on their own account.

I would appreciate hearing from you as soon as possible."

29     On March 17, 1980, the insurance broker for the plaintiff wrote to the plaintiff as follows:

"	I refer to my letter of February 11th and our subsequent conversations.

Enclosed is a survey completed for the insurer by S. Rottenberg, P. Eng. which is self-explanatory. The engineer is of a mind ice will damage the temporary trestle again this year.

Employers have requested the peril of ice be deleted. An endorsement is attached for your signature. The premium credit will be forwarded separately. Please return the endorsement signed where indicated by March 26, 1980.

I suggest your course of action should be as outlined in my letter of February 11, 1980."

30     On April 23, 1980, Mr. Rottenberg, the engineer, wrote to the plaintiff as follows:

"	We have completed our investigation of the damage to the trestle on May 6th, 1979.

In our opinion the end of the trestle, protruding in the river, was damaged by an ice floe. The ice floe likely hit the end pile and bent support sideways or obliquely. The impact force damaged the piles."

31     There is no further correspondence and no evidence of any discussions between the parties prior to the expiration of the limitation period. I can see no implied promise not to rely on the limitation period in the correspondence that I have reviewed.

32     Was there an express or implied admission of liability? The closest thing to any express or implied admission of liability is the letter of December 12, 1979, and in my view this letter does not go far enough. In any event the only evidence of reliance on any representation is that of the project coordinator who merely said that he thought there was no problem concerning coverage and that he thought the case would be settled or the claim would be settled.

33     The plaintiff employed an insurance manager. He was not called to testify and there is, to my mind, not sufficient evidence of reliance by the plaintiff on any conduct of the defendant or its adjusters to warrant any finding in favour of the plaintiff.

34     For all the above reasons the action will be dismissed with costs.

qp/s/afr