On insurance clauses and the (un)reasonable inference of the assumption of risks – Real estate and construction

Canada: On insurance clauses and the (un)reasonable inference of assumption of risk

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In Capital Sewer Servicing Inc v Crosslinx Transit Solutions Constructors,1 the Ontario Court of Appeal confirmed that insurance clauses do not mean, in law, that the covenant agrees to assume the insured risk. Instead, the contractual relationship must be assessed in the usual way, the commitment to insure being only one of its incidents. The decision serves to remind contracting parties that deductions arising from the agreements must be considered in the light of the express provisions and the circumstances.

Capital Sewer Servicing Inc and Crosslinx Transit Solutions Constructors helped build a light rail transit line in Toronto. Crosslinx has subcontracted Capital to perform sewer lining work (the “Subcontract”). When two residents sued Capital and Crosslinx for property damage following a sewer back-up, both parties filed motions to interpret their contract and determine the liable party.

The subcontract included conditions on this issue in favor of both parties. There was a broad indemnity in favor of Crosslinx, but the subcontract also incorporated, by reference, an undertaking to maintain the assurance of project closure of the agreement between Crosslinx and the prime contractor for the project (the “construction contract”). Under this policy, all subcontractors had to be insured. Capital argued that such a clause amounted to an assumption of the insured risk.

The application judge and the Court of Appeal disagreed. In the appeal decision, Justice Doherty recognized that a promise to insure against a certain risk typically indicate that the promisor has agreed to be responsible for any damages, should the risk arise. Although this is generally the case, it is not
always the case. Whether this inference can be drawn depends on an examination of the entire contract and the factual context.

The subcontract favored the interpretation of Crosslinx. For example, Justice Doherty considered a clause stating that Crosslinx would not incur any liability or obligation under the subcontract without recourse against Capital. In addition, the terms of the construction contract applied with the modifications necessary to give full effect to the intention of the parties under the subcontract. Another provision gave the subcontract priority over the construction contract in the event of conflict or ambiguity. Capital’s reliance on the construction contract, including the insurance clauses, was therefore limited.

The main thing to remember from this decision is that a commitment by a party to take out insurance does not necessarily mean that the party assumes the risks insured. A party wishing to deviate from such assumptions should include, in Justice Doherty’s words, “strongly worded” indemnification clauses in the contract. Both courts confirmed that deductions alone go no further, as courts will assess contracts in their entirety.


Capital Sewer Servicing Inc v Crosslinx Transit Solutions Constructors2022 ONCA 10.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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