Durham (Municipality) v. General Accident Assurance Company of Canada

Durham (Municipality) v. General Accident Assurance Company of Canada Collection Decisions of the Court of Appeal Date 1999-09-14 Docket numbers C30705 Judges Goudge, Stephen Thomas; Borins, Stephen; MacPherson, James C. Subject Civil Decision Content DATE: 19990914 DOCKET: C30705 COURT OF APPEAL FOR ONTARIO GOUDGE, BORINS and MacPHERSON JJ.A. BETWEEN: ) ) THE REGIONAL MUNICIPALITY ) Hillel David, OF DURHAM ) for the appellant ) Applicant ) (Appellant) ) ) Barry Marta and - and - ) Hans Engel, ) for the respondent GENERAL ACCIDENT ASSURANCE ) COMPANY OF CANADA ) ) Respondent ) (Respondent) ) Heard: August 12, 1999 ) ) On appeal from the judgment of Mr. Justice Lissaman dated September 16, 1998 GOUDGE J.A.: [1] The only issue on this appeal is whether the respondent insurer is obliged to defend the appellant Municipality in an action claiming that the appellant breached its duty of care in administering the tendering process for construction of a sewage pumping station in the municipality. [2] On September 16, 1998, Lissaman J. answered this question in the negative, finding that this claim is within the exclusion clause of the insurance policy as a claim "arising out of tenders for contracts". For the reasons that follow, I agree. [3] The insurance policy in this case insures the appellant Durham for any compensatory damages it is obliged to pay because of liability imposed upon it by a court because of a wrongful act. "Wrongful act" is defined to include any breach of duty by Durham or its employees. It is agreed that the claim in this action brought against Durham comes within this coverage. [4] The duty of the respondent to defend is set out in the following terms: To defend in the name and on behalf of, any Corporation or person insured by this policy and at the cost of the Insurer, that part of any civil action claiming compensatory damages covered by this policy, even if any of the allegations in the action are groundless, frivolous, false or fraudulent; [5] In declining to provide a defence, the insurer relied on the exclusion clause relating to claims arising out of tenders for contracts. The clause containing this exclusion reads in full as follows: Nor does this policy apply to: 6. Any claim arising out of: (i) the liability of others assumed by the Insured(s) under the terms of an agreement orally or in writing; (ii) a breach of contract; (iii) negotiation for a contract; (iv) tenders for contracts; (v) the selection and/or the awarding of a contract; (vi) the failure to proceed with a contract. [6] The action that the respondent declined to defend on behalf of the appellant was commenced by Ontario Electrical Construction Company Limited ("Ontario Electrical"), an electrical contractor. The defendants were Durham and Sutherland-Schultz Inc., a general contractor. [7] The facts pleaded in the claim that are relevant to this appeal are as follows: [8] In May of 1996, Durham called for tenders from contractors and sub-contractors for the construction of a sewage pumping station. Durham stipulated that tenders for the electrical work were to be submitted through the Durham Bid Depository. It further stipulated that the tender process was to be conducted in accordance with the provisions of the Ontario Bid Depository Standard Rules and Procedures. [9] Sutherland-Schultz tendered a bid for the general contract and Ontario Electrical tendered a bid for the electrical sub- contract. Both turned out to be the lowest bids respectively. Sometime thereafter Sutherland-Schultz requested that Durham allow it to breach its bid contract with Ontario Electrical and use its own forces to perform the electrical work on the project. Durham consented to this and as a result Ontario Electrical was not awarded the electrical sub-contract with the general contractor. [10] The claim against Durham is set out in the statement of claim in these terms: Durham as the tender calling authority has a duty to enforce the Rules and Regulation of the Ontario Bid Depository Standard Rules and Procedures. Durham had a duty of care to ensure that all subcontractors who submitted bids to the Durham Bid Depository on the Carruthers Creek Project were treated fairly and in accordance with the good faith principle. In discharging its duty as the tender calling authority, Durham owed a duty of care to Ontario Electrical as a participating electrical subcontractor in the tender process. Ontario Electrical was in sufficiently close proximity to Durham such that Ontario Electrical was in Durham's contemplation as likely to be injured by any breach [of] its duty of care. In allowing Sutherland-Schultz to substitute its own forces for Ontario Electrical's force, Durham breached its duty of care as the tender calling authority. Additionally, Durham owed a duty of good faith to Ontario Electrical to ensure as tender calling authority that Sutherland- Schultz entered into the electrical subcontract with Ontario Electrical for the Carruthers Creek Project. By acquiescing in Sutherland- Schultz's high-handed and blatant disregard for the rights of Ontario Electrical and for the propriety of the tender process, Durham breached its duty of care to protect Ontario Electrical's rights. Durham's failure to require Sutherland-Schultz to award the electrical subcontract to Ontario Electrical has deprived Ontario Electrical of its rightful and reasonable expectation arising out of Ontario Electrical's participation in the Durham Bid Depository, namely, being awarded the subcontract for the electrical portion of the Carruthers Creek Project. Durham, as the tender calling authority, has the responsibility to ensure the integrity of the Bid Depository System and to ensure that any contract it entered into arising out of its use of the Bid Depository System has complied with Ontario Bid Depository Standard Rules and Procedures and has been entered into in good faith. [11] The appellant says that this claim does not come within the exclusion clause of the policy and that the respondent is therefore obliged to provide it with a defence. It argues that the exclusion clause is ambiguous in that "any claim arising out of tenders for contracts" could encompass claims arising directly or indirectly out of such tenders, or it could be limited to claims that arise directly from those tenders. [12] Using the contra proferentem rule buttressed by the principle that exclusion clauses should be construed narrowly, the appellant urges that this exclusion be limited to claims arising directly out of tenders for contracts. [13] It then argues that the exclusion thus narrowed means that it applies only to tenders for contracts made by the insured Durham. Because the tender by Ontario Electrical was for a contract with the general contractor, Sutherland-Schultz, this claim does not come within this exclusion. [14] In my view, it is unnecessary to determine whether this exclusion is ambiguous or indeed what its outer reaches are. [15] I say this because I think this claim is very clearly one arising directly out of Ontario Electrical's tender for contract. The claim asserts that Durham did not fulfill its legal obligations in running the tendering process. Those obligations are said to be owed by Durham to the tenderer, Ontario Electrical, qua tenderer. They only arise because of Ontario Electrical's tender for contract. The claim is for damages for wrongful acts done to a tenderer for contract. The linkage between the plaintiff's claim and the plaintiff's tender for contract could not be more direct. [16] Moreover, there is no basis for limiting this exclusion to tenders for contracts with Durham. Firstly, the language of the exclusion clause does not have this limitation. Secondly, to limit the exclusion in this way would be redundant and unnecessary, given the exclusions for breach of contract, negotiation of a contract, and the awarding of a contract. The exclusion covers tenders for contract, whether with Durham or others, where Durham has a legal duty to the tenderer qua tenderer which is breached. [17] In summary, this claim is within the exclusion clause. Hence, the insurer has no obligation to provide a defence. [18] The appeal must be dismissed with costs. RELEASED: September 14, 1999 “S.T. Goudge J.A.” “I agree S. Borins J.A.” “I agree J.C. MacPherson J.A.”