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Lawsuit of the week: Ahead of lengthy trial over alleged construction defects, companies behind downtown Vancouver’s Shangri-La tower haggle with

The group of companies behind the luxury Shangri-La tower in downtown Vancouver is taking XL Insurance Company Ltd .
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Downtown Vancouver's Shangri-La tower | Chung Chow

The group of companies behind the luxury Shangri-La tower in downtown Vancouver is taking XL Insurance Company Ltd. to court, claiming the insurer is wrongfully holding out on providing defence costs related to multiple lawsuits over defects in the building.

In a petition filed in BC Supreme Court on July 11, the companies claim they’re facing five separate legal actions, including a class action, over alleged construction defects and home warranty breaches. The petitioners include KBK No. 11 Ventures Ltd., 1100 Georgia Partnership, Peterson Investment (Georgia) LP, Abbey Adelaide Holdings Inc., LJV Georgia Investments Inc., No. 274 Cathedral Ventures Ltd., Tidball Projects (2005) Ltd. and Ledcor Construction Ltd.

According to the petition, the lawsuits filed in November 2011 and December 2015 allege defects in the design and construction of the tower’s curtain wall system that cause the windows to “fog, crack, spontaneously shatter and are at risk of falling out of the building and causing bodily injury and property damage.” The plaintiffs in those cases are the strata plans for the residential and live/work portions of the building, and a numbered company that owns one of the residential strata lots. The actions are set to go to trial for 130 days in October 2022.

The companies claim XL Insurance issued a wrap-up insurance policy to cover any bodily injury, property damage or personal injury claims related to the building.

“The petitioners have demanded that the respondent fund 100 [per cent] of their defence costs in relation to the actions,” the petition states.

But while XL insurance has admitted that the lawsuits triggered the company’s duty to defend under the policy, it has denied that it has to cover the entire costs based on a “time on risk” calculation related to when the damage actually occurred.

“There is no practical means to readily distinguish when all the damage alleged by the plaintiffs in the actions occurred,” the petition states. “The alleged damage may have occurred entirely within the policy period, possibly starting at substantial completion.”

The companies seek an order for XL Insurance to fund their entire defence in the lawsuits, claiming that an order for only a portion of the costs would “deny the petitioners a substantial portion of the benefit of the [insurance] policy.”

While the petition’s factual basis has yet to be tested in court, XL Insurance Company scored a victory in BC Supreme Court in May 2022 in a similar dispute with Honeywell International. In that case, Honeywell sought coverage from XL under the building’s wrap-up policy as a named defendant in the defects lawsuits. Honeywell is the manufacturer of a moisture absorbing “desiccant” that was used in the building, but it unsuccessfully argued that it was covered under the policy as a manufacturer rather than a “mere supplier” of the allegedly defective desiccant.

But the court denied Honeywell’s claims because they did “not fit well with the ‘commercial atmosphere’ of a wrap-up liability policy as Honeywell was many steps removed in the supply chain and not involved in the project in any way.”