And the Winner is….

OTTAWA! Congratulations! All the hard work paid off. This success was well deserved.

Willem C. Vis Moot 2011 – Top 2 Teams

Ottawa and. Montevideo!!!!! Wow!!!

Willem C. Vis Moot – 2011 Pics

 

Some Memorable Moot Moments

 

 

William C. Vis Moot 2011 – Day Trips to Baden (Austria) & Bratislava (Slovakia)

One of the many great things about Europe is that there is no end of places to go and sites to see:

Baden is famous for its sulfuric hot springs. The air is infused with a sour sulfer smell, laced with the scent of sweet clover (odd but not unpleasant). This photo was taken in the hills behind the city.

Some billy goats having a tussle in Baaahhh-den.

 
 

Nick striking a pose

 

Bradislava is about 1.5 hours by train from Vienna. This picture was taken from a castle overlooking the historic city center.

 

Yet on the other side of the Danube, things are not as attractive. The Soviet influence is obvious.

 

The palace guards are wearing sunglasses!

 

Sitting on the patio at a great little restaurant hidden in the old city. The look I am giving the camera is one of someone who has had way too much to eat.

 

A view of Bradislavas historic city center.

 

 

This was an attempt at...some sort of artistic endeavor...not really sure that it succeeded but, hey, nothing ventured, nothing gained.

 

Willem C. Vis Moot 2011

Another year, another moot, another beauttiful spring in Vienna. This year’s dispute involves the sale of squid: a claimant made a purchase of squid from a respondent for the purpose of selling it for use as bait.  The squid was ‘unsized” and, consequently, was too small to be used for its intended purpose.  No doubt, the ‘in’ joke will be that “size does matter”. Arbitration is conducted under the Milan Rules; procedural issues pertain to the jurisdiction of the arbitral council to appointment of the arbitral chair and confidentiality.

Yes, we actually do read the memoranda in advance of the rounds.

Nick soaking up the sun and keeping me company while I prep for the Saturday round between San Paolo and Harvard.

Advocats - thats us!

 

We went to the Do & Co - a bar in the modern cylindrical building across from the Stephansdome. The view was incredible, and wasabi nuts are on the house, although I cant stand the things.

 

 

Evening at the Ost Club. Their version of "Smirnoff Ice" used to be "Eristoff Ice" but they have now moved to "Becks Ice". Not bad...for a girly drink.

 

The best Irish Pub in Vienna - "Bockshorn Irish Pub" (Viennas oldest Irish pub), located at Naglergasse 6, 1010 Vienna, Austria. If you happen to visit, say hi to Chris for us.

 

Thats me diligently reading memoranda at the Juridicum in the early morning hours in preparation for an 8.30 round. Good Pam.

Subrogation Against Subcontractors During the Course of Construction: Examining the “Unnamed Insured” Defence

A.        What is the “Unnamed Insured” Defence?

The “unnamed insured” defence is commonly asserted in subrogated actions brought with respect to builders risk policies. This defence arises from the fact that in Canada, builders’ risk policies tend to be treated as a unique species of insurance contract whose practical purpose can only be served if subcontractors are considered to be unnamed insureds.[1] Since an insurance company cannot bring a subrogated action against its own insureds, subcontractors are generally protected from subrogated actions.

In any construction project, there is always a risk that a subcontractor will damage the property of another or the construction project as a whole. Canadian courts regard the primary purpose of builders’ risk policies as being to ensure that funds are available for the completion of a construction, without the various sub-trades having to resort to protracted litigation in the event of negligence by anyone connected with the construction. In other words, the practical purpose of extending insurance to cover all the subcontractors who are working to complete the construction is that they are spared the necessity of fighting between themselves. Courts have held that this is a risk accepted by the insurers at the outset.[2] 

It is nevertheless incorrect to assume that all subcontractors will automatically obtain the status of unnamed insured under a builder’s risk policy. There are important exceptions to this rule. Subrogation professionals should be alert to the circumstances in which it may be possible to challenge the “unnamed insured” defence.

 

B.        When is a Subcontractor an Unnamed Insured?

Ultimately, the issue of whether subcontractors are included as insureds in a policy which does not expressly name them is one of contractual interpretation; courts will look at both the construction contract and the wording of the insurance policy in order to make this assessment. It is largely irrelevant whether a contractor has agreed to obtain the insurance for the benefit of the subcontractor. The intention of the contractor to insure the subcontractor under the builder’s risk policy is not determinative of how an insurance policy will be interpreted.[3] Rather, there are two features of builder’s risk policies that appear to give rise to the unnamed insured defence:  

 

i)          “Property Owned by Others”

 

Where an insurance policy insures an entire construction project, including “property owned by others,” Canadian courts have interpreted the policy as inferring that it actually insures parties other than just the named insureds.[4] In the context of construction contracts, subcontractors are seen as having such an “identity of interest” with the general contractor (in that it will stand to gain from the project’s existence and will lose from any damage to it), that they are considered unnamed insureds by necessary implication.[5] Thus, a subcontractor’s interest in the project may be considered insured even when he is not named as an insured on the policy and his interest is not disclosed.

In this regard, however, there has been an important new development. In May 2010, the B.C. Court opined, in Brookfield Homes v. Nova Plumbing,  that where property damage coverage for contractors and subcontractors is limited “to the extent of the Insured’s legal liability for insured physical loss or damage to such property”, the unnamed insured defence may not apply. In other words, where a subcontractor is insured only to the extent that the named insured is found legally liable for the loss or damage, it may be that a subcontractor cannot be regarded as an unnamed insured, even in the context of a builder’s risk policy.[6]

 

ii)         Waivers of Subrogation for any “interest with respect to which insurance is provided by this policy”

Where a policy provides that no subrogation lies against a “corporation, firm, individual, or other interest with respect to which insurance is provided by this policy”, courts have held that, having regard to the special nature of builder’s risk policies, judicial pronouncements on the commercial necessity for including subcontractors; and the language of the clause itself, subcontractors must be taken to be unnamed insureds by necessary implication.[7] Any doubt on this issue is resolved against the insurance company.[8]

C.        Two Case Examples

 

Below are two cases that illustrate the application of the above principles. In the first case, the subcontractor was considered to be an unnamed insured under the insurance policy. In the second case, on very similar facts, the defence was held not to apply.

i)          Janeland Developments Inc. v. Michelin Masonry Inc.[9]

A general contractor’s insurer brought a subrogated action against a defendant masonry subcontractor who negligently caused the collapse of a wall at a building project. The construction contract contained a hold harmless clause in favor of the home builder and required that the subcontractor was required to obtain its own comprehensive general liability insurance. There was no corresponding obligation on the general contractor to obtain insurance of any kind. The general contractor had obtained a “Builder’s Risk Broad Form” policy which contained the “Property Insured” and “Waiver of Subrogation” wording referred to above. On these facts, the Ontario Court found that the subcontractor was an unnamed insured under the policy:

  • The wording in the policy, in stating that it covered “property owned by others”, extended coverage to the masonry subcontractor as an unnamed insured.

 

  • The fact that the agreement for masonry services did not require the general contractor to insure the subcontractor was not sufficient to convince the court that the subcontractor was not intended to be an unnamed insured under the insurance policy.

 

  • The wording in the waiver of subrogation clause constituted a general waiver of all claims by the insurer against the subcontractor, who was an “interest with respect to which insurance is provided by this Form.”

 

  • Finding that the subcontractor was an unnamed insured was in keeping with the court’s desire to reduce the litigation which flowed from losses of this type. It also recognized the reality of complex industrial life and provided comfort and security to owners, builders and subcontractors involved in commercial projects. [10]

 

ii)         Brookfield Homes v. Nova Plumbing[11]

In this May 2010 decision, the ONtario Court was asked to decide whether a subrogated action could be brought by a home builder’s insurer against a plumbing contractor whose negligence with a welding torch caused fire damage to several homes under construction. The home builder had contracted the plumber to provide plumbing services for a new subdivision that was undergoing construction. As in Janeland, the contract contained a hold harmless clause in favor of the home builder and required the plumbing subcontractor to obtain liability insurance, and to waive the subrogation rights of its insurers against the home builder. There was no corresponding obligation on the part of the home builder to obtain insurance of any kind or provide any subrogation waivers.

Unlike in Janeland, however, the home builder argued that it did not take out “builder’s risk” policies on behalf of its contractors. Rather, it obtained “all perils” property insurance, and contractually required its contractors to take out liability insurance. The subcontractor described the policy as a builder’s risk policy. The Court, in finding that the subcontractor was not an unnamed insured, made the following findings:

  • The label of the policy, be it “builder’s risk”, “all-risks” or “all perils”, is not determinative. Rather, it is the policy language that matters.
  • In this case, the “property damage” coverage for contractors was explicitly limited, stating that the policy “also insures the interest of contractors and subcontractors…during construction of an insured location…to the extent of the insured’s legal liability for insured physical loss or damage to property”.  In other words, the subcontractor was insured only to the extent that the home builder was found legally liable for the loss or damage.
  • Although the Court’s decision did not set out the wording of the policy’s subrogation clause, the policy provided that the insurer’s right of subrogation was preserved and required the home builder to cooperate in any subrogation proceeding.
  • The Court concluded, based on the considerations set forth above, that both the construction agreement and the policy allocated the risk of loss caused by a contractor to the contractor, rather than the home builder. As such, the plumbing subcontractor could not be regarded as an unnamed insured.

 

Conclusion

Although subcontractors may often be regarded as unnamed insureds with respect to property policies that provide coverage for construction projects, this is not always the case. The issue of whether a subcontractor can rely on an “unnamed insured” defence to a subrogated action requires an analysis of both the construction contract and the policy in question. Significantly, as noted in the recent case of Brookfield Homes, a subcontractor may not be able to utilize this defence where the property coverage for subcontractors has been expressly limited to amounts for which the named insured is legally liable.


[1]               Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd., [1994] B.C.J. No. 468 at para. 6.  (B.C.C.A.) [“Sylvan”].

[2]               As stated by Grandpre J. in Commonwealth Construction Company v. Imperial Oil Limited, [1978] 1 S.C.R. 317 (S.C.C.), at p. 328:

“Whatever its label, its function is to provide the owner the promise that the contractors will have the funds to rebuild in case of loss and to the contractors the protection against the crippling cost of starting afresh in such an event, the whole without resort to litigation in case of negligence by anyone connected with the construction, a risk accepted by insurers at the outset. This purpose recognizes the importance of keeping to a minimum the difficulties that are bound to be created by the large number of participants in a major construction project, the complexity of which needs no demonstration. It also recognizes the reality of industrial life.”

[3]                See for example, Sylvan Industries Ltd. v. Fairview Sheet Metal Works Ltd., (1994) 89 B.C.L.R. (2d) 19 (C.A.).

[4]               Madison Developments Ltd. v. Plan Electric Co.,[1997] O.J. No. 4249 (Ont. C.A.) [“Madison”].

[5]               For example, in Madison, ibid, the Court of Appeal stated: “…the policy insures property owned by others, suggesting that others than those named in the policy are insured. The contractor obtained that insurance, a loss occurred, and payment was made under the policy. The insurer must be taken to be aware of the contractor’s contracts with subcontractors, or to have some control over them if not yet entered, because the insurer’s subrogation rights can be eliminated by such a contract…” The Court concluded that the subcontractor was an unnamed insured by necessary implication.

[6]               Brookfield Homes v. Nova Plumbing, 2010 ONSC 2131 (CanLII).

[7]               Sylvan, supra note 16 at para. 17; Esagonal, supra note 21 at p. 9 of 10.

[8]               Ibid.

[9]               [1996] O.J. No. 513 (Ont. Gen. Div.).

[10]             Ibid at para. 15.

[11]             Supra, note 6.

Brass Plumbing Fixtures – Don’t Let Subrogation Opportunities Go Down the Drain

A. OVERVIEW

Brass is cheaper than copper and more malleable. As such, it is often the preferred choice by manufacturers of plumbing pipes and fixtures. There are many different types of brass, however, and although not all types are suitable for use in plumbing applications, many manufacturers continue to use inappropriate brasses in order to reduce their overhead costs. As a result, subrogation professionals should be alert to the fact that the corrosion or failure of a brass plumbing fixture may give rise to excellent recovery prospects against both the manufacturer and the distributor of the plumbing product.  

Brass pipes: a lighter shade of brass indicates a higher zinc content and softer metal.

B. IMPORTANT FACTS ABOUT BRASS

Brass is an alloy – a “mixture” of zinc and copper, to which other metals, such as lead, may also be added to give brass specific characteristics. Since brass is a malleable metal that has many desirable properties, it is often used to make plumbing fixtures.

 The uses of a particular brass will vary depending on its proportions of zinc and copper. The zinc content in brass can vary from a few percent to approximately 40%. A higher zinc content creates a softer brass that is easier to cast. The color of the brass lightens as more zinc is added. Brass with a high proportion of zinc can become a pale yellow color.  

C. CORROSION OF BRASS: DEZINCIFICATION

The effects of brass de-zincification are illustrated above.

Although brass with a high zinc composition is more malleable and therefore cheaper to cast, zinc is a highly reactive metal with weak bonding properties. When brass is exposed to a potable water supply, there is a tendency for zinc to leach out of the brass over time, leaving behind a porous copper that is weak and fragile. This is a form of corrosion called “dezincification”. The higher the proportion of zinc in a brass, the greater the tendency for dezincification, with brasses containing 30% or more zinc being especially susceptible to this form of corrosion.

The Copper Development Association provides the following minimum recommendation for controlling dezincification in plumbing fixtures:

  1. Using a brass that contains no more than 15% zinc; or 
  2. Using a brass that contains a small amount of an inhibitor metal, such as antimony, phosphorous or tin. The inhibitor metal bonds to the zinc, preventing corrosion. This type of brass is variously referred to as “inhibited brass”, “anti-dezincification brass” or “dezincification-resistant brass”.

D. LESSONS FROM KITEC’S $90 MILLION FAULTY PLUMBING SETTLEMENT

Pictured above is a corroded Kitec brass fitting.

KITEC® is a plumbing system that uses brass fittings. It was manufactured by a Canadian corporation named IPEX and sold in the United States until IPEX discontinued the product line in 2007. KITEC® became a popular alternative to copper in the mid-1990s due to its inexpensive cost and simple installation.

On October 16, 2006, KITEC® fittings became the subject of a state class action lawsuit filed against IPEX in Clark County, Nevada. The Clark County lawsuit alleged that KITEC® fittings failed because of dezincification.

During the Class Action lawsuit, documents specific to the manufacturer’s claims were obtained. One such document provided material specifications for the brass fittings used in “KITEC® Composite and Fittings System”, which included several yellow brasses that contained high (i.e. more than 32%) levels of zinc. The manufacturer did not appreciate the fact that copper/zinc alloys containing more than 15% zinc should generally be avoided in such applications. As alleged in the Clark County lawsuit, when hot water flowed through the brass fittings, the zinc leached out of the fittings, thereby weakening the structural integrity of the brass and, ultimately, causing failure in the fittings.

A wave of suits resulted and included homes built by 31 developers from the late 1990s through 2006. Although the largest class action suit was the one in Clark County, which united at least 31,000 homeowners, a similar suit filed last year in New Mexico represents 30,000 homes there. On February 2, 2009, the Las Vegas Sun reported the federal court’s approval of a settlement agreed to by the maker and distributor of the KITEC® plumbing fittings and the legal representatives of an estimated 30,000 homeowners in southern Nevada. Cases against developers and plumbing contractors continued until final settlements were reached in November 2009 when District Court Judge Timothy Williams approved a partial settlement of $90 million dollars.

E. POTENTIAL LIABILITY IN CANADA OF MANUFACTURERS AND SELLERS

Designers and manufacturers of plumbing fixtures containing uninhibited brass components with high zinc contents may be liable for damages resulting from the failure of their products on the basis of a straightforward tort analysis. As discussed in Viridian Inc. v. Dresser Canada Inc. et al. (2000), 274 A.R. 28 (Q.B.) (leave to appeal refused):

It is a firmly recognized principle of law that a manufacturer owes a duty to users of its product not to be negligent in the manufacture of the product. Where the manufacturer is negligent and the product is defective, the manufacturer will be liable for damage that [is suffered] as a result.

Dezincification has been a well-known phenomenon for centuries and it has been recommended industry practice for decades that brass containing more than 15% zinc should be avoided in plumbing fixtures due to an increased risk of corrosion. This notwithstanding, many manufacturers of plumbing fixtures continue to use uninhibited brass containing much higher zinc concentrations. As such, there is a good argument that manufacturers who use brasses with high zinc contents for plumbing applications are negligent in so doing.

Similarly, it may be argued that distributors and retailers of brass plumbing fixtures have a duty to warn customers of the well known risks posed by the use of plumbing fixtures comprised of uninhibited brass containing greater than 15% zinc. Additionally, sellers of these products may be strictly liable for breach of implied conditions as to the quality and fitness of these products, pursuant to provincial Sale of Goods Act legislation, which imply conditions into contracts for the sale of goods that (1) the goods are reasonably fit for their purpose; and (2) the goods are of merchantable quality.

F. PROTECTING YOUR SUBROGATED ACTION

If you are presented with a claim for damages arising from the failure of a brass plumbing fixture, it is important to act quickly to ensure that subrogation potential is protected. The retainer of a metallurgical engineer will be required in order to assess the chemical composition of the brass and to analyze the precise mode of failure. It is crucial to ensure that both the impugned plumbing fixture is preserved, along with any identical fixtures that may have been installed at the same location (for comparison purposes). Finally, subrogation counsel should be retained as early as possible in order to coordinate the efforts of the engineer and adjuster, ensure that all relevant parties are placed on notice and, if necessary, prepare the matter litigation.