Commercial General Liability: Structure and Triggers

A mid-sized general contractor based in the Calgary area held a commercial general liability policy with per-occurrence limits of $2 million and a general aggregate of $5 million when it secured the contract to construct a 4-storey mixed-use development in a nearby municipality. The project, valued at approximately $28 million, involved retail space on the ground floor, office space on the 2nd and 3rd floors, and 12 residential condominium units on the top floor. The development agreement required the general contractor to maintain CGL coverage naming the project owner and the construction lender as additional insureds, with primary and non-contributory status and a waiver of subrogation endorsement.

The general contractor subcontracted specialized work to several trades, including a mechanical subcontractor responsible for the building's HVAC and fire suppression systems and a waterproofing subcontractor engaged to apply protective coatings to the below-grade foundation walls and the rooftop membrane. The subcontracts required each trade to carry its own CGL coverage with minimum limits of $2 million per occurrence and to name the general contractor as an additional insured on their respective policies. The mechanical subcontractor's policy operated on an occurrence basis with a products and completed operations aggregate of $2 million. The waterproofing subcontractor's policy contained an exclusion for work performed by subcontractors of the named insured, though this subcontractor performed all work with its own employees.

Construction proceeded over 18 months. The waterproofing subcontractor completed its below-grade work during month 4 and its rooftop membrane application during month 14. The mechanical subcontractor finished installation of fire suppression equipment in month 16 and received final inspection approval. The general contractor achieved substantial completion in month 18, and the project owner took occupancy of the commercial spaces while the condominium units were marketed and sold to individual purchasers over the following 8 months.

Approximately 26 months after substantial completion, water infiltration became evident in 3 of the below-grade retail units. Remediation efforts revealed that the waterproofing membrane had failed at multiple seams, allowing groundwater to migrate through the foundation walls. During the same period, 2 condominium owners reported water damage to interior finishes, traced to failures in the rooftop membrane installation. Separately, a fire suppression head in one office suite activated without cause, flooding the space and damaging tenant improvements valued at over $180,000. The project owner, the condominium corporation, and the affected commercial tenant each advanced claims, naming the general contractor, the relevant subcontractors, and in some instances the project owner's own property insurer as potentially responsible parties.

The general contractor's broker requested coverage confirmation from the CGL insurer. The response raised questions about which policy year responded to the waterproofing failures, whether the products and completed operations coverage remained available given prior unrelated claims during the policy period, how defense costs would erode limits if multiple claimants proceeded simultaneously, and whether the additional insured endorsements extended the coverage the contractual counterparties believed they had secured.