Hollowcore Inc. v. Visocchi: Delay Damages Caused by Engineer’s Professional Negligence Covered by Professional Liability Insurance 

By Philip Carpenter 

Introduction

If there was ever a “must-read” list for court decisions involving engineering professional liability, Hollowcore Inc. v. Visocchi would be on it.^[1] In many ways it is a straightforward case of engineering negligence. But the number of issues that were adjudicated at trial or opined on by the Ontario Court of Appeal reads like the table of contents of a construction or engineering law text book:

• Breach of Contract
• Privity of Contract
• Negligent performance of engineering services
• Negligent misrepresentation
• Engineering standard of care
• Delay damages
• Coverage and exclusions from professional liability insurance
• Admissibility of invoices and business records at trial

At the Ontario Court of Appeal, there is the added legal wrinkle of the standard of review applied to a trial judge’s assessment of damages.

The Ontario Court of Appeal decision in Hollowcore Inc. v. Visocchi confirms that professional liability insurers can be liable for delay damages when the cause of such damages cannot be separated from the negligence of the engineer. The third-party insurers were denied leave to appeal the decision to the Supreme Court of Canada in 2017.

Facts & Background
Hollowcore Inc. was awarded a subcontract by Rudolph Libbe Inc. to design, supply and install the precast concrete components of a five-storey addition to an existing parking garage in Toledo, Ohio.^[2] Hollowcore was the wholly owned subsidiary of Prestressed Systems Inc. (“PSI”).

Visco Engineering Inc. (“Visco”) successfully bid on preparation of some 600 engineering drawings, calculations, and related details for erection works associated with precast concrete and connections, including beams, columns, stairs and other works.^[3] Michael Visocchi was a principal of Visco.  Visco’s successful bid price was $67,500 plus GST.

Four days after submitting his bid, Visocchi wrote to Hollowcore stating that he could meet their scheduling requirements.^[4] Numerous and persistent problems occurred with the drawings submitted by Visocchi and his firm. The original schedule had precast concrete installation to be complete by June 30, 1999. After delays, multiple meetings in September-October 1999, Visocchi and his firm ultimately withdrew from their obligations. Visocchi advised Hollowcore he could not proceed and Hollowcore should get someone else to complete the drawings.^[5]

As summarized by the Court of Appeal, the trial judge found:

• Visco’s contracts with Hollowcore and PSI required that Visco provide accurate and timely engineering drawings.
• The number of times that drawings had to be revised and corrected in this case was not in line with accepted practice.
• A number of drawings clearly show repeated errors, many of which were not corrected the first or even second time they were returned by the engineer of record for revision.
• Visocchi admitted that the drawings done by him and others under his supervision were replete with errors and needed numerous revisions that delayed the project.^[6]

PSI and Hollowcore retained replacement engineers and sought a full indemnity from Visocchi and Visco. Libbe back-charged significant amounts to Hollowcore because the errors led to increased costs and delay in completion. Hollowcore and PSI sued Visco, and Visocchi personally, for these damages arising out of Visco and Visocchi’s breaches of contract, negligence, and negligent misrepresentation. Ten years after Hollowcore and PSI brought their action, Visco and Visocchi sued their insurers for contribution and indemnity.^[7]

The trial judge found in favour of Hollowcore and PSI. Both Visco and Visocchi were liable in negligence, and negligent misrepresentation as Visocchi himself had made a number of representations personally. Visco was liable in breach of contract, both of an express contract with PSI and an implied contract with Hollowcore.^[8]

Under the insurance contracts, the insurers were liable for any damages arising from Visco and Visocchi’s negligence, but not for any damages arising out of delay pursuant to an exception clause.^[9]

The trial judge found Visco and Viscochi jointly and severally liable for approximately USD $478,000 and other more minor amounts in Canadian dollars. Her Honour also found the insurers were 100% liable for a small portion of the damages, but the bulk of the damages were apportioned between Visco, Visocchi and the insurers 55/45% in favour of Visco and Visocchi.  The trial judge reached this decision despite also finding “that it was almost impossible to determine with absolute accuracy the damages related to negligence as opposed to delay.”^[10]

Visco and Visocchi appealed arguing that the insurers were responsible to fully indemnify them and cover 100% of the damages. The insurers cross-appealed the allocation and assessment of damages that made them responsible for 55%, arguing they should not be responsible for any or at least less.

The Appeal Decision

The Insurance Issue
The insurers acknowledged their obligation to indemnify Visco and Visocchi for losses resulting from negligence but relied on an exclusion in the policy that it claimed excluded its obligation to indemnify an insured for failure to provide professional services in a timely manner – i.e. excluded damages caused by delay. The Ontario Court of Appeal disagreed and found the insurers 100% responsible to completely indemnify Visco and Visocchi.

In the eyes of the Court of Appeal, the key finding was that the delay caused by Visco and Visocchi clearly arose out of the negligence of Visco and Visocchi and not the non-performance. Since the damages for pure delay could not be separated from the damages for negligence, all the damages were covered by professional liability insurance since the damages all flowed from Visco and Visocchi’s negligence.

While insurers – and insurance policies –  can exclude pure breach of contract damages such as delay damages resulting from pure failures to perform, insurance policies, such as the one in Hollowcore do cover negligent performance of services. Delay claims can be based in tort and breach of contract where the facts exist.^[11] The basis of the claim may affect claims for loss of profit and the entitlement to certain heads of damage.^[12] Where the delay arises out of professional errors or omissions, and not a pure lack of timeliness, insurance may cover the delay damages that results.^[13]

This decision is a positive one for engineers, but engineers and their counsel should review their insurance policies in the future to see if the policy language changes to adapt to the Hollowcore Appeal decision.

The Assessment of Damages

Appeals are not a chance to re-litigate a trial. Apart from pure questions of law, appellate courts tend to defer to trial courts. Appellate courts are reluctant to interfere with the findings of “facts” of trial judges and only do so where there’s a “palpable” (clear) and “overriding” (key to the outcome). Quantification of damages are no different. In the Hollowcore Appeal, the court continued this approach: “The trial judge’s assessment of damages is entitled to deference”.^[14]

Extensive evidence of damages was led at trial, and numerous invoices were admitted into evidence as business records, which are admissible contrary to the rule against hearsay. The trial judge, having found Visco and Visocchi liable in breach of contract, negligence and negligent misrepresentation, dealt with the quantum of damages for each together.

This was not a case where there was an absence of evidence of damages, but rather an abundance of evidence, but damages were difficult to assess “because of the nature of the damages proved”.^[15]  Where there is evidence of damage, but the nature of the damages make them difficult to assess, a court must “do the best it can”.^[16]

After reviewing the admissibility of “business records” at common law, pursuant to statutes such as the Ontario Evidence Act and pursuant to the principled exception to the rule against hearsay, the trial judge admitted the invoices from Libbe, the prime contractor, back-charging PSI and Hollowcore. The trial judge required an employee of Libbe to testify, but the court did not require anyone from Libbe’s other sub-trades and subcontractors to be called to validate the costs Libbe incurred and in turn back-charged to Hollowcore and PSI.

The trial judge certainly did her best with ample documentary evidence submitted by PSI and Hollowcore. More than half the trial decision is dedicated to the issue of damages. The trial judge disallowed management opportunity costs, but did allow significant extra labour costs, and an amount for “inefficiencies” flowing from inaccurate drawings.^[17] 

Conclusion & Discussion 

What does this mean for engineers and their insurers? Engineers can probably breathe a little easier if their negligence causes delay to the project. The back-charges may be covered by their insurance policy. Coverage will turn on the language of the policy and, perhaps, the precise nature of the damages and their causes. For example, if the engineer merely doesn’t do the work, rather than do it poorly, then such delay may be separable and construed as purely breach of contract delay damages.

Ultimately, insurers may adjust the language of their policies and engineers should watch for changes to the language of exclusions in their policies for delay.

^[1] 2016 ONCA 600, 351 O.A.C. 228 [Hollowcore Appeal], leave to appeal denied 2017 CanLII 4183 (SCC), rev’g in part 2014 ONSC 6802, [2014] O.J. No. 5535 [Hollowcore Trial].

^[2] Hollowcore Appeal at ¶ 4.

^[3] Hollowcore Trial at ¶ 2-7.

^[4] Hollowcore Appeal at ¶ 7.

^[5] Hollowcore Appeal at ¶ 12-15.

^[6] Hollowcore Appeal at ¶ 43.

^[7] Hollowcore Appeal at ¶ 22.

^[8] Hollowcore Appeal at ¶ 24-26.

^[9] Hollowcore Appeal at ¶ 28 and 36-37.

^[10] Hollowcore Appeal at ¶ 30.

^[11] See Yonni Fushman, “Deconstructing Delay Claims” (2014) 27 C.L.R. (4th) 181; see also Hollowcore Appeal at ¶ 41

^[12] See e.g. Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97, 151 A.R. 241 (QB) at ¶ 821.

^[13] Hollowcore Appeal at ¶ 41.

^[14] Hollowcore Appeal at ¶ 49.

^[15] Hollowcore Appeal at ¶ 51.

^[16] Hollowcore Appeal at ¶ 53-54.

^[17] Hollowcore Trial at ¶ 219, 230-231, 235