N.R. Downer, for respondent Lloyd’s Underwriters.
I.A. Mair and B.M. Martin, for respondent AIG Insurance
Company of Canada.
 Wood J.: — This was an application by the Corporation of
the Town of Huntsville (the “town”) seeking a declaration that
the respondent insurers, Lloyd’s Underwriters (“Lloyd’s”) and
AIG Insurance Company of Canada (“AIG”), have an obligation
to defend action #CV-15-177 Bracebridge (the “second action”),
commenced against the town by James MacKendrick and
Leaynne Connolly (the “owners”). The application also seeks
derivative relief including orders for indemnification for sums
already spent defending the action and dividing the respondents’
responsibility to defend.
 There has been no trial in this matter. When a request for
coverage is made at this stage, the court must accept the facts as
alleged in the plaintiff’s claim as being capable of proof, unless
the policy in question expressly indicates that this is not to
occur (Alie v. Bertrand & Frère Construction Co. (2002), 62 O.R.
(3d) 345,  O.J. No. 4697, 2002 CanLII 31835 (C.A.), paras.
182-84). Neither policy contains such language. Therefore,
the findings of fact with respect to the events giving rise to the
owners’ claim in the second action, and the damages arising
therefrom, are assumed to be as alleged in the second action’s
statement of claim.
Findings of Fact
 Lloyd’s provided third party liability coverage to the town
from May 1, 2008 to May 1, 2009 under policy #PK0800116. AIG
provided third party liability coverage to the town from May 1,
2015 to May 1, 2016 under policy #3630360.
 On October 30, 2017, the owners made an offer to purchase
101 Gryffin Lodge Rd. in the municipality of Huntsville. On
November 8, 2007, they retained Christopher Wilson (“Wilson”)
to perform a home inspection on the house, and on the strength
of his report closed the transaction.
 On June 29, 2008, the basement of the house flooded. Alt-
hough the immediate cause of the flood was back up through
a floor drain, removal of the interior wall siding revealed that
water was infiltrating into the basement through the pressure
treated wood walls. The owners retained an engineer. His report
confirmed that that this was so. He also found
(1) That the basement walls had not been constructed in accordance with
the standards of the Ontario Building Code. Or Can/CSA-S406 (Con-
struction of Preserved Wood Foundations)