Damage caused to windows by cleaning company during construction of building was not covered by all-risk policy containing exclusion for cost of making good faulty workmanship.
Insurance law – All-risk insurance – Property insurance – Policies and insurance contracts – Coverage – Interpretation of policy – Exclusions – Defective workmanship – Resulting damage
Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.,  A.J. No. 338, March 27, 2015, Alberta Court of Appeal, J.E.L. Côté, J. Watson and F.F. Slatter JJ.A.
In this decision, the Alberta Court of Appeal addressed whether damage caused to the windows of a building by a cleaning company while the building was under construction was covered under the terms of an All Risk policy obtained by the insured, the owner and general contractor, at the early stages of construction.
The cleaning company was an additional insured under the All Risk policy obtained by the insured. The All Risk policy excluded the cost of making good faulty workmanship, construction materials, or design. The central issue on the appeal was whether the damage to the windows resulted from “poor workmanship” or was “resulting damage”.
At trial, the insured argued that the cleaner’s defective methods and tools were not faulty workmanship because no product was created by its efforts. The insurer argued that this interpretation rendered the exclusion virtually meaningless. It argued that the “work” and “workmanship” did not just cover the labour component of the task, but also covered the material being worked on, in this case, the windows. Thus, replacing the damaged windows was “making good faulty workmanship” and was excluded. The trial judge found that both of these interpretations were plausible. He found that the case law was inconclusive and inconsistent and, therefore, he applied the doctrine of contra preferentum and found in favour of the insured.
The appeal was allowed. The Alberta Court of Appeal held that the proper interpretation of the exclusion was that damage which was physically or systemically connected to the work being carried out was not covered. The fundamental intent of the policy was to indemnify the owner for some unexpected event or occurrence that occurred during construction. The work done by the cleaning company was included in the scope of “workmanship” even though it did not create a physical product because the policy covered the entire project and every contractor. It did not matter that the damage was caused by the cleaner to the work of another contractor.
This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at firstname.lastname@example.org or email@example.com or review their biographies at http://www.harpergrey.com.
To stay current with the new case law and emerging legal issues in this area, subscribe here.