The Supreme Court of Canada’s oft-quoted reasoning in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (“Ledcor”) is a “go to” analysis when it comes to applying faulty workmanship exclusions in builders' risk policies. In Condominium Corporation No 9312374 v. Aviva Insurance Company of Canada, 2018 ABQB 674 (“Condo Corp 931”), the Alberta Court of Queen’s Bench distinguished the reasoning in Ledcor, ostensibly because the property policy at issue was not a builders’ risk policy.
To my mind, Condo Corp 931 does not stand for the proposition that Ledcor only applies to builders’ risk policies. Condo Corp 931 illustrates the importance of not relying upon broad general principles when considering coverage. Read and consider the particular policy wording. In any event, I suspect this decision will be appealed. Wait and see!
A Ledcor Recap
In Ledcor, the Supreme Court of Canada observed that: “The issue before the courts was thus to determine, where windows of a construction project are damaged from post-installation cleaning by a contractor responsible for only their cleaning, if the cost of the windows' replacement was excluded from coverage under the faulty workmanship exclusion.” After considering the particular exclusionary wording, the Court concluded that the “… the faulty workmanship exclusion serves to exclude from coverage only the cost of redoing the faulty work, as the resulting damage exception covers costs or damages apart from the cost of redoing the faulty work. …” Replacing the windows was covered by the builders' risk policy; the cost of re-cleaning the windows was excluded.
The Condo Corp 931 Decision
Condo Corp 931 illustrates the potential limits of the Ledcor analysis, which should remain in mind when interpreting property policies with dissimilar wordings. With respect to the facts:
A condominium corporation (“the Condo Corp”) insured its condominium building and premises (“the Condo Complex”) pursuant to an all-risks policy of property insurance (“the Property Policy”).
In June 2011, the Condominium Corporation contracted with certain construction and engineering contractors for parking rehabilitation and maintenance work to the parking surface in the parkade area within the Condominium Building.
The work involved cutting into the membrane of the parkade surface.
The construction and engineering contractors cut too deeply into the parkade slab, causing damage to the structural integrity of the parkade (“the Property Damage”).
The Condo Corp made claim against the Property Policy for losses relating to the Property Damage. The Insurer denied coverage for the claim on the basis of the Property Policy’s exclusion for “the cost of making good … faulty or improper material … faulty or improper workmanship; [or] faulty or improper design.”
On appeal to the Queen’s Bench, the Condo Corp’s argument relied upon the Supreme Court of Canada’s reasoning in Ledcor, observing: “The Supreme Court of Canada held that the cost of removing and replacing the windows was covered by the policy in question. [The Condo Corp] says a like interpretation would apply herein.”
Hall J. rejected the Condo Corp’s application of the Ledcor analysis to the Property Policy, which was not a builder’s risk policy and not subject to the same expectations. The Court explained:
26 [The reasoning in Ledcor] is distinguishable, and indeed inapplicable to the Policy before me. Here I am considering an all risks property insurance policy, not a builder's risk policy. Here the only insureds are the owners; not the contractors and not the engineers. Here the "relatively high premium" consideration does not apply. Here the purpose of the Policy is not to provide broad coverage for a construction project, for all involved in that project. In short, this is not a builder's risk/course of construction policy.
27 Here the Policy is intended to insure against property damage caused by a peril not otherwise excluded. There is no reasonable expectation that it covers any more, or any less.
[Emphasis added]
In the Court’s view, the Property Damage did not attract coverage under the Property Policy, because:
The faulty workmanship exclusion applied to all of the Property Damage: The Insurer had established that the cost of making good faulty workmanship was “…the cost not only of the contracted work, but also the cost of repairing the structural integrity of the parkade”, which was excluded from coverage.
The faulty workmanship exclusion’s exception did not apply: The particular wording of the Property Policy’s faulty workmanship exception was not framed in terms of “resulting damage” (as it was in Ledcor). The exception read: “The [faulty workmanship] exclusion does not apply to loss or damage caused directly by a resultant peril not otherwise excluded.”
Hall J. observed: “No such resultant insured peril occurred in this instance. [The Condo Corp] argues that damage to the structural integrity of the building is itself a "resultant peril", since it has not been specifically excluded from the "all risks" insuring agreement. However, damage is not a peril; it is a result. This argument … must accordingly fail.”
To my mind, Condo Corp 931 does not stand for the proposition that Ledcor only applies to builders’ risk policies. Condo Corp 931 illustrates the importance of not relying upon broad general principles when considering coverage. Read and consider the particular policy wording. In any event, I suspect this decision will be appealed. Wait and see!
Aaron Peterkin