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Supreme Court of Canada Ruling Expands Coverage Under Builders’ All Risks Policy

On September 15, 2016 the Supreme Court of Canada released the much awaited decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. The case concerned the interpretation of the “cost of making good faulty workmanship” exclusion contained in a builders’ risk insurance policy.

The case involved a window cleaning contractor who scratched a number of new windows on a building under construction. The windows needed to be replaced and the cost of replacement was claimed under the general contractor’s builders’ risk policy which covered all subcontractors involved in the construction.

The Supreme Court concluded the “cost of making good faulty workmanship” exclusion was ambiguous having regard to the exception contained within the exclusion which brought “resulting damage” back into coverage under the policy. In particular, the Court noted the policy did not define the exclusion nor “resulting damage”. It noted the purpose of the policy was to provide coverage for “certainty, stability, and peace of mind” and to prevent construction projects from grinding to a halt over claims for damages for replacement or repair among subcontractors. As such, the ambiguity was interpreted in favour of the insured, so as to provide coverage for the loss under the policy.

In this case, the window cleaner’s role was to simply clean the windows after they had been installed by a different subcontractor. The Court concluded the “cost of making good faulty workmanship” exclusion only excluded the cost of redoing the faulty work which, in this case, was only the cleaning of the windows. As a result, the Court categorized the loss as “resulting damage”. However, if the window cleaners had also installed the windows, then the loss would have likely been excluded under the “cost of making good faulty workmanship” exclusion.

Ledcor generally confirms the “cost of making good faulty workmanship” exclusion contained in many builders’ risk or similar policies may be ambiguous in certain circumstances and will not serve to exclude claims insurers intended to exclude under the policy. If an insurer wishes to further reduce its exposure, more specific language will be required in the policy.

amanda_kostek_thumbAmanda Kostek