Keeping On The Straight And Narrow: Scope Of Faulty Workmanship Exclusions In All-Risk Policies

• Published date: 12 November 2020
• Subject Matter: Insurance, Real Estate and Construction, Insurance Laws and Products, Construction & Planning, Real Estate
• Law Firm: Clark Wilson LLP
• Author: Mr Denny Chung

Summary

The Alberta Court of Appeal has affirmed and extended the seminal Supreme Court of Canada decision in Ledcor v. Northbridge¹ regarding faulty workmanship exclusion clauses to all-risk policies more generally. In Condominium Corporation No. 9312374 v. Aviva Insurance Company of Canada, 2020 ABCA 166 ("Condo Corp. 931"), it was made clear that applying a faulty workmanship exclusion to an all-risk property policy should bear a similar analysis as set out in Ledcor v. Northbridge which involves the reasonable expectations of the parties.

In Condo Corp. 931, in the course of a construction project, the plaintiff condominium made a claim under their all-risk property policy in relation to damage caused by one of their contractors. The Alberta Court of Appeal concluded that the common faulty workmanship clause contained in their policy did not entirely exclude coverage. While the cost to redo the faulty workmanship itself was excluded, resulting damage flowing from the faulty work was not.

In particular, the Alberta Court of Appeal clarified that the often cited analysis in Ledcor v. Northbridge concerning faulty workmanship and resulting damage, is not restricted to builder's all-risk policies. It applies to all-risk property policies more generally as well. This case should remind insurers and insureds as to what is and is not covered under an all-risk policy, whether in the context of a small or large construction project.

Background

The Condominium Corporation retained a contractor to repair the building membrane of their parkade. This involved the contractor cutting into the surface of the parkade. It was made clear that any cutting should not extend into the actual structure of the concrete slab. While cutting into the surface, the contractor cut too deep and struck the concrete slab. This resulted in damage to the structural integrity of the parkade.

The Condominium Corporation applied for coverage for the property damage under their all-peril property policy. The policy contained the commonly found faulty workmanship exclusion which excluded coverage for the cost of making good faulty or improper workmanship. The faulty workmanship exclusion also contained the common exception to the exclusion - providing that the exclusion clause does not exclude coverage for any damage caused directly by a resultant peril not otherwise excluded.

The Condominium Corporation's insurer denied coverage on the basis that the faulty workmanship exclusion applied to...