The Consequences Of Faulty Workmanship May Not Be Excluded From Insurance Coverage: Condominium Corporation No. 9312374 v Aviva Insurance Company Of Canada, 2020 ABCA 166

• Published date: 19 October 2020
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Miller Thomson LLP
• Author: D. Bronwhyn Simmons, Mark Alexander and Emma L. Johnston

The Alberta Court of Appeal recently considered whether the cost to correct structural damage caused by a contractor was covered by a multi-peril insurance policy that excluded coverage for faulty workmanship.

In Condominium Corporation No. 9312374 v Aviva Insurance Company of Canada, 2020 ABCA 166 [Aviva], the Alberta Court of Appeal held that the framework for interpretation of ambiguous builders' risks insurance policies in Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37 [Ledcor] also applies to ambiguous multi-peril insurance policies. Where a policy is ambiguous, a court must interpret it in light of the parties' reasonable expectations as informed by the policy's purpose and commercial reality. Ultimately, whether particular remediation costs are covered or excluded will depend on the outcome of the analysis set out in Ledcor and Aviva and on the scope of work in the construction contract.

Background

The dispute in Aviva centred around an agreement between the Plaintiff, Condominium Corporation No. 9312374 (the "Owner"), Durwest Construction Systems Alberta Limited ("Durwest") and Williams Engineering Canada Inc. ("Williams") to rehabilitate and perform maintenance work on the surface of the Owner's parkade. The work performed by Durwest and Williams compromised the structural integrity of the parkade.

The contract between the Owner and Durwest and Williams specified that they were to repair and remediate the parkade membrane only and were not to perform work that would impact the structural integrity of the concrete slab. On June 11, 2011 Durwest and Williams cut too deeply into the parkade slab while performing work on the parkade membrane, which caused damage to the structural integrity of the parkade (the "Property Damage").

At the time the Property Damage occurred, the Owner was insured by Aviva Insurance Company of Canada (the "Insurer") under a multi-peril insurance contract (the "Policy"). The Policy provided broad coverage to the Owner against all risks of direct physical loss or damage to the Owner's condominium complex. The Insurer denied the Owner coverage for the cost of remediating the Property Damage on the basis of the following exclusion:

6. Exclusions ...

G. Other Excluded Losses

Coverage A of Section I does not insure: '

(b) the cost of making good:

i. faulty or improper material;

ii. faulty or improper workmanship;

iii. faulty or improper design.

This exclusion does not apply to loss or damage caused directly by a resultant peril not otherwise excluded in Coverage A of Section I.

The Policy also provided that "Coverage A of section I insures, except as otherwise provided, against all risks of direct physical loss of or damage to the insured property." The Insurer denied coverage on the basis that the Property Damage was attributable to faulty workmanship and was, therefore, caught by the above exclusion, and the exception to the exclusion did not apply.

The Aviva decision arose from an agreement between the Owner and Insurer to seek a determination of whether the Insurer was obligated to cover the cost of repairing the Property Damage on the basis of an Agreed Statement of Facts.

Lower Court Decisions

The Owner was successful at first instance, when a Master summarily decided in an unreported decision that "property damage" (as defined in the Owner's Statement of Claim) attracted coverage under the Policy. A Justice of the Alberta Court of Queen's Bench overturned the Master's decision on the basis that the Property Damage was not a resultant insured...