Case Summary: Ledcor Construction Limited v. Northbridge Indemnity Insurance Company
Defence + Indemnity
Cost of replacing glass in order to remedy faulty workmanship excluded by exclusion clause.
Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2015 ABCA 121
FACTS AND ISSUES
Station Lands Ltd retained Ledcor as a construction manager for the construction of the EPCOR tower in Edmonton. Station Lands then contracted with various trade contractors to supply and install the goods and services necessary for the project. Early in the project, Station Lands obtained an “All Risks” policy from Northbridge to cover “all direct physical loss or damage except hereinafter provided” (the “Policy”). The Policy was designed to cover all actors and activities on the site for 3.5 years or to the end of construction.
The Policy contained exclusion for:
The cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage.
Station Lands retained Bristol Cleaning (“Bristol”), another trade contractor, to do a “construction clean” of the exterior of EPCOR tower. Cleaning up following construction was a part of the work Ledcor was responsible for. Under the Station Lands-Bristol contract, the owner (Station Lands) was to provide “all risks” property insurance that included trade contractors and trade subcontractors etc as additional unnamed insureds. This requirement was fulfilled by the “all risks” policy with Northbridge.
Bristol damaged the windows during the cleaning process by using inappropriate tools and methods such as dull or inappropriate blades to scrape of the dirt and failure to follow the manufacturer’s cleaning instructions. As a result, the glass had to be replaced. Under its contract, Bristol was responsible for replacing the glass.
Therefore, the issue on appeal was whether the damage to the windows resulted from “poor workmanship” and therefore excluded from coverage or is “resulting damage”, in which case the cost of replacing the glass would be insured.
HELD: Appeal allowed loss was excluded from coverage under the Policy
1. The Alberta Court of Appeal found that the “fundamental intent of the policy is to indemnify the owner for a particular type of damage that occurs during construction. It is intended to provide coverage for some unexpected events and occurrences. It is admittedly not a ‘building warranty’ agreement.” The Court followed the principle for interpreting insurance policies as set out in Progressive Homes that: a court must look to see if the loss is within the general coverage, then if it is within an exclusion and last, if it falls under an exception to the exclusion. All of this must be done bearing in mind the policy as a whole.
2. The parties did not dispute that the damage to the windows was covered by the basic coverage for “direct physical loss or damage”. However, the disagreement was whether the damage is excluded as “making good faulty workmanship” or if it falls under the exception to the exclusion as “resulting damage”. The resolution of which depended on the dividing line between the physical loss that is excluded because it is the “cost of making good” versus that which is “resulting damage.”
3. The insureds (Station Lands and Ledcor) argued that workmanship only included efforts that resulted in the creation of a physical product whereas the trade contractor was merely providing labour or services. The Court rejected this argument as being so narrow an interpretation that it is outside the scope of the plain meaning of “workmanship” and was not supported by the language of the Policy. The Policy covered all consultants and trade contractors involved as well as all activities on the project site; thus, it would be inconsistent to exclude those not creating physical products from coverage. The Court also rejected the argument that the exclusion does not apply to damage caused by one contractor to the work of another, but only to damage caused by a worker to his/her own works. Not only would this lead to incongruous results but it does not square with the nature of the Policy. The Policy was a “blanket” wrap-up policy covering all actors and all activities involved in the project regardless of sequence, contractual relationships or identity of the actor performing the work that is subsequently damaged.
4. Ultimately the Court found that damage that is physically or systemically connected to the very work being carried on is excluded from coverage. This determination involves consideration of:
(a) The extent or degree to which the damage was to a portion of the project actually being worked on at the time or was collateral damage to other areas;
(b) The nature of the work being done, how the damage related to the way the work is normally done and the extent to which the damage is a natural or foreseeable consequence of the work itself; and
(c) Whether the damage was within the purview of normal risks of poor workmanship or whether it was unexpected and fortuitous. (para 50)
5. The exclusion precludes coverage for the cost of redoing the work and the damage connected to that work, such as any damage caused the very object or part of the work on which the faulty workmanship was applied.
6. Therefore, in the instant case, the Court found that the cost of replacing the glass of the EPCOR Tower is excluded as the cost of “making good faulty workmanship.” The exclusion also precluded coverage over the damage directly caused by Bristol in its deficient cleaning of the glass. Such damage was both foreseeable and likely to occur should the workmanship (the cleaning) been done in a faulty manner and is therefore not within the scope of the insurance coverage.