Court of Queen=s Bench of Alberta

Transcription

1 Court of Queen=s Bench of Alberta Citation: Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2013 ABQB 585 Between: Action No.: Ledcor Construction Limited Date: Docket: , Registry: Edmonton - and - Plaintiff Northbridge Indemnity Insurance Company, Royal & Sun Alliance Insurance Company of Canada, and Chartis Insurance Company of Canada Defendants - and Action No.: Station Lands Ltd. - and - Commonwealth Insurance Company, GCAN Insurance Company, and American Home Assurance Company Plaintiff Defendants Reasons for Judgment of the Honourable Mr. Justice T.D. Clackson

2 Page: 2 I. Agreed Circumstances [1] The plaintiffs, Station Lands Ltd. and Ledcor Construction Limited are the owner and the general contractor respectively of the newly constructed EPCOR Tower. For the purposes of this action, it is unnecessary to distinguish between them. [2] Pursuant to an all risk or builders risk policy, the defendant insurers provided coverage for losses suffered during construction. As construction neared completion, the plaintiffs contracted with Bristol, a cleaning company, to clean the debris from the exterior of the building including the building s windows. In the course of cleaning the building, Bristol scratched and damaged the building s windows. The information I have is that the replacement of the windows will be necessary at a considerable cost. [3] The plaintiffs claimed on their insurance but that claim was denied. The defendants rely upon the following provision of the policy: 1. Property Insured (a) Property undergoing site preparation, demolition, construction, reconstruction, fabrication, insulation, erection, repair or testing 4(A) Exclusions This policy does not insure (b) 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 shale insure such resulting damage. II. Positions of the Parties [4] The plaintiffs argue that the exclusion does not apply because they are not claiming coverage for making good the faulty cleaning, they are seeking recompense for the damage that Bristol did in the course of cleaning. [5] In other words, the plaintiffs argue that clause 4(A) only excludes the cost of paying to have the cleaning redone. Alternatively, the plaintiffs argue that the damage caused is resulting damage and therefore excepted from the exclusion. [6] The insurers argue that the exclusion applies because the claim is based upon faulty work. If that is accepted, then the damage done by the cleaning is not resultant damage in the sense of being separate from the nature of the work being performed.

3 Page: 3 III. Analysis [7] Among the authorities presented to me, were a number of United States decisions. Those decisions were not particularly helpful. It is conceded that the United States courts are not ad idem on the topic before me. Indeed, in the course of argument, the parties advised that one could find opposing decisions on exactly the same facts depending on the court surveyed. In result, I have concluded that the Canadian authorities are more helpful to me in resolving the dispute. [8] The Supreme Court of Canada has recently offered a consolidation to guide the interpretation of insurance policies: 22 The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole (Scalera, at para. 71). 23 Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction (Consolidated-Bathurst, at pp ). For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties (Gibbens, at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901), so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst, at p. 901). Courts should also strive to ensure that similar insurance policies are construed consistently (Gibbens, at para. 27). These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place. 24 When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem -- against the insurer (Gibbens, at para. 25; Scalera, at para. 70; Consolidated-Bathurst, at pp ). One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly (Jesuit Fathers, at para. 28). Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R [9] It is accepted that interpreting an insurance policy requires one to consider firstly coverage, then exclusion and finally exception to exclusion. In this case, it is conceded that the loss would be covered but for clause 4(A) and that there is an exception to clause 4(A) s exclusion for resulting damage. As a result, the onus is on the defendants to establish that the loss is excluded. If that onus is met, it then becomes the plaintiff s responsibility to establish the exception. [10] The defendants rely upon Ontario Hydro and Combustion Engineering-Super Heater Ltd. v. Royal Insurance, [1981] O.J. No. 215 (Ont. SC). In that case the plaintiff contracted for the installation of a power generating boiler. The installation process involved a period of testing which included an acid wash of the boiler tubing followed by flushing of the acid wash. At the end of the testing period the tubing was discovered to have been damaged. The plaintiff claimed on its policy of all risks insurance. The defendant insurer denied, relying upon an exclusion

4 Page: 4 which excluded coverage for loss or damage caused by faulty or improper workmanship however resultant damage to insured property shall be covered. [11] In that case, Labrosse, J. concluded that the plaintiff had insisted on the acid wash process despite having been advised against it, that it did not take care to minimize the risks associated with doing so and did the work in a way which caused damage to the tubing. Labrosse, J. concluded all of that represented faulty workmanship which in his view, was excluded from the policy on its plain and ordinary meaning. No reasons were offered for that conclusion. However, I agree with the conclusion that the process engaged amounted to faulty workmanship. Plainly, whether one is building something or doing something to something else, work is being done. Inexorably, therefore, when one assesses what is being done or has been done, one is assessing the work. In my view, in that context, work and workmanship are synonymous. As a result, there is little doubt that the word workmanship in the Hydro case embraced the acid wash process. In my view, for the same reasons, it is plain that the work being done by Bristol in the case before me is properly embraced in the word workmanship. [12] The plaintiffs made reference to the U.S. authority of City of Barre v. New Hampshire Insurance Co. (1978), 396 A.2d 121 (Vt. S.C.) and CIC Mining Corp. v. Saskatchewan Government Insurance (1993), 110 Sask. R. 15 (Q.B.) reversed in part (1994) 123 Sask. R. 219 (C.A.). The court in Barre offered a conclusion without expressed analysis and with respect, I disagree for the reasons stated above. That court appears to have been attempting to draw a distinction between process and product. The CIC Mining case related to an exclusion respecting defective materials and is not analogous. [13] In my view, whether cleaning or constructing, as I have said, one is working. Plainly in this case, the work done by Bristol was faulty. In result, I think the words of the exclusion portion of clause 4(A) are clear and free from ambiguity. The cost of making good Bristol s faulty workmanship is excluded. However, the meaning of the words making good in the exclusion portion of clause 4(A) must be determined. Does making good relate to the faulty workmanship, in this case the cleaning? Does the making good relate to the thing on which the faulty workmanship was performed, in this case the building exterior? [14] It is plausible that excluding the cost of making good faulty cleaning simply excludes the cost of having someone else do it right. That is the plaintiffs position. It is also plausible that making good faulty cleaning extends to the damage done by the faulty cleaning. That is the defendants position. The defendants argued that Ontario Hydro supports their argument that the thing damaged by cleaning is excluded. In Ontario Hydro it is fair to conclude that the acid cleaning wasn t simply cleaning, it was part of the installation commissioning process, therefore the very thing being done, installing the boiler, damaged it and therefore one could conclude that the damage to the boiler was not resultant. That appears to be what Labrosse, J. concluded. Of course if the damage to the boiler was not resultant damage, the damage was excluded, because the exception could not apply. Since the damage was not resultant and therefore not excepted from the exclusion, then one is forced to conclude, as did Labrosse, J. that the damage was directly related to the workmanship. The corollary to that conclusion is that resultant damage is intended to cover something more indirect. Therefore, by analogy, one could conclude that the

5 Page: 5 words making good in the policy before, me using Ontario Hydro as a guide, are focussed on the direct damage of the faulty workmanship as opposed to the indirect consequences. [15] However, while the result in Ontario Hydro is defensible, the reasoning that led to the conclusion reached is not provided. In the end, the result reached was simply one of two plausible alternatives, and why one was chosen over the other is not readily apparent. [16] In my view, either of the proffered interpretations presented by the parties in this case appears on its face to be reasonable. The policy does not clearly suggest one alternative in preference to the other. Returning to the Supreme Court of Canada s guidance in Progressive Homes, it appears, therefore, that the language of the exclusion is ambiguous. In the context of what is an all risk or builders policy stipulating coverage for virtually any event which might occur by way of negligence, third party action or act of God, one could conclude that an exclusion as suggested by the defendants is inconsistent. Additionally, Bristol, as a subcontractor is an additional insured under the policy. Subrogation by the insurers against Bristol can be waived at the option of the plaintiffs. Again, all of that suggests broad coverage inconsistent with what the defendants say is the effect of the exclusion. [17] To the extent that the language of the contract and the nature of the coverage extended is helpful in determining the reasonable expectations of the parties, the foregoing factors weigh somewhat in favour of the plaintiffs interpretation of the exclusion but not conclusively. There is really nothing else that assists in determining the ambiguity. Therefore, since the exclusion must be construed contra proferentem against the defendants, the defendants have failed to meet their onus to establish that the exclusion applies. [18] As a consequence, I have determined that the damage caused to the windows of the EPCOR Tower by Bristol Cleaning in approximately July and August of 2001 is not excluded from coverage under the builders risk insurance policy no. A between the plaintiffs as insureds and the defendants as insurers by virtue of exclusion clause 4(A) as being the cost of making good faulty workmanship. [19] The parties may address me on the subject of costs by appointment. Heard on the 27 th day of September, Dated at the City of Edmonton, Alberta this 7 th day of October, T.D. Clackson J.C.Q.B.A.

6 Page: 6 Appearances: Darin J. Hannaford Miller Thomson LLP for the Plaintiff Ledcor Construction Limited Nathan J. Whitling Dentons Canada LLP for the Plaintiff Station Lands Ltd. Todd Davies Alexander Holburn Beaudin & Lang LLP for the Defendants