Ledcor Construction Limited (respondent/plaintiff) v. Northbridge Indemnity Insurance Company, Royal & Sun Alliance Insurance Company of Canada, and Chartis Insurance Company of Canada (appellants/defendants) Station Lands Ltd. (respondent/plaintiff) v. Commonwealth Insurance Company, GCAN Insurance Company and American Home Assurance Company (appellants/defendants) (1303-0272-AC; 2015 ABCA 121) Indexed As: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. et al. Alberta Court of Appeal Côté, Watson and Slatter, JJ.A. March 27, 2015. Summary: Station Lands Ltd. (owner) retained Ledcor Construction Ltd. as construction manager to coordinate construction of the EPCOR Tower in Edmonton. Station Lands obtained an "all risks" insurance policy from the defendant insurers, covering all "direct physical loss or damage except as hereinafter provided". The policy contained certain exclusions, including clause 4(A)(b) which provided that the policy did 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 shall insure such resulting damage". As construction of the EPCOR Tower neared completion, Station Lands and Ledcor 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 by using inappropriate tools and methods. Station Lands and Ledcor claimed under the all risks policy, but the insurers denied the claim. At issue was whether damage that occurred to the windows in the EPCOR Tower was excluded from coverage under clause 4(A)(b) (i.e., whether the damage resulted from "poor workmanship" or "resulting damage"). The Alberta Court of Queen's Bench, in a decision reported [2013] A.R. Uned. 624, held that the policy was ambiguous and, applying the doctrine of contra proferentem, held that the damage to the windows was covered by the policy. The insurers appealed. The Alberta Court of Appeal allowed the appeal and declared that the damage to the windows in the EPCOR Tower was not covered. The appeal court found it unnecessary to apply the doctrine of contra proferentum, holding that the case could be decided based on the proper interpretation of the scope of coverage provided by the policy wording. Contracts - Topic 7400 Interpretation - General principles - General - [See second Practice - Topic 8808]. Contracts - Topic 7433 Interpretation - Ambiguity - Contra proferentem rule - [See sixth ].
Contracts - Topic 7521 Interpretation - Surrounding circumstances - General - [See second Practice - Topic 8808]. Evidence - Topic 6751 Parol evidence rule - Interpretation of a legal act - Evidence of surrounding circumstances - General - [See second Practice - Topic 8808]. Insurance - Topic 1851 The insurance contract - Interpretation of contract - General - The Alberta Court of Appeal reviewed the principles applicable in interpreting insurance policies - See paragraphs 20 to 26. Insurance - Topic 1856 The insurance contract - Interpretation of contract - Exclusions - [See first Insurance - Topic 6603]. Insurance - Topic 1861 The insurance contract - Interpretation of contract - Contra proferentem rule - Ambiguity construed against insurer - [See sixth ]. Insurance - Topic 6516 Multi-peril property insurance - Exclusions - Faulty workmanship or design - [See all ]. Insurance - Topic 6592 Multi-peril property insurance - Contractor's or builder's policies - Exclusions - Faulty work, materials or design - [See all ]. cleaning company damaged the windows in a newly constructed building during a construction clean by using inappropriate tools and cleaning methods - The owner and contractor (plaintiffs) claimed under an "all risks" insurance policy - The policy excluded "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"- At issue was whether damage that occurred to the windows was excluded from coverage - The Alberta Court of Appeal held that on a proper interpretation of the exclusion, the damage to the windows in was not covered by the policy- See paragraphs 27 to 61. cleaning company damaged the windows in a newly constructed building during a construction clean by using inappropriate tools and cleaning methods - The owner and contractor (plaintiffs) claimed under an "all risks" insurance policy - The insurers relied on a clause in the policy excluding "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" - The plaintiffs argued that the work done by the window cleaning company was not "workmanship" because it did not result in the creation of any physical product - The Alberta Court of Appeal held that the plaintiffs' interpretation was too narrow - The final construction clean of the exterior of the building was as much a part of its construction as the designing of the foundations, the hammering of the nails and the pouring of the concrete - Further, the wording of the policy did not support that interpretation - See paragraphs 30 to 32. cleaning company damaged the windows in a newly constructed building during a construction clean - The owner and contractor (plaintiffs) claimed under an "all risks" insurance policy - The insurers relied on a clause in the policy excluding "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" - The plaintiffs argued that the exclusion did not apply to damage caused by one contractor (the window cleaning company) to the work of another (the company that supplied and installed the windows) - Rather the plaintiffs claimed that the exclusion only applied when the contractor (through poor workmanship) damaged a part of the building actually supplied or built by that same contractor - The Alberta Court of Appeal rejected the plaintiffs' argument - See paragraphs 33 to 43. Multi-peril property insurance - Exclusions - Exception for "resulting damage" - An all risks insurance policy respecting the construction of a building covered all "direct physical loss or damage except as hereinafter provided" - The policy did not insure "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" - The Alberta Court of Appeal held that the test of the connectedness between the work, the damage and the physical object or system being worked on was to be applied in determining the boundary between "making good faulty workmanship" and "resulting damage"- "The presumptive test is that damage which is physically or systemically connected to the very work being carried on is not covered. Whether coverage is nevertheless extended under that test in the factual context of any particular case will depend on the consideration of the factors listed above (supra, para. 50). Those factors all engage elements of 'causation' and 'foreseeability', concepts which are well known in the common law, when applying the policy wording to particular factual situations. The presumptive test stated above reflects the proper interpretation of the policy, but these collateral factors will come into play in applying the policy wording to particular factual situations, especially in extreme cases" - See paragraphs 44 to 57. cleaning company damaged the windows in a newly constructed building (EPCOR Tower) during a construction clean - The owner and contractor (plaintiffs) claimed under an "all risks"
insurance policy - The insurers relied on a clause in the policy excluding "the cost of making good faulty workmanship... unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage" - The Alberta Court of Appeal held that "The exclusion (considered together with the exception) excludes from coverage the cost of redoing the work. But it also excludes damage connected to that work, such as any damage caused to the very object or part of the work on which the faulty workmanship is being applied. In this case, the cost of redoing the exterior cleaning of the EPCOR Tower is admittedly excluded. Also excluded is the damage to the windows being worked on at the time, which damage was directly caused by the cleaning activities that constituted the faulty workmanship. This damage was not only foreseeable, but it was highly likely (even inevitable) that this type of damage would result if the work was done in a faulty way. That type of damage is presumptively not within the scope of the insurance policy; the policy is not a construction warranty agreement" - See paragraphs 44 to 57. cleaning company damaged the windows in a newly constructed building (EPCOR Tower) during a construction clean - The owner and contractor (plaintiffs) claimed under an "all risks" insurance policy - The insurers relied on a clause in the policy excluding "the cost of making good faulty workmanship... unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage" - The trial judge held that the policy was ambiguous and, applying the doctrine of contra proferentum, held that the damage to the windows was covered by the policy - The insurers appealed - The Alberta Court of Appeal allowed the appeal, holding that there was no need to resort to the residual technique of construing the policy against the party that drafted it - A review of the wording of the policy, as well as the significant body of case law which had interpreted it, permitted the case to be decided based on the proper interpretation of the scope of coverage provided by the policy wording - See paragraphs 58 to 61. Insurance - Topic 6641 Multi-peril property insurance - Interpretation - General - [See first ]. Practice - Topic 8800.1 Appeals - General principles - Duty of appellate court regarding findings of mixed law and fact by a trial judge - [See second Practice - Topic 8808]. Practice - Topic 8808 Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge (incl. contractual interpretation) - The Alberta Court of Appeal in discussing the standard of review on an appeal involving the interpretation of an insurance contract (a "specialized form of contract"), noted that the Supreme Court of Canada in the Sattva Capital Corp. case (2014) had occasion to consider the standard of review for general contracts - The appeal court stated that "The reasons in Sattva must be read having regard to the context in which it was decided. Appeals from the Court of Queen's Bench of Alberta to the Alberta Court of Appeal can be brought on any basis. While all appeals must be decided within the
context of the appropriate standard of review, appeals are available on questions of law, mixed questions of fact and law, and questions of fact. Some of the restrictive language in Sattva does not apply to ordinary appeals in Alberta" - See paragraphs 12. Practice - Topic 8808 Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge (incl. contractual interpretation) - In the Sattva Capital Corp. case (2014), the Supreme Court of Canada considered the standard of review for the interpretation of general contracts - The court concluded, inter alia, that evidence of surrounding circumstances could be considered in interpreting the contract - The Alberta Court of Appeal stated that "Clearly all contracts have 'surrounding circumstances' and are made within a certain 'context'. They are described in Sattva at para. 60 as 'facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting'. Sattva does not alter the core parol evidence rule: the test for 'context' is objective, and the parties are still not allowed to testify as to their subjective understanding of 'what the contract really means or was intended to mean'. Sattva recognizes the traditional legal techniques of interpreting contracts, and provides at para. 50 that 'the principles of contractual interpretation' (the legal component) are applied to the words of the written contract, 'considered in light of the factual matrix' (the factual component). Thus, the interpretation of the contract is a question of mixed fact and law reviewable for reasonableness, although extricable errors of law are still reviewed for correctness" - See paragraph 13. Practice - Topic 8808 Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge (incl. contractual interpretation) - A window cleaning company damaged the windows in a building during a construction clean - The owner and contractor claimed under an "all risks" insurance policy - The policy excluded "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" - The trial judge held that the damage was covered by the policy, notwithstanding the exclusion - The insurers appealed - The Alberta Court of Appeal discussed the standard of review - "The underlying findings of fact (for example, on how the windows were damaged) are subject to review only for palpable and overriding error. The interpretation of the key wording of the policy, and specifically the exclusion of "making good faulty workmanship... [but not]... resulting damage", is a question ultimately reviewable for correctness. The application of that legal interpretation of the policy to any contextual facts found to exist would potentially be a mixed question of fact and law, which would be entitled to deference on review..." - See paragraphs 12 to 19. Words and Phrases Workmanship - The Alberta Court of Appeal discussed the meaning of the word "workmanship" as it was used in an exclusion in an all risks builders insurance policy - See paragraphs 30 to 32. Cases Noticed:
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245; 406 N.R. 182; 293 B.C.A.C. 1; 496 W.A.C. 1; 2010 SCC 33, refd to. [para. 11]. Creston Moly Corp. v. Sattva Capital Corp. (2014), 461 N.R. 335; 373 D.L.R.(4th) 393; 2014 SCC 53, consd. [para. 12]. Atomic Energy of Canada Ltd. v. Wilson (2015), 467 N.R. 201; 2015 FCA 17, refd to. [para. 17]. Housen v. Nikolaisen et al. (2002), 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 17]. Gibbens v. Co-operators Life Insurance Co., [2009] 3 S.C.R. 605; 396 N.R. 165; 278 B.C.A.C. 283; 471 W.A.C. 283; 2009 SCC 59, refd to. [para. 17]. Association des parents ayants droit de Yellowknife et al. v. Northwest Territories (Attorney General) et al., [2015] A.R. TBEd. JA.070; 2015 NWTCA 2, refd to. [para. 18]. Triple Five Corp. et al. v. Simcoe & Erie Group et al. (1994), 159 A.R. 1; 29 C.C.L.I.(2d) 219 (Q.B.), refd to. [para. 24]. Ploutos Enterprises Ltd. v. Stuart Olson Constructors Inc. et al., [2008] B.C.T.C. Uned. 126; 60 C.C.L.I.(4th) 59; 2008 BCSC 271, refd to. [para. 24]. Poole Construction Ltd. v. Guardian Insurance Co., [1977] I.L.R. 625; 4 A.R. 417 (T.D.), refd to. [para. 24]. Humphries et al. v. Lufkin Industries Canada Ltd., [2011] A.R. Uned. 613; 68 Alta. L.R.(5th) 175; 2011 ABCA 366, refd to. [para. 26]. BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81, refd to. [para. 26]. Simcoe and Erie General Insurance Company v. Royal Insurance Company of Canada and Federal Insurance Company (1982), 36 A.R. 553; 19 Alta. L.R.(2d) 133, refd to. [para. 36]. Algonquin Power (Long Sault) Partnership et al. v. Chubb Insurance Co. of Canada et al., [2003] O.T.C. 446; 50 C.C.L.I.(3d) 107 (Sup. Ct.), refd to. [para. 36]. Imperial Oil Ltd. and Wellman-Lord (Alberta) Ltd. v. Commonwealth Construction Ltd., [1978] 1 S.C.R. 317; 12 N.R. 113; 1 A.R. 161, refd to. [para. 37]. Inland Concrete Ltd. et al. v. Commonwealth Insurance Co. (2011), 518 A.R. 379; 46 Alta. L.R.(5th) 304; 2011 ABQB 378, refd to. [para. 37]. Pentagon Construction (1969) Co. v. United States Fidelity and Guaranty Co., [1977] 4 W.W.R. 351; 77 D.L.R.(3d) 189 (B.C.C.A.), refd to. [para. 37]. Ontario Hydro v. Royal Insurance, [1981] O.J. No. 215, refd to. [para. 41]. Sayers and Associates Ltd. v. The Insurance Corporation of Ireland, [1981] I.L.R. 1-1436; 126 D.L.R.(3d) 681 (O.C.A.), refd to. [para. 46]. Canadian National Railway Co. et al. v. Royal & Sun Alliance Insurance Co. of Canada et al., [2004] O.T.C. 851; 15 C.C.L.I.(4th) 1 (Ont. Sup. Ct.), revd. (2007), 222 O.A.C. 129; 85 O.R.(3d) 186 (C.A.), revd. [2008] 3 S.C.R. 453; 381 N.R. 332; 243 O.A.C. 340; 2008 SCC 66, refd to. [para. 46]. British Columbia Rail Ltd. v. American Home Assurance Co. (1991), 79 D.L.R.(4th) 729; 54 B.C.L.R./(2d) 228 (C.A.), refd to. [para. 46]. Triple Five Corp. v. Simcoe & Erie (1997), 196 A.R. 29; 141 W.A.C. 29; 47 Alta. L.R.(3d) 310 (C.A.), affing. (1994) 159 A.R. 1; 29 C.C.L.I.(2d) 219, refd to. [para. 46]. Poole-Pritchard Canadian Ltd. and Armstrong Contracting Canada Ltd. v. Underwriting
Members of Lloyds (1969), 71 W.W.R. 684 (Alta. S.C.), refd to. [para. 46]. British Columbia v. Royal Insurance Co. of Canada (1991), 60 B.C.L.R.(2d) 109; 4 C.C.L.I.(2d) 206 (C.A.), refd to. [para. 46]. Bird Construction Co. v. United States Fire Insurance Co. (1985), 45 Sask.R. 96; 24 D.L.R.(4th) 104 (C.A.), refd to. [para. 46]. Foundation Co. of Canada Ltd. v. American Home Assurance Co. (1995), 25 O.R.(3d) 36 (Gen. Div.), affd. [1997] O.A.C. Uned. 327 (C.A.), refd to. [para. 46]. Greene and Warford v. Canadian General Insurance Co. (1995), 133 Nfld. & P.E.I.R. 151; 413 A.P.R. 151; 23 C.L.R.(2d) 203 (Nfld. C.A.), affing. (1991), 90 Nfld. & P.E.I.R. 271; 280 A.P.R. 271; 5 C.C.L.I.(2d) 193, refd to. [para. 46]. Willowbrook Homes (1964) Ltd. v. Simcoe and Erie General Insurance Co., [1980] I.L.R. 876; 22 A.R. 95 (C.A.), refd to. [para. 46]. CIC Mining Corp. et al. v. Saskatchewan Government Insurance, [1994] 10 W.W.R. 1; 123 Sask.R. 219; 74 W.A.C. 219 (C.A.), refd to. [para. 46]. Foundation Co. of Canada Ltd. v. Aetna Casualty Co. of Canada, [1975] I.L.R. 1-757; 21 C.L.R.(2d) 205, refd to. [para. 47]. BSI Constructors Inc. v. Hartford Fire Insurance Co., 705 F3d. 330 (U.S. C.A. 8th Circ.), refd to. [para. 47]. Canadian National Railway Co. et al. v. Royal & Sun Alliance Insurance Co. of Canada et al., [2008] 3 S.C.R. 453; 381 N.R. 332; 243 O.A.C. 340; 2008 SCC 66, refd to. [para. 58]. Counsel: D.J. Hannaford and D.A. Curcio Lister, for the respondent, Ledcor Construction Limited; G.J. Tucker, for the appellants; W.A. Hanson, for the respondent, Station Lands Ltd. This appeal was heard on January 9, 2015, before Côté, Watson and Slatter, JJ.A., of the Alberta Court of Appeal. The following memorandum of judgment was delivered by the Court on March 27, 2015. Editor: Elizabeth M.A. Turgeon Appeal allowed.