Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2013 ABQB 585

Court of Queen ’ s Bench of Alberta Citation: Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2013 ABQB 585 Date: 20131007 Docket: 1203 09878, 1203 09894 Registry: Edmonton Between: Action No.: 1203 09878 Ledcor Construction Limited Plaintiff - and - Northbridge Indemnity Insurance Company, Royal & Sun Alliance Insurance Company of Canada, and Chartis Insurance Company of Canada Defendants - and – Action No.: 1203 09894 Station Lands Ltd. Plaintiff - and - Commonwealth Insurance Company, GCAN Insurance Company, and American Home Assurance Company Defendants _ ________________________________________ ______________

Reasons for Judgment of the Honourable Mr. Justice T.D. Clackson _________________________________________ ______________ 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. 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. 900-902). 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 theinsurer (Gibbens, at para. 25; Scalera, at para. 70; Consolidated-Bathurst, at pp. 899-901). One corollary of the contra proferentem ruleis 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 SCC 33 , [2010] 2 S.C.R. 245. [9] It is accepted that interpreting an insurance policy requires one to consider firstly coverage, then exclusion and finallyexception 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 toclause 4(A)’s exclusion for “resulting damage”. As a result, the onus is on the defendants to establish that the loss is excluded. If thatonus 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 involveda period of testing which included an acid wash of the boiler tubing followed by flushing of the acid wash. At the end of the testingperiod the tubing was discovered to have been damaged. The plaintiff claimed on its policy of all risks insurance.

The defendant insurerdenied, relying upon an exclusion 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 advisedagainst 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 thetubing.

Labrosse, J. concluded all of that represented faulty workmanship which in his view, was excluded from the policy on its plainand ordinary meaning. No reasons were offered for that conclusion. However, I agree with the conclusion that the process engagedamounted 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 theacid 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 properlyembraced 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), (SK KB), 110 Sask. R. 15 (Q.B.)reversed in part (1994) (SK CA), 123 Sask. R. 219 (C.A.).

The court in Barre offered a conclusion without expressedanalysis and with respect, I disagree for the reasons stated above. That court appears to have been attempting to draw a distinctionbetween 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 Bristolwas faulty. In result, I think the words of the exclusion portion of clause 4(

A) are clear and free from ambiguity. The “cost of makinggood” Bristol’s faulty workmanship is excluded. However, the meaning of the words “making good” in the exclusion portion of clause4(

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 itright. That is the plaintiffs’ position. It is also plausible that “making good” faulty cleaning extends to the damage done by the faultycleaning. That is the defendants’ position.

The defendants argued that Ontario Hydro supports their argument that the thing damaged bycleaning is excluded. In Ontario Hydro it is fair to conclude that the acid cleaning wasn’t simply cleaning, it was part of the installationcommissioning process, therefore the very thing being done, installing the boiler, damaged it and therefore one could conclude that thedamage to the boiler was not resultant. That appears to be what Labrosse, J. concluded. Of course if the damage to the boiler was notresultant damage, the damage was excluded, because the exception could not apply.

Since the damage was not resultant and thereforenot excepted from the exclusion, then one is forced to conclude, as did Labrosse, J. that the damage was directly related to theworkmanship. The corollary to that conclusion is that resultant damage is intended to cover something more indirect.

Therefore, byanalogy, one could conclude that the words “making good” in the policy before, me using Ontario Hydro as a guide, are focussed on thedirect 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. Inthe 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 inProgressive Homes, it appears, therefore, that the language of the exclusion is ambiguous. In the context of what is an all risk or builderspolicy stipulating coverage for virtually any event which might occur by way of negligence, third party action or act of God, one couldconclude that an exclusion as suggested by the defendants is inconsistent.

Additionally, Bristol, as a sub-contractor is an additionalinsured under the policy. Subrogation by the insurers against Bristol can be waived at the option of the plaintiffs. Again, all of thatsuggests 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 thereasonable expectations of the parties, the foregoing factors weigh somewhat in favour of the plaintiffs’

interpretation of the exclusionbut not conclusively. There is really nothing else that assists in determining the ambiguity. Therefore, since the exclusion must beconstrued 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 inapproximately July and August of 2001 is not excluded from coverage under the builders risk insurance policy no. A2600322 betweenthe plaintiffs as insureds and the defendants as insurers by virtue of exclusion clause 4(

A) as being the cost of making good faultyworkmanship. [19] The parties may address me on the subject of costs by appointment.

Heard on the 27 th day of September, 2013. Dated at the City of Edmonton, Alberta this 7 th day of October, 2013. T.D. Clackson J.C.Q.B.A. 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