Builder's risk policy - Policies and insurance contracts - Coverage - Exclusions - Interpretation of policy - defective workmanship - Contra proferentum rule

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.

Dispute over the meaning of "making good" faulty workmanship in an exclusion clause of a builders risk policy. The court found the clause was ambiguous and it was construed contra proferentem against the insurers.

[2013] A.J. No. 1088

2013 ABQB 585

Alberta Court of Queen's Bench

T.D. Clackson J.

October 7, 2013

The insureds are the owner and general contractor of the newly constructed EPCOR Tower. In the course of cleaning the building near the completion of construction, a cleaning company scratched and damaged the building's windows. The insureds' claim on their builders risk policy was denied. The insurers relied upon the following exclusion:

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 shall insure such resulting damage.

The parties conceded that the loss was covered but for the disputed interpretation of clause 4(A). The insureds argued that the exclusion clause did not apply because they were not claiming coverage for "making good" the faulty cleaning, but seeking compensation for the damage that the cleaning company did in the course of cleaning.

The insurers argued that the exclusion applied because the claim was based upon faulty work and any damage done by the cleaning was not resultant damage in the sense of being separate from the nature of the work being performed.

The Court concluded that the work done by the cleaning company was clearly faulty. In the result, the cost of "making good" the cleaner's faulty workmanship was excluded. However, the meaning of the words "making good" in clause 4(A)(b) was ambiguous. The Court found that "making good" could relate to the faulty workmanship (i.e., the cleaning) or the thing on which the faulty workmanship was performed (i.e., the building exterior). The Court noted that it was plausible that excluding the cost of "making good" faulty cleaning simply excluded the cost of having someone else do it right. It was also plausible that "making good" faulty cleaning extended to the damage done by the faulty cleaning. The Court found that there were some factors weighing in favour of the insureds' interpretation of the exclusion clause but these factors were not conclusive. The Court found that the exclusion clause was ambiguous and construed the exclusion clause contra proferentem against the insurer and found that the exclusion failed to apply. Accordingly, the damage caused to the windows of the EPCOR Tower was not excluded from coverage under the builders risk policy.