In Ledcor Construction Ltd v Northbridge Indemnity Insurance Co., the Alberta Court of Queen’s Bench has once again reminded insurers to exercise extreme caution when drafting policy exclusions. Ambiguity will always be interpreted in favour of the insured.
The insured had contracted with a cleaning company near the end of a construction project to clean debris from the exterior of the building, including the windows. The windows were so badly scratched and damaged they had to be replaced. The insured looks to its insurer for the cost of the replacement windows. Coverage was denied.
The insurer argued that the cost of replacing the windows amounted to “the cost of making good faulty workmanship”, and therefore fell within an exclusion clause in the policy.
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 [emphasis added]...
The insured took the position that in the context of the loss, “the cost of making good faulty workmanship” meant the cost of having the cleaning re-done. They framed the claim as seeking recompense for the damage done in the course of cleaning.
The Court held that the both interpretations of the policy language were plausible; that the cost of “making good” faulty cleaning excluded the cost of having someone else redo the cleaning or that “making good” faulty cleaning included paying for the damage caused.
An exclusion clause with two possible meanings can only mean one thing – coverage for the insured. The Court also considered the expectations of the parties and held that an insured would expect a broad “all risk” policy to cover this type of damage.
While this case does not create new law, it serves as a stark reminder of the care that must be taken when drafting exclusions to consider alternate ways the language could be read.