The Alberta Court of Appeal recently addressed a recurring coverage issue: the conflict between the broad protection intended by an 'all perils' property insurance policy and an exclusion for the costs of making good faulty workmanship. Based in part on the general purpose of such insurance, the decision in Condo Corp No 9312374 v Aviva Insurance Co of Canada held that property damage directly caused by the faulty workmanship of a contractor was covered, as long as it was outside the scope of work for which the contractor had been hired.(1)
The dispute involved structural damage to a residential building that resulted when a contractor hired to repair the surface of the building's parkade cut too deep into a concrete slab. Aviva denied coverage on the basis of the exclusion for "the cost of making good… faulty or improper workmanship". However, that exclusion also contained the common exception that "this exclusion does not apply to loss or damage caused directly by a resultant peril not otherwise excluded".
In construing the policy language (which was found to be ambiguous given the lack of any definition of 'resultant peril'), the court identified a number of general considerations:
- The purpose behind multi-peril or all-risk policies is to provide broad coverage for fortuitous loss or damage, affording the insured certainty, stability and peace of mind.
- The intent of faulty workmanship exclusions is to discourage contractors (or those hiring them) from cutting corners and being careless in order to save money and then relying on the insurer to pay the cost of correcting their mistakes.
- The case law has reconciled these two principles by having the excluded cost of making good faulty or improper workmanship informed by the scope of work contracted for.
Applying these considerations, the court held that because the contractor had not been hired to perform structural work, the policy covered the costs to fix the accidental structural damage (the parties agreed that there was no coverage for repairing the surface work to the parkade). Regarding Aviva's broad interpretation to the contrary – which would exclude all consequences of faulty workmanship – the court stated that: "Such an interpretation does not accord with the reasonable expectations of the parties, the commercial reality nor the wording of the exclusion clause itself."
The decision in Condo Corp No 9312374 is helpful for policy holders because it extends the principles previously enunciated by the Supreme Court of Canada in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co(2) from a builder's all-risk policy context to the property insurance sphere, and does so where the exclusion language is much less explicit. While the policy wording will always be paramount, the Alberta Court of Appeal's decision provides strong protection for an insured's reasonable expectations of coverage afforded by all-risk property insurance where the policy language is not entirely clear.
Endnotes
(1) Condominium Corporation No 9312374 v Aviva Insurance Company of Canada, 2020 ABCA 166.
(2) Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37.
