Property Damage Not Peril Under Multi-Peril Insurance Policy
Recently, Alberta’s Court of King's Bench held a multi-peril contract of insurance did not cover damage sustained to the structural integrity of a parkade. In Condominium Corporation No. 9312374 v Aviva Insurance Company of Canada, 2018 ABQB 674, faulty workmanship resulted in damage to the structural integrity of a parkade. A claim for indemnification was made by the Condominium Corporation (the “Insured”) and denied by Aviva. The Insured brought an action in an attempt to secure coverage and an Application was heard before Master Prowse as to whether the Insured’s policy excluded the damage plead in its Statement of Claim. Master Prowse ultimately decided the Insured’s policy covered the damage plead notwithstanding an exclusionary clause (reproduced below) providing said policy did not insure “the cost of making good ... faulty or improper workmanship.” Aviva appealed Master Prowse’s decision.
Briefly, the Honourable Mr. Justice Hall held the damage sustained was (undoubtedly) a result of “faulty or improper workmanship” and, further, was neither itself a peril nor the result of an otherwise insured peril. Accordingly, Justice Hall concluded the damage sustained (i.e., the cost of contracted work and repairing the parkade’s structural integrity) was excluded by Section I, paragraph 6(G)(b) and failed to trigger the exception to said exclusion.
Notably, Justice Hall distinguished the Supreme Court of Canada’s decision in Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37, wherein a builder’s risk / course of construction insurance policy was found to cover the cost of removing and replacing windows damaged by faulty workmanship notwithstanding an exclusionary clause providing the policy did not insure “[t]he 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.” Here, Justice Hall held the policy at issue was not a builder’s risk / course of construction policy and was merely intended to insure against peril not otherwise excluded (i.e., those considerations underlying the Supreme Court of Canada’s decision were inapplicable).
Ultimately, Justice Hall concluded the property damage sustained was not covered by the Insured’s policy.
It is imperative insureds consider whether coverage extends to the costs of repairing faulty or improper design, material, and workmanship prior to undertaking any construction / renovation work. It may be prudent to procure additional insurance (i.e., builder’s risk / course of construction insurance) prior to commencing any construction / renovation work.
For insurers, this decision suggests the effect of the Supreme Court of Canada’s decision in Ledcor is perhaps not as broad as anticipated. Accordingly, in every case, the specific wording of a policy and its exclusions must be closely examined when assessing whether the considerations set out in Ledcor apply.
The impugned provision (Section I, paragraph 6(G)(b) of the Insured’s policy reads as follows:
Coverage A of Section I does not insure:
(b)the cost of making good:
i. faulty or improper material;
ii. faulty or improper workmanship;
iii. faulty or improper design.
This exclusion does not apply to loss or damage caused directly by a resultant peril not otherwise excluded in Coverage A of Section I.