The Supreme Court has clarified when an appeal court should defer to the trier of fact in interpreting standard form contracts, which are commonly used in insurance policies. Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., released today, overturned an Alberta Court of Appeal decision that had found an insurance company was not required to cover the cost of replacing windows that had been scratched by cleaners on a construction site.
During construction, window cleaners had used improper tools and methods and ultimately the windows had to be replaced. The building’s owner, Station Lands, and the general contractor in charge of the construction project, Ledcor Construction, claimed the cost of replacing the windows against a builders’ risk insurance policy. The insurers denied coverage on the basis of an exclusion contained in the policy for the “cost of making good faulty workmanship.”
The disputed clause in the insurance contract excluded the “cost of making good faulty workmanship” but made an exception to that exclusion for “physical damage” that “results” from the faulty workmanship. Justice Wagner, writing for the majority, found that the exclusion clause should only cover the cost of recleaning the windows, but it did not exclude the scratched windows’ replacement cost. This restored the trial decision’s finding that the replacement was covered. The Alberta Court of Appeal had overturned the trial judge’s decision and declared that the damage to the building’s windows was excluded from coverage, as the damage was “physically or systematically connected” to the work the contractor had performed.