Canada: What A Pain In The Glass: The Supreme Court Of Canada Impacts Construction And Insurance Industries

Last Updated: September 23 2016
Article by Dennis L. Picco, Q.C., M.

Builders risk coverage extended to "service providers" and not just to those who "construct"

The Supreme Court of Canada's recent decision, Ledcor Construction Ltd v. Northbridge Indemnity Insurance Co., 2016 SCC 37, impacts the construction and the insurance industries. The decision addresses whether a "service provider" is afforded the same protection under a Builders' Risk policy as a "constructor" of a physical object by clarifying when the exception to the faulty workmanship exclusion applies.


Station Lands Ltd. and Ledcor Construction Limited (collectively the "Insureds") had "all risk" (aka Builders' Risk) policies through their respective insurers for losses suffered during construction of a new skyscraper in Edmonton (the "Tower").

The Insureds hired a cleaning contractor to remove concrete spatter and other debris from the Tower's exterior windows, however the contractor used inappropriate tools and cleaning methods, causing scratches and other damage. The Insureds claimed against the Builders' Risk policies for the replacement of the damaged windows.

The insurers denied, relying on the "faulty workmanship" exclusion:

This policy section does not insure:

  1. 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 issue at trial and upon appeal was whether the insurance policies excluded the damage that occurred to the windows or if the Insureds fell within the exception to the exclusion.

At trial, the Court held that the insurance provision was ambiguous. As such, the provision was interpreted against the insurers and coverage was extended to the Insureds.

Upon appeal, the Alberta Court of Appeal ("ABCA") reviewed the decision on the standard of correctness on the basis that an insurance policy is a highly specialized form of contract, and the interpretation of such policies has general importance beyond any particular dispute.

Regarding coverage for the faulty work, the ABCA developed a new "physical or systemic connectedness" test that incorporated elements of causation and foreseeability. Ultimately the ABCA held that the damage to the Windows was directly caused by the cleaning activities that constituted the faulty workmanship, and coverage under was denied.

The Supreme Court of Canada (SCC) decision

The SCC responded to two primary issues in the decision.

  1. What is the proper standard of review for standard form contracts?
  2. What is the correct approach to interpreting the "all risks" coverage, in particular the faulty workmanship provision in question?

In responding to the above questions the SCC held that, generally, interpretation of standard form contracts is a question of law, and therefore subject to review on a standard of correctness. In select circumstances, depending on if the factual matrix of a standard form contract assists in interpreting the contract, more deference may be warranted. The Court also states that if the parties negotiated and modified the initial standard form contract, this may warrant a higher level of deference because the interpretation will have no precedential value to others.

Regarding the proper approach to interpretation, the governing principles for interpreting insurance policies can be found in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 SCR 245, 2010 SCC 33. Where the policy is unambiguous, effect should be given to that clear language, reading the contract as a whole. Where there is ambiguity, the interpretation should be consistent with the reasonable expectations of the parties, so long as it is supported by the language of the policy, and should not yield unrealistic results. If the ambiguity remains, the principal of contra proferentum can be applied to construe the policy against the drafter.

The policy in this instance was ambiguous. Therefore, the SCC looked to the reasonable expectations of the parties. Builders' risk policies have high premiums, which are paid in order to receive broad coverage. Such policies provide certainty and stability by granting coverage, which in turn reduces the need for litigation. The Court held that the interpretation—that was consistent with the reasonable expectations of the parties—was that the "faulty workmanship exclusion serves to exclude from coverage only the cost of redoing the faulty work" (at para 63, see also para 95). The faulty work was improperly cleaning the windows. As a result, the policy does not cover the cost of re-cleaning the windows, but does cover the replacement cost of the windows.

In any event, if the Court could not resolve the ambiguity through general interpretation principals, the principal of contra proferentum would apply and the Court would reach the same conclusion that coverage existed.

The SCC further held that the ABCA's physical or systemic connectedness test was unnecessary.

In the end, the Appeals were allowed and costs throughout were awarded to the Insureds.

Impact of the decision

From the trial decision up to the SCC decision, two concerns continually surfaced. First, that insurance policies should not act as a warranty of a contractor's work. Second, a finding in favour of the Insureds would encourage project owners to compartmentalize or split up work on a project, because coverage would depend on how work was divided up between the various contractors.

To address the first concern, the SCC clarified that its decision does not turn all risk policies into warranties of faulty work. The cost of redoing any faulty work is still excluded from coverage and the SCC's decision should not be construed as permitting contractors to perform their work improperly. Contractors are also precluded from collecting initial payment for completing the faulty work and then receiving further payment to replace the faulty work (see para 80).

Regarding the second issue, the SCC specifically dismissed it because any such concerns do not reflect the commercial reality surrounding construction projects (see para 82). From a cost/benefit perspective, any coverage benefits that the project owner could derive from dividing or compartmentalizing the work would be negated by the risk of delays or complications from over-splitting the work between contractors.

Further, this decision will impact the litigation of standard form insurance policies. When courts are faced with interpreting such policies, they will now be bound by decisions regarding proper interpretation from higher courts because interpreting standard form contacts is now established as a question of law, to be given precedential weight.

Dennis Picco argued the case for the successful owner.

This article was co-authored by David Sommerfeldt, an Associate in Dentons' Edmonton office.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
22 Jan 2018, Webinar, Toronto, Canada

OHS legislation in Alberta and Ontario is changing. The Ontario amendments (including maximum fines and the limitation period for laying charges) are already in effect, and the Alberta amendments (including mandatory joint work site health and safety committees and new duties and obligations for various parties) will come into force soon.

29 Jan 2018, Seminar, Toronto, Canada

Regulatory reforms introduced in the aftermath of the 2008 financial crisis have created a "New Normal," impacting capital markets and other areas of the investment industry.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions