Canada: Insureds Score A Big Win At The SCC

Policyholders recently won a key victory at the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. as the Supreme Court clarified the interpretation of a standard form faulty workmanship exclusion clause common in builder's risk policies. The decision has wide-reaching significance to other insurance coverage disputes and to contract law generally.

The Supreme Court confirmed that only the cost to redo the faulty work is precluded from coverage by such an exclusion. Builder's risk, or "course of construction" insurance policies seek to insure against certain defined risks which may occur during the construction process. Such policies generally provide coverage for the owner of the property under construction, the general contractor, and all contractors and subcontractors working on the project. The exclusion at issue in this decision excluded from coverage "the cost of making good faulty workmanship", but provided an exception for resultant damage (the "Exclusion Clause").

Background and Decisions Below

Ledcor Construction Limited ("Ledcor") was the general contractor for the construction of the EPCOR Tower ("Tower"), an office building in Edmonton owned by Station Lands Ltd. ("Station Lands"). The Tower's installed windows were dirtied during the construction process and Station Lands hired Bristol Cleaning ("Bristol") to clean the windows prior to completion of construction. Due to the use of improper tools and cleaning methods, Bristol's work caused scratching to the Tower's windows, which ultimately had to be replaced at a cost of approximately $2.5 million. Ledcor and Station Lands both claimed the cost against the Policy through their insurers at the time. The insurers denied the claim on the basis of the Exclusion Clause.

At trial, it was determined that Bristol's cleaning work constituted "workmanship" and that it had been faulty. However, the trial judge found the Exclusion Clause ambiguous and applied the rule of contra proferentem against the insurers, finding that the "cost of making good" encompassed only the cost of redoing the cleaning work and not the resultant damage.

The Alberta Court of Appeal reversed the trial judge's decision, declaring that the damage to the Tower's windows was excluded from coverage.

The Supreme Court of Canada Decision

Standard Form Contracts are Unique

The Supreme Court of Canada allowed the appeal. Before addressing the interpretation of the Exclusion Clause, Wagner J. (writing for the eight Justice majority) took the opportunity to clarify how its previous decision, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, applies to the interpretation of standard form contracts. Sattva held that contractual interpretation is a question of mixed fact and law as it requires the application of contractual interpretation principles to the words of the written contract, considered in light of the factual matrix, and is therefore owed deference on appeal.

The Court in Sattva stated that the correctness standard of review is reserved for the rare occasion where it may be possible to identify an extricable question of law in contractual interpretation, such as the application of an incorrect principle, the failure to consider a required element of a legal test or the failure to consider a relevant factor.

The Supreme Court recognized an exception to its holding in Sattva, concluding that where the "appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix specific to the particular parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review" (para 46).

In recognizing this exception, the Supreme Court also noted that there may be certain circumstances under which the interpretation of a standard form contract may be a question of mixed fact and law, warranting deferential review on appeal. Such circumstances include cases where the factual matrix of a standard form contract that is specific to the particular parties assists in the interpretation, and situations where the parties negotiated and modified what was initially a standard form contract.

Cromwell J., concurring in the result, disagreed with the above exception. He concluded there is no reason to exclude standard form contracts from the general principles that apply to appellate review in civil cases and as such the applicable standard of review was palpable and overriding error. Applying this standard, Cromwell J. saw no reviewable error in the trial judge's analysis.

The Exclusion Clause was Ambiguous and Interpreted in Favour of the Insured

The Supreme Court then turned its attention to the proper interpretation of the Exclusion Clause. Both parties argued the Exclusion Clause was unambiguous, yet arrived at completely different conclusions as to its meaning. The insureds argued that only the cost of redoing the faulty work, i.e. the cleaning, was excluded from coverage. The insurers, on the other hand, argued that both the cost of redoing the work and the cost of repairing the property that is the subject of the faulty work, were excluded. The insurers contended that the resulting damage exception referred to consequential damage to some other part of the insured property or project.

The Supreme Court, while slightly favouring the interpretation of the insurers, found the clause had two plausible interpretations and was therefore ambiguous. Using general principles of contractual interpretation to resolve the ambiguity, the Supreme Court concluded "the faulty workmanship exclusion serves to exclude from coverage only the cost of redoing the faulty work, as the resulting damage exception covers costs or damages apart from the cost of redoing the faulty work" (para 63). As such, only the cost to reclean the windows was excluded; the replacement cost of the damaged windows was covered by the Policy.

The Supreme Court resolved the ambiguity in reliance on three general principles of contract interpretation, rendering resort to the contra proferentem rule unnecessary:

  • First, the Supreme Court found support for its interpretation with reference to the reasonable expectations of the parties. The Supreme Court drew on the purpose behind builder's risk policies as a reflection of the reasonable expectations of the insurers and insureds. Such policies provide broad coverage for construction projects in order to reduce the need for litigation between the various contractors over liability for repairs. To preclude coverage under the faulty workmanship clause merely because the damage occurs on that part of the project the contractor was working on would undermine the purpose behind builder's risk policies.
  • Second, this interpretation accords with the commercial context in which insurance contracts occur. The broad scope of coverage creates economies and certainty for both insureds and insurers. Such an interpretation does not transform the policy into a warranty, as the costs to redo the faulty work are excluded from coverage.
  • Third, an interpretation limiting the scope of the faulty workmanship clause to the cost of redoing the faulty work is consistent with prior jurisprudence, including interpretations generally given by courts in faulty design cases.


This decision confirms that the faulty workmanship exclusion clause and the "resulting damage" exception to that exclusion is restricted to denying only the cost of redoing the faulty work. Resulting damage generally will not be excluded.

This decision also clarifies that, generally speaking, the interpretation of standard form insurance contracts is a question of law. This will make such interpretations more amenable to summary judgment and provide for less deference of such interpretations on appeal.

Finally, this decision serves as a good reminder of basic principles of interpretation employed to resolve ambiguity: to the extent it is supported by the language of the policy, the interpretation should be consistent with the reasonable expectations of the parties; it should not give rise to unrealistic results or those that do not accord with commercial reality; and it should be consistent with the interpretations of similar insurance policies. Resort to the contra proferentem rule will only be necessary if the ambiguity remains after applying these principles.

Case Information

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37

File No: 36452

Date of Decision: September 15, 2016

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.

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.

Similar Articles
Relevancy Powered by MondaqAI
Burnet, Duckworth & Palmer LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Burnet, Duckworth & Palmer LLP
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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