Canada: SCC Holds That "Faulty Workmanship" Exclusion Does Not Preclude Coverage

Last Updated: October 12 2016
Article by Oliver Fitzgerald and Derrick S. Pagenkopf

Most Read Contributor in Canada, October 2018

The insurance industry will be interested in Ledcor Construction Ltd v. Northbridge Indemnity Insurance Co1 because of principles the Supreme Court of Canada applied to the "faulty workmanship" exclusion in a Builders' Risk policy. The Court held that the exclusion does not preclude coverage "merely because the damage results to that part of the project on which the contractor was working."

The decision also establishes that insurance contracts need to be interpreted consistently because they are standard form contracts.  This was noted to be an exception to the Court's decision in Sattva2 where it was decided that the interpretation of a contract was reviewed on a reasonableness standard on appeal: this meant that there would be no "correct" interpretation of a contract. The Court recognized that standard insurance contracts cannot be given different meaning in different situations.


The claim arose from scratched windows. A contractor was hired to clean the windows of a recently-completed office tower. In carrying out the work, the contractor scratched the windows resulting in some $2 million in costs to replace damaged windows.

The owner and the general contractor claimed against the project all-risk Builders' Risk policy. The insurers denied the claim, relying on the exclusion clause, which provided that the policy did not insure:

The 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.

The Alberta Court of Queen's Bench found that the window-cleaning was "faulty workmanship" and that the exclusion clause did not exclude the damage that the cleaning caused. The Court of Appeal reversed that decision on the grounds that the coverage was for physical loss or damage and therefore the exclusion had to be interpreted to exclude from coverage some kind of physical loss.  The Court of Appeal developed a test of physical connectedness to find the boundary between faulty workmanship and resulting damage.

The Supreme Court's Decision

The Supreme Court concluded that the damaged glass was covered as resultant damage.  It rejected the lower court's conclusion that the covered damage could not be to the part of the building that the contractor was working on. It found the physical connectedness test to be unnecessary.

Because the Supreme Court found the exclusion clause to be ambiguous it applied well established principles for the interpretation of insurance contracts. It looked to the broader purpose of the policy for guidance, noting that all-risk coverage is meant to be broad and faulty workmanship exclusions are meant to be narrow.

The insurers argued that case law supported the conclusion that resultant damage did not include damage to the part of the project on which the contractor was working.  The decision includes a helpful review of a number of cases where similar issues were considered.  The Supreme Court held: interpretation...that precludes from coverage any and all damage from a contractor's faulty workmanship merely because the damage results to part of the project on which the contractor was working would....undermine the purpose behind builders' risk policies.

This interpretation is said to coincide with the builders' realistic expectations and ensures that courts do not arrive at an unrealistic result.

Although the Supreme Court provides useful guidance on the interpretation of the exclusion clause, the decision is more significant for the decision that carves out an exception to its recent decision in Sattva Capital Corp v Creston Moly Corp3 that contractual interpretation is a question of mixed fact and law which means that interpretations must be "reasonable" but not "correct". Insurers and courts alike recognized that this meant that policy wordings could be given different meanings in different contexts.

The Supreme Court noted that insurance contracts "are generally determined by the standard form contract" and concluded that interpretation of standard form contracts is "a question of law in most circumstances".

The foregoing means that previous precedent will guide the interpretation of insurance contracts. Unlike other contracts, the factual circumstances in which the contract is signed are largely unimportant since insurance coverage conditions are usually very similar amongst customers. To ensure consistency and predictability for insurers and their customers, courts need to interpret the same contractual language the same way.  This is possible when trial courts interpret contractual language on a correctness standard, rather than the less precise reasonableness standard. 

Concerns for Insurers

While the decision appears to settle the question of how policies should be interpreted and the value of precedent cases, some concern arises from the fact that the Supreme Court concludes that these principles apply in "most circumstances".  It is arguable that in cases where an insurer negotiates the terms of the policy, as opposed to presenting standard language, the contract is no longer a "standard form" to which the correctness standard applies.

Another issue to watch arises from the Supreme Court's reliance on the purpose of the policy in interpreting the policy.  Courts have increasingly taken the view that policy language determines the outcome on the basis that the insurer has the power to draft the language to meet the intention.  This case suggests that the purpose of a policy or class of policies might be argued in establishing the reasonable interpretation of policy wordings.

The Supreme Court's focus on the purpose behind builders' risk policies means that insurers may want to review exclusion clauses in those policies to ensure that they are clear in their intention so that Courts are not required to inquire into the purpose that underlies the policy.


The Supreme Court settled the issue of whether or not the exception to the faulty workmanship exclusion that covers resultant damage can include damage to the part of the project that the insured is working on – it can.  The Supreme Court also creates an exception to Sattva that should be welcome to insurers, clarifying that the standard of correctness applies in interpreting standard form insurance contracts.  This will reduce the likelihood of inconsistent interpretations of the same or similar wordings in different cases.  As such, existing precedent remains a useful tool in interpreting insurance contracts.


1  2016 SCC 37

2 Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53

3 2014 SCC 53

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.

In association with
Related Topics
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