Canada: The Supreme Court Rules On Faulty Workmanship Exclusions And Interpreting Standard Form Contracts

Case Study: Ledcor Construction v. Northbridge

In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 ("Ledcor"), the Supreme Court of Canada clarified the construction of 'faulty workmanship' exclusions in all-risk policies and the level of deference an appeal court must give regarding a lower court's interpretation of a contract.

The decision in Ledcor may be praised for providing greater clarity to insurers and insureds, but may also be an unwelcome development to those who embraced the Supreme Court's 2014 decision in Sattva Capital Corp. v. Creston Moly Corp.1 ("Sattva") as a bar to extensive litigation over contractual interpretation.


The facts in Ledcor are not unusual. An office tower was being constructed, and the owner of the property on which it was being constructed held a 'blanket' all-risk property insurance policy providing coverage to the owner and all actors and activities on the property. The policy contained an exclusion specifying the following:2

4(A) Exclusions
This policy section does not insure:

[ . . . ]

(b) 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.

By the time the tower neared completion, its windows were marred by concrete splatter, paint specs, and construction dirt. Consequently, a contractor was hired to clean the windows of the office who in turn scratched the building's windows through use of inappropriate tools and methods. The windows had to be replaced at considerable expense. A dispute arose regarding which costs were covered under the policy, as it excluded coverage for "faulty workmanship" but also contained an exception that provided coverage for "resulting damage" that followed such workmanship.

Eventually, the dispute arrived at the Supreme Court, which addressed two issues: the degree to which an appeal court was obligated to defer to the interpretation of a contract by a lower court, and the proper interpretation of this rather common exclusion clause.

Standard of Review

The standard of review is the amount of deference a higher court ought to give to the decisions of a lower court. If a standard of review is one of 'reasonableness,' a higher court will defer to a lower court if the conclusions it had drawn in reaching its decisions were one of many reasonable conclusions.3 When the standard of review is 'correctness,' however, a higher court is far more likely to overturn the decision of a lower court, as it must undertake its own analysis and determine if it agrees with the decision of the lower court; if it does not, it will substitute the lower court's decision with its own 'correct' one.

In the 2014 decision of Sattva, the Supreme Court of Canada held that contractual interpretation involves issues of mixed fact and law, and that, accordingly, the standard of review regarding a lower court's interpretation of a contract will generally be reasonableness.4 As a result of Sattva, the standard of review of reasonableness was deemed to almost always apply when a superior court reviewed the interpretation of a contract made by a lower court, which would naturally limit the viability of an appeal from a lower court decision regarding the meaning of a contract.

In Ledcor, the Supreme Court of Canada noted that, since Sattva, appellate courts have reached inconsistent decisions as to whether the standard of review for standard form contracts is correctness or reasonableness.5 The majority opinion of the Supreme Court in Ledcor6 clarified this ambiguity by specifying that: "where an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review."7

Justice Wagner found that the statements in Sattva were made in the context of a "complex commercial agreement between two sophisticated parties" much unlike the 'take it or leave it' offers in a standard form contract in which the terms of a contract were not negotiated.8 Though factual circumstances such as market conditions have a role in the interpretation process,9 these are not 'fact-specific' in that "they will usually be the same for everyone who may be a party to a particular standard form contract," underscoring the need for consistent interpretation.10

In his conclusion regarding the issue, Justice Wagner further noted that a higher court may defer to a lower court's interpretation in circumstances such as when the factual matrix specific to the particular parties assists in interpretation, or where that contract was negotiated and modified so as to give the interpretation likely little or no precedential value.11

Interpretation of the Faulty Workmanship Exclusion Clause

As the policy's exclusion clause for "faulty workmanship" contained an exception for "resulting damage," the actual dispute in Ledcor turned on whether the meaning of "faulty workmanship" in the insurance policy included not just the cost of cleaning the windows itself, but the cost of replacing the windows as well. The insurer, preferring the latter interpretation, argued that the exception to this exclusion only provided coverage to some consequential damage to other parts of the tower project.

Justice Wagner found that the language of the exclusion clause was ambiguous and did not clearly point to one interpretation of the clause over the other, and so he applied the general legal principles of contractual interpretation.12 On each count, Justice Wagner favoured the interpretation of the insureds.

Perhaps most notably, Justice Wagner found that the reasonable expectation of the parties to the agreement would be "broad coverage," as "certainty, stability, and peace of mind" is the purpose of 'builders' risk' policies.13 He determined that the purpose of such broad coverage is furthered by an interpretation of the exclusion clause that only excludes the cost of redoing the faulty work itself, and approved of commentary that indicated that faulty exclusion workmanships are intended to be narrow.14 Justice Wagner further found that it would deprive the insured of the coverage they had contracted for if indemnity was unavailable for the most common source of loss on construction sites: damage or accidents resulting from a party's carelessness or negligent acts.15


The decision in Ledcor may be of great assistance to parties seeking to appeal a lower court's interpretation of standard form contracts, as it reduces the deference accorded by a superior court to that interpretation. However, it also creates the potential disadvantage that another decision unfavourable to the disputing party will form binding precedent, and offers less room to maneuver. Whereas previous to Ledcor, it may have been possible to argue that the factual matrix surrounding the formation of an agreement required each court to decide on the meaning of a contractual term independent of that term's interpreted meaning in other decisions, this avenue now appears to be largely closed. Furthermore, Ledcor creates additional litigation risk to successful parties in an interpretation dispute, as it is predictable that virtually any appellant in such a dispute will argue that their contract is a 'standard form contract' or otherwise meets the criteria so as to make the standard of review set out in Sattva inapplicable.

The impact of Ledcor on future decisions will be clearer when insurers seek to dispute the meaning of faulty workmanship exclusions in all-risk insurance policies going forward. It is now clear that an exclusion such as that relied upon by the insurer in Ledcor will be construed narrowly, and an exception to an exclusion seized upon. This is particularly the case for all-risk policies such as the 'builders' risk' policy analyzed by the Supreme Court of Canada in the instant case. Ledcor provides more ammunition for those asserting coverage obligations despite 'faulty workmanship' exclusions, and offers yet another indicator that exclusions in all-risk policies will continue to be interpreted as narrowly as possible to favour the insured.

Thus, while Ledcor may provide greater certainty to the insurance industry regarding the scope of coverage in an all-risk policy, it has undermined the certainty provided for in Sattva that a matter of contractual interpretation by a lower court is, for most intents and purposes, the final word.


1 [2014] 2 SCR 633

2 Ledcor Construction Limited v Northbridge Indemnity Insurance Company, 2015 ABCA 121 (CanLII), para. [4]

3 The 'reasonableness standard of review typically arises when the determination made by the lower court is mainly or exclusively factual.

4 Sattva Capital Corp. v. Creston Molly Corp, 2014 SCC 53, para. [106] ; per paragraph [54], an 'extricable question of law' (such as whether the lower court applied an incorrect principle, failed to consider a required element of a legal test, or failed to consider a relevant factor) could still be reviewed on the standard of review of correctness, but these were "inherently rare" per para. [55].

5 Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, paras [24] and [25]

6 Justice Cromwell dissented regarding this issue and posited that the standard of review set out in Sattva ought to apply equally to standard form contracts; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, paras [114] to [125]

7 Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, para. [24]

8 Ibid., para. [25]; Justice Wagner noted that in insurance contracts, negotiations are typically regarding matters of cost premiums, and the conditions of coverage are not negotiated at all at paras [27] â€" [29].

9 Examples of elements with a role in the interpretation process are the purpose of the contract, the nature of the relationship it creates, and the market in which it operates; see Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, para. [30]

10 Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, para. [30]

11 Ibid., para. [48]

12 Ibid., para. [63]; these criteria are the reasonable expectation of the parties, that the interpretation not yield unrealistic results, and was consistent with prior jurisprudence.

13 Ibid., para. [66]; Notably, while Justice Wagner refers to the policy as a "'builders' risk' policy" he appears to dismiss any distinction between policies identified as 'builders' risk' and any other common all-risk property insurance at para. [1]; further, note that the "work product" or "business risk" exceptions in other policies may also be susceptible to the same scrutiny, as noted in para. [83]

14 Ibid., para. [72]

15 Ibid., para. [70]

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
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.