For those in construction and property development, it is important to understand the limitations of “all-risk” property insurance policies. A recent court case demonstrates how damage during the course of construction can be excluded under these policies.
A window cleaning company was hired by a developer to clean the exterior of a newly-constructed building. The contractor damaged the windows in the process which subsequently had to be replaced. The developer sought coverage under its “all-risks” insurance policy for the costs of replacing the windows. The insurer denied coverage based on an exclusion in the policy for “making good faulty workmanship.”
It was up to the courts to determine whether or not the damage fell under the definition of “faulty workmanship” or if it was instead “resulting damage” according to the policy. If it was to be deemed “resulting damage,” it would be covered.
The case went to the Court of Appeals; the judge ruled in favour of the insurer. In arriving at this decision, the court considered the following:
- if the damage was a predictable result of a mistake in how the work is normally performed or if it was accidental and unforeseen
- if the damage was actually on the part of the project being worked on or collateral damage
As per the court’s ruling, since the damage was caused by scrapers and other materials used in the cleaning process which were applied on purpose, the damage was not “accidental.” Furthermore, the damage was caused directly from the work the contractor was hired to do on the portion of the project they were supposed to be working on, therefore it was not collateral.
For these reasons, the replacement of the windows was considered “making good faulty workmanship” and excluded from coverage.
Developers and contractors should be informed of the limitations of coverage in their policies for these types of situations and seek broader coverage if necessary. Contact an Acera Insurance advisor for more information and resources.
SOURCES: 1) ALBERTA COURT OF APPEAL EXPLORES BOUNDARY BETWEEN FAULTY WORKMANSHIP AND RESULTING DAMAGE BY CARMEN THAM AND GLEN BOSWALL AT CLARK WILSON LLP (MAY 28TH, 2015). 2) “ALL-RISK” INSURANCE POLICIES DON’T COVER ALL THE RISKS BY DAVID TUPPER AT BLAKE, CASSELS & GRAYDON LLP (JULY 6TH, 2015).