The Court of Appeal dismissed an appeal by the insurer from an order requiring it to indemnify two contractors under the terms of two CGL policies for the cost of repairing new homes. The exclusion for defective work done by the insureds did not apply as the defects were caused by subcontractors.

Bridgewood Building Corp. v. Lombard General Insurance Co. of Canada, [2006] O.J. No. 1288 Ontario Court of Appeal

This was an appeal by the Insurer, Lombard General Insurance Co. of Canada (“Lombard”) from an order requiring it to indemnify two contractors, Bridgewood Building Corp. (“Bridgewood”) and Beige Valley Developments Limited (“Beige Valley”) under the terms of two CGL policies for the cost of repairing new homes built by Bridgewood and Beige Valley. The homes contained structural defects due to defective concrete supplied by a subcontractor. The policies provided for coverage for property damage and excluded coverage for defective work done by the Insured.

The application judge interpreted the language of the insuring agreements as requiring Lombard to indemnify the Insured for the damage caused by the defective concrete since one of the exclusions expressly stated that it did not apply if the damaged work or the work out of which the damage arose was performed on the Insured’s behalf by a subcontractor. The exclusion clause therefore did not apply.

On appeal, Lombard argued that the application judge erred in ordering indemnification and took the position that there was no coverage under a CGL policy for costs incurred by the Insured for the repair or replacement of its own defective work or product. Lombard maintained that the “defective work or product” exclusion applied no matter whether the defects were caused by the Insured or a subcontractor employed by the Insured.

The Court of Appeal agreed with the application judge and found that she correctly interpreted the insuring agreements. The judge was obliged to decide the issue not upon general insurance principles nor upon the general nature of the policies, but upon the exact words of the insurance policies themselves. There is no general principle that excludes coverage under CGL policies for defective work done by insureds. Accordingly, the appeal was dismissed.

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