“Faulty workmanship” exclusion didn’t apply for resulting damage

The exception for resulting damage was read in to the exclusion clause for “the cost of faulty workmanship” where the exclusion clause was silent on the resulting damage.

Insurance law – Property insurance – Homeowner’s insurance – Policies and insurance contracts – Interpretation of policy – Exclusions – Exceptions – Defective workmanship – Resulting damage – Appeals – Standard of review

Monk v. Farmers’ Mutual Insurance Co. (Lindsay), [2015] O.J. No. 6849, 2015 ONCA 911, Ontario Court of Appeal, December 23, 2015, K.N. Feldman, E.A. Cronk and G. Huscroft JJ.A.

The court of appeal overturned a finding that the faulty workmanship exclusion in a homeowner’s policy operated to remove coverage for an insured’s claim for damage caused by a contractor in the course of restoration work.

The insured retained a contractor to restore the exterior of her home. The restoration process caused damage to the insured’s home. The insured claimed under its insurance policy for damage caused by the contractor in the course of, or as a result of, restoration work performed on the exterior of the insured’s home. The insurer relied on the “cost of making good faulty workmanship” and “property being worked on” exclusions in the policy to deny coverage.

The court below granted judgment to the insurer and made an order for summary dismissal of the insured’s claim. The motion judge interpreted the “faulty workmanship” exclusion as excluding “both damage to the ‘work’ which forms the subject matter of the contract, as well as damages resulting from faulty workmanship related to the work”. The motion judge also found there was no exception to the exclusion for resulting damage in the policy. He said that, if the insurer intended for an exception to the exclusion, it would have been expressly included in the policy as was the case in other policies. He went on to reason that the exception for resulting damage in the “property being worked on” exclusion did not provide coverage when read in the context of the “faulty workmanship” exclusion.

The court of appeal applied the correctness standard of review. It found, applying the principle that exclusion clauses are to be interpreted narrowly, the “faulty workmanship” exclusion should not be interpreted as denying coverage for resulting damage. The court also found the motion judge’s interpretation of the “faulty workmanship” exclusion to be inconsistent with the exception for resulting damage found in the “property being worked on” exclusion. Accordingly, the resulting damage to the insured property was covered under the policy.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at dfield@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

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