Supreme Court of Canada Provides Guidance On Condo Damage Appeal

The Alberta Court of Appeal has turned to precedent set by the Supreme Court of Canada in issuing a decision related to a construction project gone wrong. The decision was released in late April and overturns a lower court’s decision, which had failed to apply the Supreme Court of Canada’s approach to the issue.

Parking lot problems

The issue began when a condo corporation hired a group of contractors to fix a parking lot inside the building. While performing the work, the contractors cut into the membrane of the lot’s surface, causing structural damage.

The corporation’s insurance company would not cover the damages from this, with the reason given being that the insurance policy excludes the cost of making good “faulty or improper workmanship.”

While the corporation and the contractors eventually settled the matter, there was a shortfall in what the corporation received and the actual cost of remedying the accident. The corporation took the insurance company to court in order to recover that shortfall.

The insurance company was successful when the issue appeared before lower courts, but the court of appeal found that the previous decision failed to follow precedent set by the Supreme Court of Canada.

The Ledcor decision

In 206 the Supreme Court of Canada issued a decision which it interpreted a clause excluding from coverage the “cost of making good faulty workmanship” in which it provided an exception for “physical damage” resulting from said faulty workmanship. The court wrote, “the faulty workmanship exclusion serves to exclude from coverage only the cost of redoing the faulty work, as the resulting damage exception covers costs or damages apart from the cost of redoing the faulty work. As such, excluded under the Policy is the cost of recleaning the windows, but the damage to the windows and therefore the cost of their replacement is covered”

In this case, the language in the contract excludes the “cost of making good faulty workmanship.” However, following the Supreme Court of Canada’s logic, the court found that faulty workmanship exclusions applied only to the cost of redoing the faulty work originally contracted for. But any resulting damage should still be covered. The court wrote,

“The parties reasonably expected that the cost of making good the faulty or improper workmanship (determined by the scope of work contracted for) would be excluded, but that the consequences of that faulty workmanship would be covered. This interpretation does not create unrealistic results because, among other reasons, loss of structural integrity to the parkade (and the building itself) is a loss covered by the terms of the Policy. Further, this interpretation is consistent with the jurisprudence. It is not necessary to resort to contra proferentum to resolve the ambiguity, but if we had, the same result would follow.”

HMC Lawyers acts on behalf of contractors, subcontractors, lenders, and developers, both advancing and defending claims arising from negligent construction and negligent professional advice.  As a team, we have decades of experience successfully advocating for our clients in the construction industry in Calgary and across Alberta. To make an appointment to discuss a potential or emerging claim, call 1-800-480-3534 or contact us online.