Have you ever wondered if your home insurance will cover damage accidentally caused by a contractor?
The answer is it could be.
Some insurance carriers would say no, but a recent court ruling means exclusions for “property while being worked on” and “faulty workmanship” are not quite as broad as some underwriters intended.
In a recent court ruling July 19 by Ontario’s Court of Appeal, the court upheld a 2017 Superior Court of Justice ruling that more than $100,000 in damage to a Bracebridge woman’s log house fell within an all-risk “Security Plus” policy she had purchased from her insurer.
READ MORE: The Superior Court of Justice ruling
In 2009, she discovered damage including stains to carpets, abrasions to windows, as well as windows coming loose in exterior doors. The door frames also became loose, causing the doors to sag and to become difficult to open and close.
In 2011 she filed lawsuits against her contractor, broker, and insurer.
In denying the claim, the insurer relied on both a delay in notifying the broker of the loss and on two exclusions.
Ultimately, the court’s July 19 ruling means the claim is not covered. However, it was the timing of the claim — not the exclusions — that meant the insurer did not have to pay.
The Superior Court Justice found in 2017 the woman had waited at least two years after discovering the damage before reporting her claim to the broker. The woman said she reported the loss in 2009 and not in 2011, as her brokerage reported. But the Justice preferred the brokerage’s story over the client’s and his finding was upheld on appeal.
Meanwhile, the insurer cross-appealed the finding that the two exclusions did not apply. They were not successful. One exclusion was for “the cost of making good faulty material or workmanship.” The other was for loss or damage to property “while being worked on, where the damage results from such process or work (but resulting damage to other insured property is covered).”
The Justice ruled that in interpreting the faulty workmanship exclusion, a court must take in to account the reasonable expectation of both the insurer and the insured. “A homeowner expects to be covered for unexpected or resulting damages which are not directly related to the scope of his or her contract with a contractor.”
In a case like the one in Bracebridge, a homeowner who buys an “all-risk policy” can reasonably expect the exclusion for faulty workmanship or property while being worked on will be interpreted narrowly while the exception in the exclusion for resulting damage will be interpreted broadly, the Justice wrote.
The woman’s contractor was hired to restore the exterior of logs and board and the batten structure using a wood restoration system. It was not hired to install carpets, replace windows, doors, exterior fixtures or thermal pane glass units, the Justice reasoned.
In the “property while being worked on” exclusion, there is an exception for “resulting damage to other insured property,” the Justice noted. This means there is coverage for damage not within the scope of work of the exterior restoration contract.
In this case, the exclusion for “cost of making good faulty material or workmanship” should be interpreted to mean the cost of re-doing the work the exterior restoration contractor was hired to do, the Justice wrote.
The Justice cited Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., released in 2016 by the Supreme Court of Canada. The case was about an office tower construction project in Edmonton in 2001. The dispute was over the interpretation of a faulty workmanship exclusion in a commercial builder’s risk policy. In Edmonton, a subcontractor to Ledcor caused damage to windows while cleaning them. The Alberta Court of Queen’s Bench ruled against the insurers, finding the damage does not come under the faulty workmanship exclusion. That ruling was overturned by Alberta’s appeal court but restored by the Supreme Court of Canada.
READ MORE:Ledcor vs Northbridge ruling