Monk v. Farmers' Mutual Insurance Company (Lindsay) et al.
[Indexed as: Monk v. Farmers' Mutual Insurance Co. (Lindsay)]
Ontario Reports
Court of Appeal for Ontario,
Feldman, Cronk and Huscroft JJ.A.
December 23, 2015
128 O.R. (3d) 710 | 2015 ONCA 911
Case Summary
Insurance — Exclusion clauses — Interpretation — Home insurance policy excluding coverage for cost of repairing faulty workmanship — Policy also containing "property being worked on" exclusion which preserved coverage for resulting damage to other insured property — Insured's residence damaged as result of contractor's failure to properly seal areas where it used water in restoration of exterior of residence — Motion judge erring in interpreting "faulty workmanship" exclusion as precluding coverage for resulting damage.
The plaintiff's residence was damaged as a result of a contractor's failure to properly seal areas where it was using water in its restoration of the exterior of the residence. The plaintiff claimed under an insurance policy issued by the defendant insurer. The insurer relied on "faulty workmanship" and "property being worked on" exclusions in the policy to deny coverage. The exclusion for "faulty workmanship" contained no express exceptions for resulting damage. The "property being worked on" exclusion preserved coverage for resulting damage to other insured property. The plaintiff sued the insurer and her insurance broker. The motion judge granted summary judgment dismissing the action, holding that the "faulty workmanship" exclusion precluded claims for damage to the home caused both directly and indirectly by the contractor, and that the "property being worked on" exclusion, which specifically preserved coverage for indirect resulting damage, was trumped by the general "faulty workmanship" provision. The plaintiff appealed.
Held, the appeal should be allowed.
The standard of review of the motion judge's interpretation of the policy was correctness.
It was not obvious that the "faulty workmanship" exclusion precluded coverage for resulting damage. The motion judge erred in interpreting that exclusion broadly to deny coverage the all-risks policy would otherwise provide. The exclusion should be interpreted as excluding from coverage only direct damage and not the resulting damage flowing from faulty workmanship. The motion judge also adopted an unduly narrow interpretation of the resulting damage exception to the "property being worked on" exclusion, holding that it preserves coverage for resulting damage for a narrow range of events unrelated to faulty workmanship. Resulting damage to insured property was covered by the policy whether or not that damage was the result of faulty workmanship.
Cases referred to
Other cases referred to
Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. Â1-1176 at 595, 1 A.C.W.S. (2d) 169; [page711] Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 2014EXP-2369, J.E. 2014-1345, 373 D.L.R. (4th) 393, [2014] 9 W.W.R. 427, 59 B.C.L.R. (5th) 1, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, 242 A.C.W.S. (3d) 266
Statutes referred to
Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.]
APPEAL from the order of Koke J., [2014] O.J. No. 3509, 37 C.C.L.I. (5th) 92 (S.C.J.) granting summary judgment and dismissing an action.
David A. Morin, for appellant.
Martin P. Forget, for respondent Farmers' Mutual Insurance Company (Lindsay).
Demetrios Yiokaris, for respondent Muskoka Insurance Brokers Ltd.
The judgment of the court was delivered by
[1] HUSCROFT J.A.: — This is an appeal from the motion judge's order granting summary judgment to the respondents and dismissing the appellant's claims under a home insurance policy and against her insurance broker.
[2] The appellant claimed under an insurance policy issued by the respondent Farmers' Mutual Insurance Company (Lindsay) ("Farmers") for damage caused by a contractor in the course of, or as a result of, restoration work performed on the exterior of her home. The insurer relied on "faulty workmanship" and "property being worked on" exclusions in the policy to deny coverage.
[3] The motion judge concluded that the "faulty workmanship" exclusion precludes claims for damage to the home caused both directly and indirectly by the contractor. Although the "property being worked on" exclusion specifically preserves coverage for indirect "resulting damage", the motion judge concluded that it was "trumped" by the general "faulty workmanship" provision. The motion judge granted summary judgment to the respondent insurer Farmers and the respondent insurance broker Muskoka Insurance Brokers Ltd. ("Muskoka"), and dismissed the appellant's claim.
[4] For the reasons that follow, I would allow the appeal, set aside the motion judge's order and return the matter to Superior Court for determination in accordance with these reasons. [page712]
Background
[5] The appellant contracted with Pleasantview Log Restoration Systems Inc. ("Pleasantview") on June 27, 2008 to restore the exterior of her home in Bracebridge. The process involved the use of water, and Pleasantview was required under the terms of the contract to inspect and temporarily seal all areas where water might enter prior to commencing the restoration process.
[6] Pleasantview concluded work on the project in November 2008. The appellant discovered damage to her carpeting, bedroom wall and light fixtures at that time, and noticed additional damage in 2009 and 2010, including scratches and pockmarks on her windows and condensation inside the panes of her windows.
[7] The appellant's home was insured by the respondent Farmers. She purchased an all-risks "Security Plus" homeowner's insurance policy through the respondent insurance broker Muskoka.
[8] The policy covered perils subject to the specified exclusions, two of which are relevant here. The first, under the heading "Losses Excluded", provides as follows:
We do not insure:
- the cost of making good faulty material or workmanship[.]
[9] The second exclusion, under the heading "Property Excluded", provides as follows:
We do not insure loss or damage to:
- property
(ii) while being worked on, where the damage results from such process or work (but resulting damage to other insured property is covered)[.]
The Action
[10] The appellant alleges that she contacted Muskoka to make a claim under her policy on three occasions (January 2009; around May 2009; and January or February 2010), but was informed on each occasion that the damage was not covered by her policy. Muskoka denies that these three communications occurred. [page713]
[11] The appellant visited Muskoka's office on September 2, 2011 to inquire about making a claim. Muskoka agreed to contact Farmers and subsequently encouraged the appellant to contact Farmers directly. On September 8, 2011, the appellant received an e-mail from Muskoka advising her that her claim had been denied.
[12] On November 14, 2011, the appellant commenced an action against Farmers alleging breach of her contract of insurance and against Muskoka alleging breach of contract and breach of fiduciary duty. Her claim also alleged that Muskoka failed to advise her in a timely way that she had a valid claim against Farmers.
The Motion for Summary Judgment
[13] The respondents brought motions for summary judgment on two bases. First, Farmers and Muskoka argued that the appellant's claim was for repair of faulty workmanship by Pleasantview and that liability for faulty workmanship is specifically excluded by the insurance policy. Second, Farmers argued that the appellant's action was commenced more than two years following discovery of the damage and, as a result, is barred by operation of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B.
[14] The motion judge made a preliminary finding that the damage to the appellant's home was caused, either directly or indirectly, by Pleasantview's failure to follow industry standard practices and to take the protective measures required by the contract. This finding was supported by a report prepared by Giffin Koerth Inc., an engineering firm retained by the appellant to assess and report on the damage to her home.
[15] The engineering report did not determine what caused the window seals to fail but said that it was possibly the result of the contractor's not masking the windows. The motion judge was unable to make a finding on what caused this failure.
[16] The motion judge found that the "faulty workmanship" exclusion in the policy is clear and unambiguous and should, therefore, be given its plain and simple meaning. He interpreted the provision, at para. 43, as excluding "both damage to the aework' which forms the subject matter of the contract, as well as damages resulting from faulty workmanship related to the work".
[17] The motion judge said that it is common for insurance policies to include an exception for resulting damage in faulty workmanship exclusion provisions and found that the omission of such an exception from the "faulty workmanship" exclusion in [page714] the Farmers policy had to be regarded as intentional. He found, further, that neither the language of the policy nor any compelling policy reason supported reading a resulting damage exception into the "faulty workmanship" exclusion. As a result, the motion judge found that it was not necessary to determine whether the damage claimed was direct or indirect (resulting), as claims for both types of damage are excluded by the "faulty workmanship" exclusion.
[18] The motion judge found that, even assuming the damage caused could properly be characterized as resulting damage, the coverage for resulting damage afforded by the exception to the "property being worked on" exclusion does not provide coverage for resulting damage caused by faulty workmanship. He reasoned that the terms of the "faulty workmanship" exclusion clearly exclude all damage resulting from faulty workmanship and therefore "trump" the exception for resulting damage in the property damage exclusion clause: "[A]n exception to an exclusion cannot override the clear and unambiguous provisions of another general exclusion clause" (at para. 47).
[19] Given his finding on the "faulty workmanship" exclusion, it was not necessary for the motion judge to determine whether the appellant's action is barred by the Limitations Act. The motion judge concluded that there were no issues requiring trial including against Muskoka, granted summary judgment to the respondents and dismissed the appellant's claim against them.
Issues
[20] The main issue raised on this appeal is:
Did the motion judge err in concluding that the "faulty workmanship" exclusion also excludes resulting damage, even though it does not specifically so state?
Analysis
The standard of review
[21] Following the hearing of the appeal, the panel invited the parties to make submissions concerning the standard of appellate review and, in particular, the applicability of the Supreme Court of Canada's decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53. We have received and reviewed those submissions.
[22] This court has determined that the correctness standard of review applies to decisions interpreting standard form [page715] insurance contracts: MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, at para. 41.
[23] In this case, as in MacDonald, we are concerned with the interpretation of a standard form insurance contract. This is not a case in which the circumstances surrounding the contract are important to its interpretation, nor is it a case in which the interpretation of a contract has no impact beyond the parties to it. The respondents' submission that the "faulty workmanship" provision in this contract is not standard across the insurance industry misses the point: it is standard to the many customers of the respondent Farmers who purchased the same policy and it should be interpreted consistently.
[24] Accordingly, the standard of review is correctness.
The positions of the parties
[25] The appellant argues that the "faulty workmanship" exclusion should be understood as applying only to the restoration work Pleasantview contracted to perform on the exterior of her home. She characterizes the damage to her home as resulting damage -- damage that resulted from Pleasantview's faulty workmanship rather than faulty workmanship per se -- and argues that this damage is not excluded from coverage by the "faulty workmanship" exclusion.
[26] The appellant submits that the policy is confusing and that it would not make sense for the policy to deny coverage for damage resulting from faulty workmanship given that the "property being worked on" exclusion and other policy exclusions specifically preserve coverage for resulting damage. Further, in an all-risks policy it would be improper to deny the appellant the very coverage she purchased by reading the "faulty workmanship" exclusion as also excluding coverage of resulting damage.
[27] The respondents argue that the "faulty workmanship" exclusion is clear and unambiguous and that resulting damage is not exempted from its scope. The respondents add that there is no authority for the court to imply or infer a resulting damage exception in order to limit the scope of the "faulty workmanship" exclusion. They submit that Pleasantview's failure to seal and protect all areas of the building where moisture might enter, as required by the contract and by industry standards, constitutes faulty workmanship and is excluded from insurance coverage by the "faulty workmanship" exclusion. [page716]
The principles governing the interpretation of insurance contracts
[28] The principles governing the interpretation of insurance contracts were summarized in MacDonald, at para. 66:
-- The court must search for an interpretation from the whole of the contract and any relevant surrounding circumstances that promotes the true intent and reasonable expectations of the parties at the time of entry into the contract;
-- Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected;
-- Ambiguities will be construed against the insurer having regard to the reasonable expectations of the parties;
-- An interpretation that will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided;
-- Coverage provisions are to be construed broadly, while exclusion clauses are to be construed narrowly;
-- The contract of insurance should be interpreted to promote a reasonable commercial result; and
-- A clause should not be given effect if to do so would nullify the coverage provided by the policy.
(Citations omitted)
The application of the principles
[29] I reproduce here for convenience the policy provisions the respondent insurer relies on to deny coverage.
[30] The "faulty workmanship" exclusion is found under the heading "Losses Excluded", and provides:
We do not insure:
- the cost of making good faulty material or workmanship[.]
[31] The "property being worked on" exclusion is found under the heading "Property Excluded", and provides:
We do not insure loss or damage to:
- property
(ii) while being worked on, where the damage results from such process or work (but resulting damage to other insured property is covered)[.] [page717]
[32] As noted in MacDonald, clauses that exclude coverage are to be interpreted narrowly. Following this approach, it is not obvious that the "faulty workmanship" exclusion precludes coverage for resulting damage.
[33] The motion judge considered that Pleasantview should be responsible for making good both direct and indirect damage that flowed from its work, and that insurers might reasonably wish to exclude coverage for resulting damage in order to avoid disputes about the nature of the damage caused.
[34] This may be so, but it does not follow that the "faulty workmanship" exclusion of liability should be interpreted broadly to deny coverage the all-risks policy would otherwise provide. Insurers draft insurance policies knowing that exclusions of coverage will be interpreted narrowly and that ambiguity will be resolved in favour of the insured party. If an insurer wants to exclude particular coverage, especially for something as well-known as resulting damage, it should do so specifically rather than by implication.
[35] The motion judge considered it significant that "faulty workmanship" exclusions in insurance policies typically include an exception for resulting damage, whereas the "faulty workmanship" exclusion in this policy does not. But even assuming that this is so, it is irrelevant to the proper interpretation of this insurance contract.
[36] In my view, an interpretation of "faulty workmanship" that denies coverage for resulting damage is an overly broad interpretation of the exclusion clause. I would interpret the provision as excluding from coverage only direct damage and not the resulting damage flowing from faulty workmanship. It is not a matter of reading an exception into the exclusion, as the respondents submitted; it is a matter of interpreting the "faulty workmanship" exclusion narrowly in accordance with established principle.
[37] If the "faulty workmanship" exclusion were interpreted as excluding coverage for resulting damage, a significant problem would arise: the two exclusion clauses at issue here would be in conflict. On one hand, the "faulty workmanship" exclusion would exclude claims for damage to property caused by faulty workmanship including resulting damage. On the other hand, the "property being worked on" exclusion would specifically preserve coverage for resulting damage to other insured property.
[38] The motion judge recognized the conflict between the two exclusions but concluded that the "faulty workmanship" exclusion "trumps" the "property being worked on" exclusion. He [page718] attempted to reconcile the two exclusions by finding that the "property being worked on" exclusion preserves resulting damage coverage for a narrow range of events unrelated to faulty workmanship, such as damage caused by accident.
[39] In my view, this is an overly narrow interpretation of the resulting damage exception. As already noted, coverage provisions are to be interpreted broadly and exclusions narrowly. Ambiguity is to be resolved in favour of the insured rather than the insurer in accordance with the contra proferentem doctrine: Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, at pp. 899-900 S.C.R.
[40] The motion judge's suggestion that the absence of an exception for resulting damage from the "faulty workmanship" exclusion reflects Farmers' intention not to provide coverage for such damage is misplaced. An insurer's unilateral intention is not relevant to the interpretation of the insurance agreement. Nor is it appropriate to interpret the "property being worked on" exclusion in a manner that narrows the coverage that exclusion specifically preserves in order interpret the "faulty workmanship" exclusion as broadly as possible.
[41] In my view, resulting damage to insured property is covered by the policy whether or not that damage is the result of faulty workmanship.
[42] In light of this conclusion, the remaining question is whether, or to what extent, the appellant's action is barred by operation of the Limitations Act. As I have said, for reasons he explained, the motion judge did not address this issue.
Conclusion
[43] Accordingly, for the reasons given, I would allow the appeal, set aside the order of the motion judge and return the question whether the appellant's action is barred by reason of the Limitations Act to the motion judge for determination.
[44] The appellant is entitled to her costs of the appeal and the motions. If the parties are not able to agree, they may make brief three- to four-page submissions on costs to the registrar of this court within 30 days of this decision.
Appeal allowed.
[page719]
End of Document