COURT OF APPEAL FOR ONTARIO

Gore Mutual Insurance Company, 2017 ONCA 298

DATE: 20170413

DOCKET: C62683

Simmons, Lauwers and Hourigan JJ.A.

BETWEEN

G & P Procleaners and General Contractors Inc.

Plaintiff (Appellant)

and

Gore Mutual Insurance Company

Defendant (Respondent)

Vahe Avagyan, for the appellant

Pino Cianfarani and Stephen W. Ronan, for the respondent

Heard: February 10, 2017

On appeal from the judgment of Justice Edward P. Belobaba of the Ontario Superior Court of Justice, dated August 25, 2016.

Hourigan J.A.:

[1] The appellant was contracted to provide window cleaning services at a newly-constructed commercial building. During the cleaning, a number of windows were scratched. The appellant paid the owner of the building to replace the damaged windows and then sought reimbursement under its commercial general liability insurance policy, issued by the respondent. Coverage was denied by the respondent on the basis of exclusions in the policy.

[2] The appellant commenced an action against the respondent seeking indemnification under the policy. The respondent brought a motion for summary judgment to dismiss the action on the grounds that exclusions applied and there was consequently no coverage under the terms of the policy. The motion judge granted the motion and dismissed the claim, ruling that the claim was barred by two exclusions and there was, therefore, no genuine issue requiring a trial.

[3] On appeal, the appellant submits that the motion judge erred in his interpretation of the exclusions and in holding that there was no coverage under the terms of the policy, and further that he provided insufficient reasons. For the reasons that follow, I would dismiss the appeal.

A. Background

[4] In 2014, the appellant was contracted to clean the exterior and interior of a newly-constructed commercial building. As part of that contract, the appellant was required to clean the interior and exterior of the windows on the first two stories of the building.

[5] While the windows were being cleaned, approximately 180 of the 2,000 windows were scratched. The appellant indemnified the owner of the building for the damaged windows in the amount of approximately $134,000.

[6] The appellant’s position is that the damage to the windows arose as a result of unforeseen environmental conditions at the construction site. Specifically, it argues that, at the time of the cleaning, stone cutting machines on the site generated vast amounts of airborne cement debris that adhered to the wet windows. When the appellant’s employees applied squeegees to the windows, the interaction of the squeegees and the debris resulted in scratched windows. According to the appellant, its employees could not hear the scratching of the glass because of the loud noise emanating from the stone cutting machines.

[7] The appellant maintained that its claim against the respondent for indemnification for the cost of replacing the windows was covered by the policy. The initial grant of coverage in the policy insures against “occurrences,” providing as follows:

1. Insuring Agreement

We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this insurance applies … This insurance applies only to “bodily injury” and “property damages” which occurs during the policy period. The “bodily injury” or “property damages” must be caused by an “occurrence.” … [Emphasis added.]

[8] The term “occurrence” is defined in the policy as meaning “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

[9] In response to the appellant’s claim for indemnification, the respondent denied coverage under the terms of the policy on the basis that the claim fell within the “your work” exclusions contained therein. Those exclusions provide:

2. Exclusions

This insurance does not apply to:

(h) “Property damage” to:

(v) that particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the "property damage" arises out of those operations; or

(vi) that particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

[10] The term “your work” is defined in the policy as meaning:

(a) work or operations performed by you [the insured] or on your behalf; and

(b) materials, parts or equipment furnished in connection with such work or operations

“Your work” includes “warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in (a) or (b) above.”

[11] The motion judge held that the property damage claimed fell within exclusion 2(h)(v). He reasoned that the appellant had admitted that the scratches on the windows (the “occurrence”) resulted from or arose out of its window cleaning operation, so they were caught by the exclusion. In so ruling, he declined to follow the Newfoundland and Labrador Court of Appeal decision in Lombard General Insurance Company of Canada v. Crosbie Industrial Services Limited, 2006 NLCA 55, 2006 NCLA 55, 260 Nfld. & P.E.I.R. 96. Although not necessary for the disposition of the appeal, the motion judge also noted that, in his view, exclusion 2(h)(vi) also applied.

B. Analysis

(1) Standard of Review

[12] The parties agree, and I accept, that the standard of review applicable to the interpretation of a standard form contract of insurance is correctness: see Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 46; and MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, 127 O.R. (3d) 663, at para. 41.

(2) Interpretation of the Policy

[13] The proper approach to the interpretation of a contract of insurance is well established in the case law. The primary interpretive principle is that when the language of the policy is unambiguous, courts will give effect to clear language, reading the contract as a whole. If the language of the insurance policy is ambiguous, courts will apply the general rules of contract construction. When these rules fail to resolve the ambiguity, courts will construe the policy contra proferentem against the insurer. A corollary of the contra proferentem rule is that coverage provisions are interpreted broadly and exclusion clauses narrowly: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 22-24.

[14] In Progressive Homes, at paras. 29, 51 and 71, Rothstein J. held that in interpreting insurance policies the onus is on the insured to demonstrate that the claim in issue falls within the initial grant of coverage. Once that is established, the onus shifts to the insurer to establish that an exclusion applies. If that is the case, it is then open to the insured to prove that one of the exceptions to the exclusion is applicable.

[15] Thus, in the case at bar, the proper analysis requires the appellant to establish that the claim for indemnification for the cost of replacing the windows falls within the initial grant of coverage. Once that is established, the onus shifts to the respondent to prove that there is no coverage because the claim is excluded under the policy. That is the end of the analysis because in the case at bar no exceptions to the exclusions are relied upon.

[16] The appellant submits that the motion judge erred in finding that the occurrence under the policy was the scratching of the windows. It argues that, in fact, the occurrence was the confluence of the various environmental factors, including the debris produced by the stone cutters, which established the conditions for the scratching.

[17] I do not accept this argument. An occurrence in this context is an event that causes property damage that is neither expected nor intended by the insured: Progressive Homes, at paras. 43 and 49. The environmental factors mentioned by the appellant did not cause the scratches to the windows. They were merely the conditions in which the appellant’s workers chose to undertake their window cleaning operations.

[18] I see no error in the motion judge’s conclusion that the occurrence that caused the property damage in this case was the scratching of the windows. The windows were scratched by means of the application of the squeegees to the windows by the appellant’s employees. The cleaning of the windows using the squeegees was expected and intended, but the scratching of the windows while they were being cleaned through the application of the squeegees was unexpected and unintended. This is what caused the property damage. Under the terms of the initial grant of coverage under the policy, this was a claim that was potentially recoverable.

[19] The next part of the analysis is to determine whether the presumptive coverage is negated by an exclusion in the policy. The motion judge concluded that the wording of exclusion 2(h)(v) is unambiguous and excluded coverage in the circumstances of this this case.

[20] I see no error in that analysis either. No property damage occurred until the appellant’s workers performed their window-cleaning operation by applying their squeegees to the windows. If the workers had chosen not to undertake the window cleaning amid the airborne cement debris given the conditions on the site, there would be no property damage. Therefore, the property damage clearly did “arise out of” the window cleaning operation.

[21] The appellant submits that the motion judge should have adopted the reasoning in Crosbie, which considered a nearly identical exclusion clause. In that case, a fuel oil tank was destroyed following an explosion that occurred while the inside of the tank was being cleaned. The owner of the tank sued the cleaning company, which turned to its insurance company to provide a defence to the suit under its commercial general liability policy.

[22] The court reviewed the “your work” exclusions relied upon by the insurance company and concluded that they were ambiguous because they failed to identify a relationship between an occurrence and the exclusions. The court went on to find that the exclusions would apply only where there was incorrectly performed work with no occurrence.

[23] I agree with the respondent’s submission that the court’s analysis in Crosbie is circular and inconsistent with the established principles for the interpretation of contracts of insurance. The first step of the coverage analysis is a determination of whether the claim falls within the initial grant of coverage. In order for there to be coverage, there must first have been an occurrence. The court will not take the next step of considering whether an exclusion applies in the absence of an occurrence. Thus, the court’s conclusion in Crosbie that the “your work” exclusions applied only in the absence of an occurrence is not legally or logically sound and should not be followed. See also Hipperson Construction (1996) Ltd. v. H.J.H Steel Erectors Inc., 2007 SKCA 52, 293 Sask. R. 153, at para. 13.

[24] The appellant further submits in its factum that the motion judge’s interpretation of the policy renders coverage under the policy illusory. I disagree. Commercial general liability policies are generally intended to cover an insured’s liability to third parties for property damage other than to the property on which the insured’s work is being performed. They also cover consequential damage to parts of the property other than to the particular part of the property on which the work is performed. But they are not “all-risk” policies. They do not insure the manner in which the insured conducts its business. They do not generally cover the cost of repairing the insured’s own defective or faulty work product: see Alie v. Bertrand & Frere Construction Co. (2002), 2002 CanLII 31835 (ON CA), 62 O.R. (3d) 345 (C.A.), at para. 27; Parkhill Excavating Limited v. Royal & Sunalliance Insurance Company of Canada, 2016 ONCA 832, 404 D.L.R. (4th) 337, at para. 25; and Swagger Construction Ltd. v. ING Insurance Company of Canada, 2005 BCSC 1269, 47 B.C.L.R. (4th) 75, at para. 4.

[25] That is what the parties in the present case bargained for. To hold them to that bargain is entirely reasonable and does not render the coverage under the policy meaningless: Hipperson Construction, at para. 12; and 601260 Saskatchewan Ltd. v. ING Insurance Company of Canada, 2008 SKQB 470, 327 Sask. R. 76, at para. 51.

(3) Insufficient Reasons

[26] The appellant submits that the reasons of the motion judge are insufficient to permit appellate review.

[27] Reasons serve four functions: (i) to justify and explain the result; (ii) to tell the losing party why they lost; (iii) to provide for informed consideration of the grounds of the appeal; and (iv) to satisfy the public that justice has been done: R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, at para. 24; and F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, at para. 98.

[28] The alleged inadequacy of reasons is not a freestanding ground of appeal: R. v. Walker, 2008 SCC 34, [2008] 2 S.C.R. 245, at para. 20; and F.H., at para. 99.

[29] In the present case, the reasons were very brief. However, they were written in a manner such that the motion judge’s chain of reasoning is readily apparent. It is clear from the reasoning that the motion judge dealt with all of the relevant issues raised on the motion. In my view, the reasons fulfill all of the functions articulated by the Supreme Court of Canada in Sheppard. I would, therefore, not give effect to this ground of appeal.

C. Disposition

[30] I would dismiss the appeal.

[31] The appellant submits that this is one of those rare cases where costs should not be awarded because the issues in the case transcend the interests of the parties and the court’s ruling is necessary for the development of the law. While I concede that this case may have some general application, the same could be said of the interpretation of any standard form insurance contract. In my view, this is not a case where the court should exercise it discretion not to award costs of the appeal. I would award costs to the respondent in the amount of $6,000, inclusive of fees, disbursements, and taxes.

Released: “CWH” “APR 13 2017”

“C.W. Hourigan J.A.”

“I agree. Janet Simmons J.A.”

“I agree. P. Lauwers J.A.”