The Breadth of Exclusions: Direct v Resulting Damage


Monk v. Farmers’ Mutual Insurance Co. (Lindsay) 2015 ONCA 911

In this case, the appellant hired a restoration company to restore the exterior of her home using a renovation technique that involved the use of water. The company was required by contract to seal any part of the exterior where water could enter the home, including the windows. After the work was completed, the appellant noticed water damage to the inside of the home due to improperly sealed windows. The appellant’s home was insured, but her claim was denied on the grounds that the policy included specific exclusions which provided that i) faulty material or faulty workmanship would not be covered; and ii) damage resulting from work being done on the property would not be covered. This second exclusion included the caveat that resulting damage to other insured property would in fact be covered by the policy. The plaintiff argued that since the damage to her home resulted from the faulty workmanship, it should not be excluded by virtue of the scope of the faulty workmanship exclusion outlined in the contract.

On summary judgment, the motions judge held that the damage to the appellant’s home was due to faulty workmanship, and that it was caused, either directly or indirectly, by the restoration company’s failure to follow industry standard practices and a failure to take the protective measures required by the contract. The Court held that the faulty workmanship exclusion was clear and unambiguous, and that neither resulting damage nor direct damage was exempted from its scope.

On appeal, the main issue before the Court was whether the motions judge had erred in holding that the faulty workmanship exclusion also covered resulting damage, even though the provision in question did not explicitly refer to it.

In reviewing the principles governing the interpretation of insurance contracts, the Court held that the motions judge’s interpretation of the exclusion clause was overly broad.

Using this approach, the Court determined that it was not obvious that the faulty workmanship exclusion precluded coverage for resulting damage. Further, the Court held that if an insurer wants to exclude particular coverage, especially for something as well-known as resulting damage, it should do so explicitly rather than implicitly.

The Court also pointed out that it would be problematic if the faulty workmanship exclusion were interpreted as excluding coverage for resulting damage, since it would conflict with the property being worked on exclusion, which specifically preserves coverage for resulting damage to other insured property. Huscroft J.A. held that the motion judge’s conclusion that the faulty workmanship exclusion “trumps” the property being worked on exclusion was incorrect. In determining the proper approach, the Court stated that instead of weighting the exclusions, it is appropriate to interpret coverage provisions broadly, and to interpret exclusions narrowly, and that in accordance with the contra proferentem doctrine, any ambiguity is to be resolved in favour of the insured, instead of the insurer.

In allowing the appeal, Huscroft J.A concluded that in applying the governing principles of contract law, the resulting damage to appellant’s insured property was covered by the policy and the contract was to be interpreted in a way that included resulting damage in its coverage, regardless of whether or not the resulting damage in question was the result of faulty workmanship.

What the Insurer Should Know

The courts have taken the position that absent clear wording to the contrary, resulting damage from faulty workmanship can be covered by an insurance policy.

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Mitch Kitagawa Kate Craner, Articling Student