An exception to Sattva?: Alberta Court of Appeal applies correctness standard in reversing interpretation of insurance policy
In Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2015 ABCA 121, the Alberta Court of Appeal was required to rule on the meaning of a provision of an insurance policy covering all loss suffered during the construction of an office tower (the "Policy").
The Policy insured the owner and the general contractor, and also all entities providing services or materials to them, such as sub-contractors and architects. Near the end of the construction, the owner hired a company, Bristol, to clean debris from the building's exterior, including the windows. Bristol damaged the windows by using inappropriate cleaning tools and methods, as a result of which the windows had to be replaced at a substantial cost. The dispute arose when the insurer refused to cover this cost, relying on an exclusion clause providing that the Policy did not insure:
... the cost of making good faulty workmanship, construction material or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage [emphasis added].
The issue was whether the loss in question was "the cost of making good poor workmanship" (in which case it was not insured) or "resulting damage" (in which case it was). The Court of Queen's Bench held that both of the possible answers to this question were plausible and found in favour of the insureds on the basis of contra proferentem. The Court of Appeal reversed, holding that the applicable test was whether there was a sufficient physical or systemic connection between Bristol's cleaning work and the damage. If there was such a connection, then the damage resulted from poor workmanship. On this test, the exclusion excluded not only the cost of redoing the work but also any damage caused to the very thing that was worked on. The damage to the windows was of this category since it (1) was caused directly by the work done by Bristol, (2) was a foreseeable consequence of Bristol's error, and (3) was not unexpected or fortuitous because it was part of normal risks of poor workmanship.
Perhaps the most interesting aspect of the Ledcor case is that, in coming to its decision, the Court of Appeal declined to apply the holding of the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, that the interpretation of a contract is generally a question of mixed fact and law, to which a deferential standard of review applies. The Court in Ledcor held that, given the context in which Sattva was decided (appeal from a commercial arbitration), it did not necessarily govern ordinary appeals in Alberta, particularly those concerning the interpretation of insurance policies. Insurance policies are a highly specialized form of contracts that often contain standard wording, and any decision on the interpretation of an insurance policy is of general importance and has high precedential value. Therefore, certainty regarding such interpretation is of primary importance to insurers and insureds alike. The Court concluded that, appellate intervention being essential to ensuring certainty and consistency, the standard of review for interpretation of insurance policies is correctness.This reasoning appears persuasive. Nonetheless, it is unclear whether the Alberta Court of Appeal's position can be reconciled with Sattva's general and definitive language regarding the standard of review for contractual interpretation.