In a September 2016 decision, The Supreme Court of Canada held that Northbridge Indemnity Insurance Co. would have to pay for damages caused during window cleaning despite a clause excepting, “the cost of making good faulty workmanship.” In so doing the Court clarified that the standard of review for standard form contracts was “correctness.” This standard allows courts to make determinations without deference to administrative decision makers instead of focusing on whether or not a decision is correct at law.
Most contracts are held to the holding in Sattva Capital Corp. v. Creston Moly Corp. which confirmed that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. The Supreme Court ruled in Ledcor v. Northbridge that the standard form nature of insurance policies creates an exception to this rule. In Ledcor, the Supreme Court relied upon the correctness standard because “the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition.” This lack of negotiation reduces the need to rely on the relevance of the context of the contract. The court also justified their position with a policy argument holding that using a deferential standard could result in similar clauses being interpreted differently which would be undesirable with standard form contracts as they affect a large number of people. The need for consistency requires an interpretation based on “pure questions of law.”
After determining the standard of review in Ledcor, the Court proceeded to interpret the exclusion for “the cost of making good faulty workmanship.” The Court held that this exclusion was ambiguous, and relied on policy rules to reach their conclusion. Using Commonwealth Construction Co. v. Imperial Oil Ltd., the court found that the purpose of a builder’s risk policy is to provide broad coverage and reduce the need for litigation. As such, the reasonable expectations of the parties would be to have this damage covered.
This decision moves the burden of risk in construction projects from contractors to insurers. This decision would be of particular interest to insurers who may find themselves having to cover damage which they previously believed was excluded under their contract.