Two ONCA decisions on property policy faulty workmanship exclusion, and limitation period for liability policy defence obligation

Just before Christmas, the Ontario Court of Appeal released two other decisions of significance in respect of commercial/homeowners’ liability and property coverages, in addition to the previously-posted Carneiro v. Durham decision.

On December 23rd, 2015, in Monk v. Farmers’ Mutual Insurance Co. (Lindsay), the Court set aside the motion judge’s finding that the uniquely-worded faulty workmanship exclusion in a property policy applied to exclude the plaintiff insured homeowner’s claim for damage caused by a contractor during renovation work.

The Court held the more reasonable narrow interpretation of the exclusion was not to find that it excludes resulting damage. Although it did not make an exception for such damage as did another exclusion, (the “property being worked on” exclusion), the Court held that if the insurer wished to exclude such damage, it must do so explicitly. And, the exception to one exclusion, which is to be construed broadly, should not be interpreted narrowly, so that the other exclusion can be interpreted broadly.

The Court therefore held that in this policy “resulting damage to insured property is covered by the policy whether or not that damage is the result of faulty workmanship”.

The Court returned the matter to the motion judge to address the limitation defence raised by the insurer but not addressed by the motion judge because of his decision on the exclusion.

The Court also held that the correctness standard for appellate review applied per its recent McDonald v. Chicago Title decision.

And, in Daverne v. John Switzer Fuels Ltd., a decision released on December 24th, the Court reversed the motion judge’s granting of partial summary judgment in the third party action to the insured, McKeown & Wood Limited, which declared that the appellant insurer, Federated Insurance Company of Canada, had a duty to defend McKeown & Wood in the main action. The motion judge had dismissed Federated’s cross-motion for summary judgment to dismiss the third party action against it based on the contractual limitation period in Federated’s insurance policy.

After stating that the standard of appellate review was correctness, the Court held the motion judge erred in finding that the one-year limitation period set out in Federated’s insurance policy was not enforceable against the insured because it was a business agreement and the policy adequately addressed making the limitation applicable, and it did not matter that this was a third-party liability instead of a first-party property claim as in the Court of Appeal’s earlier Boyce v. Co-Operators decision.

The Court held that the loss is suffered from when the insurer refuses to satisfy its defence obligation, (see para. 38). There is no discussion about whether there can be a “rolling limitation” for various defence cost accounts. Can one infer from this decision that this argument would not be accepted?

In the result, the Court noted that whether a defence was owed under the policy did not have to be addressed. It did go on to find that whether indemnity is owed remains to be determined.