Donald Dinnie, Norton Rose Fulbright
In this judgment the insured was hired to build a bridge and obtained a “builder’s risk policy” from the insurer.
In building and integrating the supportive structures of the bridge, the insured’s poor vibration of concrete resulted in construction formations known as honeycombing and voiding which harmed the structural integrity of the bridge. Consequently, the insured had to replace sizeable portions of the bridge’s supportive structures. The insured claimed under its policy.
The insurer declined arguing that there had been no damage as contemplated by the policy.
The policy insured against “all risks of direct physical loss of or damage to insured property”. There were certain excluded perils. The terms “insured peril”, “physical loss” and “damage” were not defined.
The sole coverage disagreement was whether “damage” was properly understood to include the costs of fixing the concrete floors that weakened the bridge.
The insured’s inadequate vibration caused a decrease in the weightbearing capacity of the bridge and its support structures. The court said that a decreased weightbearing capacity was surely an injury, or at the very least a bad effect, on the bridge and its support structures.
That was in accordance with the dictionary definition of “damage” to include “any bad effect on something”. The court said that assessment of the meaning of “damage” need not end with the dictionary.
The “Perils Excluded” section of the policy alongside the coverage provision provided further evidence that malformities stemming from defects in material workmanship were unambiguously within the scope of coverage. The clear implication of the relevant exclusion was that “faulty or defective workmanship” could cause “loss, damage or expense”. The court also said that the Defect Extension’s treatment of the term “damage” which it defined as “patent detrimental change” underscored that issues of defective workmanship can cause damage.
The insurer relied on the defective workmanship exclusion which read:
“For the purpose of this policy and not merely this exclusion it is understood and agreed that any portion of the Insured Property shall not be regarded as damaged solely by virtue of the existence of any defect of material workmanship, design, plan or specification.”
The court said that the extension did not suggest that property cannot be “damaged” if there were defects of material workmanship somewhere in the causal chain. Instead, it indicated that defects of material workmanship in and of themselves were insufficient to constitute damage. The insured did not seek reimbursement solely for its defective workmanship. On the undisputed facts the insured’s defective workmanship led to honeycombing and voiding which, in turn, led to decreased structural integrity of the bridge.
The court held that the plain language of the coverage provision, the policy as a whole, and the intent of the parties suggested that structural damage stemming from the insured’s defective workmanship was within the scope of coverage and in the circumstances “damage” was unambiguously properly understood to include the costs of fixing the concrete floors that weakened the bridge.
Some would say that defining “damage” as “any bad effect” is literally a bridge too far.
First published by: Financial Institutions Legal Snapshot
Get the latest issue of FAnews