An Alberta judge sided with building owners in a dispute over whether insurers must pay for shoddy construction work, delivering a split decision that hinged on how policy language treats completed projects.
The November 24 ruling from the Court of King's Bench of Alberta tackles a question that regularly lands on the desks of commercial general liability underwriters: when faulty workmanship causes damage years after a project wraps up, who pays to fix it?
David Alexander Tragger and Hypocrite Productions Inc. hired a contractor in 2007 to supply and install stone siding on two buildings. The contractor brought in a subcontractor to handle the installation. In 2014, material portions of the siding began to delaminate, forcing the building owners to tear everything out and start over.
The owners sued the contractor and subcontractor, winning a judgment worth roughly $310,000 including interest and costs. But the companies couldn't pay. So the owners turned to the contractor's liability insurers, Royal & Sun Alliance and Intact Insurance Company, invoking a provision in Alberta's Insurance Act that lets claimants go after insurers directly when judgments go unpaid.
Both insurers said no. Their policies excluded coverage for repairing incorrectly performed work, they argued. But those same policies contained an exception for something called the products-completed operations hazard, which kicks in when damage happens after a job is finished and away from the contractor's premises.
Royal & Sun Alliance took the position that because the installation was defective from day one in 2007, the damage technically occurred before the work was complete, even though the siding didn't actually fail until seven years later. Justice Michael Lema wasn't buying it.
The judge found that the policies focus on when physical damage occurs, not when the underlying defect begins. The siding was installed in 2007. It failed in 2014. Under the policy terms, work that might need correction or replacement down the road still counts as completed work, he ruled.
That interpretation lined up with a Supreme Court of Canada decision that said commercial liability policies are meant to cover damage to a contractor's own work once a project is done, filling the gap left when performance bonds expire.
Justice Lema found coverage under the Royal & Sun Alliance policy and under one of three Intact policies. But two other Intact policies used different wording that barred coverage for this exact situation without the products-completed operations carve-out. Those exclusions held up.
The ruling underscores how subtle differences in policy language can determine whether construction defect claims get paid. For underwriters and brokers placing commercial liability coverage, the decision offers a reminder that courts will enforce the products-completed operations exception even when defects existed from the start, as long as the actual damage happens later.
