Interpreting Exclusions in Commercial General Liability Insurance
CASE SUMMARY: G&P Procleaners and General Contractors Inc. (ONCA 2017)
Businesses need to be aware of the types of claims excluded under their commercial general liability insurance policy. In G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Company, the Court of Appeal for Ontario provides a useful summary of the principles of interpreting exclusion clauses in commercial general liability insurance policies.
Facts of the case
G&P were contracted to provide window cleaning services at a newly constructed commercial building. At the time of the cleaning, stone cutting machines at the construction site generated vast amount of airborne cement debris that adhered to the wet windows. When G&P’s employees applied squeeguees to the windows, the interaction of the squeegees and the debris resulted in 180 of the 2,000 windows in the commercial building being scratched. G&P claimed that its employees could not hear the scratching of the glass because of the loud noise emanating from the stone cutting machines. G&P paid the owner of the building $134,000 to replace the damaged windows and subsequently sought reimbursement under its commercial liability insurance policy.
The insurance policy insured against “occurrences”, which are defined in the policy as meaning “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”:
We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this insurance applies … This insurance applies only to “bodily injury” and “property damages” which occurs during the policy period. The “bodily injury” or “property damages” must be caused by an “occurrence.” …
The policy also included exclusions:
This insurance does not apply to:
(h) “Property damage” to:
(v) that particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the "property damage" arises out of those operations; or
(vi) that particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
The term “your work” is further defined in the policy as meaning (a) work or operations performed by you [the insured] or on your behalf; and (b) materials, parts or equipment furnished in connection with such work or operations.
The insurer denied coverage and argued that the "occurance" that caused the damage was the cleaning of the windows by G&P's workers and that the policy specifically excluded property damage arising out of the operations of G&P.
G&P brought an action against its insurer seeking indemnification under the policy. The insurer brought a motion for summary judgment on the grounds that the exclusions applied and there was no coverage under the policy. The judge hearing the motion agreed with the insurer that the claim was barred by the exclusion clauses referenced above and that there was, therefore, no genuine issue for trial. The judge found that the scratches on the windows were the “occurance” under the policy and that these arose out of G&P’s window cleaning operation.
G&P subsequently appealed to the Court of Appeal for Ontario. It argued that the judge erred in finding that the scratching of the windows were the "occurance" under the policy and that, in fact, the "occurance" was the confluence of various environmental factors, including the debris caused by the stone cutters, which then formed the conditions for the scratching of the windows.
Decision of the Court of Appeal: Interpretation of Insurance Contracts
In its decision, the Court of Appeal summarized the well established rules of interpretation of insurance contracts: when there is no ambiguity in the language of the policy, the courts will give effect to clear language, reading the contract as a whole. Where there is ambiguity in the language, on the other hand, the courts must rely on the general rules of contract construction. For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties, such long as these expectations can be supported by the text of the contract. If the ambiguity cannot be resolved by these rules of construction, the courts will construe the policy contra proferentem – against the party that drafted the contract.
The Court of Appeal followed the Supreme Court of Canada’s holding in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, where the Honourable Mr. Justice Rothstein held that, in interpreting insurance policies, the onus is on the insured to demonstrate that the claim in issue falls within the initial grant of coverage. Once that is established, however, the onus shifts to the insurer to establish that an exclusion applies. If such an exclusion is established, it is then open to the insured to prove that once of the exceptions to the exclusion is applicable.
The Court of Appeal rejected G&P’s argument that the "occurance" was the environmental factors, reasoning that, although the environmental factors created the conditions under which G&P’s workers chose to undertake their window cleaning operation, they did not cause the scratches to the windows. Instead, the Court found that it was the application of the squeegees to the windows by G&P’s workers that caused the scratches.
The Court further held that the wording of the exclusion in section 2(h)(v) of the policy was unambiguous. Property damage did not occur until G&P’s workers performed their window-cleaning. The damage would not have occurred if the workers had chosen not to clean the windows amid the airborne debris. Thus, the Court concluded that the damage did “arise out of” the window cleaning operation.
Thus, although G&P could establish that the claim fell within the initial grant of coverage, the insurer was able to show that the exclusion applied.
In its decision, the Court also provided a useful summary of the purpose and limitations of commercial general liability polices:
…Commercial general liability policies are generally intended to cover an insured's liability to third parties for property damage other than to the property on which the insured's work is being performed. They also cover consequential damage to parts of the property other than to the particular part of the property on which the work is performed. But they are not "all-risk" policies. They do not insure the manner in which the insured conducts its business. They do not generally cover the cost of repairing the insured's own defective or faulty work product...
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 G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Company, 2017 ONCA 298.
 Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33