Window cleaning and the “your work” exclusion clause in a CGL policy

The Court of Appeal for Ontario recently upheld a “your work” exclusion in a Commercial General Liability Policy in G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Company, 2017 ONCA 298. The insured, G & P Procleaners (“G & P”), was hired to provide window cleaning services at a newly constructed commercial building. During the cleaning, a number of windows were scratched as a result of unforeseen environmental conditions at the construction site (specifically, airborne cement debris from nearby stone cutting machines). On application of squeegees to the windows, cement debris that had accumulated on the wet windows scratched the surface of the glass. G & P paid the owner of the building to replace the damaged windows, and then sought reimbursement from its insurer under its CGL Policy. Coverage was denied pursuant to a “your work” exclusion in the policy.

G & P brought an action against its insurer seeking indemnification under the policy. The insurer brought a motion for summary judgment to dismiss the action on the ground that exclusions applied. The motion was granted and the claim was dismissed; the judge ruled that G & P’s claim was barred by two exclusions in the policy and there was, therefore, no genuine issue requiring a trial. G & P appealed, and the Court of Appeal for Ontario upheld the decision of the lower court.

Policy Language

The Court of Appeal for Ontario confirmed that in a claim for coverage, the insured must first demonstrate that a claim fell within the initial grant of coverage. In G & P’s case, the initial grant of coverage in the policy insured against “occurrences”, provided as follows:

  1. Insuring Agreement

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”. … [emphasis added]

The term “occurrence” was defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Once it is established that the claim falls within the initial grant of coverage, the onus shifts to the insurer to establish that an exclusion applies. In this case, the insurer denied coverage under the terms of the policy on the basis that P & G’s claim fell within the “your work” exclusions, which provided:

  1. 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” was defined in the policy as meaning:

(a)          Work or operations performed by you [the insured] or on your behalf; and

(b)          Material, parts or equipment furnished in connection with such work or operations.

Argument on Appeal

On appeal, G & P argued that the motion judge erred in holding that the “occurrence” was the scratching of the windows. It argued that the “occurrence” was the confluence of the various environmental factors, including the debris produced by the stone cutting machines, which established the conditions for the scratching of the windows. That argument was rejected.

The Court of Appeal confirmed that an “occurrence” in this context is an event that causes property damage that is neither expected nor intended by the insured. The environmental factors did not cause the scratches to the windows; they were merely the conditions in which G & P’s workers chose to clean the windows. The cleaning of the windows using the squeegees was expected and intended, but the scratching of the windows, while they were being cleaned using the squeegees, was unexpected and unintended. Under the terms of the initial grant of coverage under the policy, the window damage was a claim that was potentially recoverable.

The Court of Appeal then considered whether exclusion 2(h)(v) applied. It found that no property damage occurred until G & P’s workers performed their window cleaning duties by applying their squeegees to the windows. If the workers had chosen not to clean the windows while there was airborne cement debris, there would not have been property damage. Therefore, the property damage clearly did “arise out of” the operations of G & P. On that basis, the Court of Appeal upheld the decision of the motion judge which dismissed G & P’s claim.

Although not necessary for the disposition, both the motion judge and the Court of Appeal found that exclusion 2(h)(vi) applied also.

Finally, G & P argued that the motion judge’s interpretation of the policy rendered coverage illusory. The Court of Appeal disagreed, saying that CGL 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. The policies do not insure the manner in which the insured conducts its business, nor do they generally cover the cost of repairing the insured’s own defective or faulty work product.

Departure from Supreme Court of Newfoundland and Labrador (Court of Appeal)

It should be noted that in arriving at its decision the motion judge declined to follow the Supreme Court of Newfoundland and Labrador (Court of Appeal) decision in Lombard General Insurance Company of Canada v. Crosbie Industrial Services Limited, 2006 NLCA 55, where the Court considered a nearly identical exclusion clause. In that case, a fuel oil tank was destroyed following an explosion that occurred while the inside of the tank was being cleaned. That Court reviewed the “your work” exclusions and concluded that they were ambiguous because they failed to identify a relationship between an occurrence and the exclusions. The Court went on to find that the exclusions would apply only where there was incorrectly performed work with no occurrence.

On appeal, G & P argued that the motion judge erred in not following this decision. The Court of Appeal for Ontario, however, found that the Newfoundland and Labrador Court of Appeal’s analysis in Crosbie was circular and inconsistent with the established principles for the interpretation of contracts of insurance. As stated above, the first step of the coverage analysis is a determination of whether the claim falls within the initial grant of coverage. In order for there to be coverage, there must first have been an occurrence. A Court will not take the next step of considering whether an exclusion applies in the absence of an occurrence. Thus, the Court’s conclusion in Crosbie that the “your work” exclusions applied only in the absence of an occurrence was not legally or logically sound and should not be followed.