By: Dan Fuller and Locklyn Price

A notable decision of the Court of King's Bench of Alberta addresses a question that occurs whenever construction defects surface years after a project closes and the responsible contractor has become insolvent: do the contractor's commercial general liability (CGL) policies respond to the cost of tearing out and replacing defective work?

In Tragger v Intact Insurance Company, 2025 ABKB 678 [“Tragger”], Justice Lema examined the scope of coverage available under three commercial general liability (“CGL”) policies and answered largely in favour of coverage, working carefully through the interplay between the “repair of incorrectly performed work” exclusion, the products-completed operations hazard (“PCOH”) exception, and the “your work” exclusion across four insurance policies.

While a bankrupt defendant may have limited assets available to satisfy a judgment, Tragger demonstrates that available insurance coverage is an alternative avenue for recovery.

The Facts

The facts were agreed. The plaintiffs, David Tragger and Hypocrite Productions Inc., hired a company to supply and install stone siding on two buildings. That company supplied the siding and engaged a subcontractor to install it. The siding went up in 2007. In 2014, significant portions of the siding began to delaminate, and the plaintiffs were forced to remove and replace all of it.

The plaintiffs sued the supplier and the subcontractor and successfully obtained a Judgment. Applications Judge Summers found faulty workmanship amounting to negligence on the part of the subcontractor and breach of contract on the part of the supplier, awarding approximately $310,000.00 jointly and severally. Critically, the plaintiffs could not collect a cent on that judgment.

Unable to recover from the contractors themselves, the plaintiffs turned to the contractors' CGL insurers, invoking section 534 of the Insurance Act, which permits a judgment creditor to proceed directly against the insurer of the judgment debtor. Four policies were at issue:

• one issued by Royal & Sun Alliance (RSA); and
• three issued by Intact (referred to as policies #02, #10, and #20).

Note: Section 534 of the Insurance Act lets a judgment creditor sue the insurer directly once two conditions are met: the insured has failed to satisfy the judgment, and a writ of enforcement against the insured has come back unsatisfied. The creditor then stands in the insured's shoes and can recover from the insurer up to the lesser of the policy limits or the judgment.

The Court's Reasoning

The RSA Policy

RSA effectively conceded prima facie coverage. The battle was over exclusions and whether any exceptions to the exclusions applied.

RSA invoked the exclusion for property damage, on the basis of the classic faulty-workmanship carve-out to exclude coverage.

The plaintiffs accepted that the exclusion applied on its face but relied on the PCOH exception, which restores coverage for property damage occurring away from the insured's premises once the insured's work is complete.

Note: A CGL policy typically excludes the cost of repairing the insured's own faulty work. The PCOH is an exception that restores coverage where the property damage occurs away from the insured's premises after the work is finished. In Tragger, the Court used it to bring the siding-replacement cost back within coverage: the work was complete in 2007, and the damage (delamination) only appeared later, so the exception applied.

RSA's core argument was one of timing, which they stated since the deficiency arose during construction, before the work was complete, the PCOH exception could not apply. Justice Lema rejected that framing on several grounds:

• Damage, not deficiency, is the trigger. The PCOH exception focuses on the timing of the property damage, not when the deficient work was performed. The defective installation happened in 2007, but no damage occurred until the siding began delaminating in 2014.
• Deficiencies do not make work “incomplete.” The policy deems work complete when all contracted work is done or the structure is put to its intended use; both of which occurred in 2007. The PCOH exception expressly provides that work needing correction, repair, or replacement but otherwise complete is treated as completed.
• The contrary reading would gut the coverage. If the mere presence of a deficiency rendered work “incomplete,” the PCOH exception could never apply in any faulty-workmanship case, an outcome the Court found untenable and inconsistent with the purpose for which the coverage was sold.

The Intact Policies

On Intact policy #02, Intact first argued there was no “occurrence” because there had been no “accident.” The Court disagreed, relying on Progressive Homes Ltd v Lombard General Insurance, 2010 SCC 33 [“Progressive Homes”], which held that faulty workmanship can constitute an accident. The Court specifically noted that the inherent meaning of “accident” (an unlooked-for mishap not expected or designed) described the unexpected delamination in this case.

Note: Progressive Homes is the Supreme Court of Canada's leading decision on interpreting liability insurance policies. It directs courts to begin with the words of the policy, the coverage grant, exclusions, and exceptions, and apply them to the facts, rather than relying on general assumptions about what such policies "should" cover.

The Court reviewed the exclusions under policy #2 and found that none applied:

• The faulty-workmanship exclusion was subject to the PCOH exception (as with RSA policy).
• The “damage to the Named Insured's work” exclusion contained a subcontractor exception, and because Applications Judge Summers had already found that the installation was subcontracted, that exception applied. Notably, the Court held that this was a post-judgment recovery under section 534, not a duty-to-defend analysis, so Intact could not rely on the wording of the original pleadings (which had not named a subcontractor) to defeat coverage.
• The impaired-property exclusion did not apply because its focus was loss of use, which was not claimed.

The outcome diverged for policies #10 and #20, which were materially identical to each other but differently worded from #2. Crucially, policies #10 and #20 did not contain a PCOH exception to the operative faulty-workmanship exclusion. The Court held that exclusion 4(b)(iv)(C): excluding property damage to that particular part of any property whose restoration, repair, or replacement was necessary by reason of faulty workmanship - applied.

The Court rejected the plaintiffs' “bad mortar, good stone” argument as unduly artificial: the work was the installation of permanent siding, and that work failed as a unit. Additional exclusions (5(b) and 6) reinforced the result.

The Bottom Line

• RSA policy: Coverage. The faulty-workmanship exclusion applied but was restored by the PCOH exception.
• Intact #02: Coverage. No exclusion barred recovery once the PCOH and subcontractor exceptions were recognized.
• Intact #10 and #20: No coverage. These policies lacked a PCOH exception, so the faulty-workmanship exclusions applied without relief.

What Makes This Decision Notable

The clearest lesson is that whether coverage applied was dependent on whether a given policy included a PCOH exception. Three policies covering the same loss produced two different results. The presence or absence of a single exception clause was the whole ballgame. The lesson being policy wording is decisive.

Second, the Court's insistence on differentiating when the deficient work was performed (2007) from when the property damage occurred (2014) is the analytical heart of the decision. This distinction is what keeps the PCOH exception alive in the ordinary latent-defect scenario, and it is a point defence and plaintiff counsel alike should be prepared to press. The lesson being the recognition of the damage-versus-deficiency distinction.

Third, because this was a judgment creditor proceeding directly against the insurer after judgment, the usual duty-to-defend analysis, which reads coverage against the four corners of the pleadings, did not govern. The insurer could not hide behind the original statement of claim's silence on subcontracting thereby the Defence would strangled by the trial findings. This is a meaningful and somewhat underappreciated distinction, as Section 534 of the Insurance act changes the frame of how parties are able to argue.

Lastly, the rejection of artificial component-splitting. On the Intact #10 and #20 policies, the Court refused to distinguish the failed installation between “good stone” and “bad mortar.” Where an installation fails as an integrated unit, courts will treat it as a unit for exclusion purposes.

Application to Alberta Construction Litigation

For construction litigators in Alberta, Tragger reinforces several practice points.

First, in any faulty-workmanship coverage dispute, the first document to scrutinize a policy’s exclusions, and specifically whether the operative faulty-workmanship exclusion carries a PCOH exception. Counsel should not assume that two policies from the same insurer, or two policies covering overlapping periods, will respond identically.

Second, Tragger confirms that the completed-operations coverage is available generally in latent-defect cases, where damage has been caused due to defective work installed years earlier. Plaintiff-side counsel pursuing insurers, and defence counsel advising contractors on the scope of their coverage, can rely on the reasoning that a deficiency present at installation does not render the work perpetually “incomplete.”

Third, the Court's fidelity to Progressive Homes, directs the analysis for whether coverage applies to start with the policy language, not tort intuitions about what CGL policies “should” cover. It is a reminder that broad appeals to the general purpose of liability insurance will not carry the day. The wording governs.

Fourth, the treatment of the subcontractor exception is significant for the many Alberta projects executed through layered subcontracts. Where a subcontractor performed the defective work, the PCOH exception can restore coverage, and a prior judicial finding as to who performed the work will bind the coverage analysis at the recovery stage.

Application in the Bankruptcy and Insolvency Context

The most important aspect of Tragger from a Plaintiffs perspective is that the plaintiffs recovered nothing from the contractors and had to look to the insurers instead. That is the situation section 534 of the Insurance Act exists to address, and it is precisely the situation that arises when a construction defendant is bankrupt, dissolved, or otherwise judgment-proof.

For claimants facing an insolvent contractor. A judgment against a defunct contractor is not the end of the road. Section 534 of the Insurance Act allows the judgment creditor to step into the insured's shoes and pursue the CGL insurer directly, “in the same manner and subject to the same equities” as the insured would have. Tragger confirms that this is a substantive path to recovery, not merely a theoretical one, and that the analysis proceeds on the judgment and the trial findings rather than on the original pleadings. Where a construction defendant has entered bankruptcy, claimants should identify and preserve the contractor's CGL coverage early, because the policy proceeds may be the only realistic source of recovery.

The trustee and the stay. Where the contractor is actually bankrupt, counsel must account for the stay of proceedings under the Bankruptcy and Insolvency Act and the trustee's role. In many cases, insurance proceeds payable to a third-party claimant are treated differently from the general estate, and provincial direct-action provisions like section 534 interact with the federal insolvency regime. Parties will need to consider whether leave to proceed against the insurer is required and how to frame the action so that recovery targets the policy rather than the estate.

For contractors contemplating insolvency. A contractor weighing bankruptcy should understand that its CGL coverage may outlive its solvency as a source of recovery for claimants, which cuts both ways. It does not shield the contractor's principals from separate exposure, and it means historical projects can generate live claims against old policies years after the business winds down. Contractors and their advisors should locate and retain historical CGL policies (including expired ones), since completed-operations coverage often responds to work performed in prior policy periods.

The timing lesson for stale claims. Because the PCOH analysis turns on when damage occurred rather than when work was performed, latent defects that manifest long after a contractor has ceased operating, or gone bankrupt, can still fall within completed-operations coverage under the applicable historical policy. This is exactly the scenario in Tragger: work in 2007, damage in 2014, recovery against the insurer years later. Insolvency practitioners and construction counsel should treat old CGL policies as potential assets or recovery vehicles, not dead paper.

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