A professional services exclusion defeats an insured builder’s claim for indemnity under a public & products liability contract
Damage to a house built and sold by Metricon fell within an insuring clause for "property damage" cover. However, a professional services exclusion applied to defeat Metricon's claim against its insurer for indemnity for an amount paid by Metricon to the owners for rectification costs.
- Whether damage to a completed house resulting from building defects constituted “damage to property”.
- Whether policy exclusions, including a professional services exclusion, applied to defeat the insured’s claim for indemnity.
In late 2007 the house owners entered into a “design and construct” building contract with Metricon for the construction of a residential dwelling house. The house was completed in mid 2008 but, between early 2011 and mid 2014, the owners reported damage to the house. The damage was eventually determined to have been caused by design and construction errors involving the concrete slab, timber roof trusses and other miscellaneous defects.
The house owners claimed the cost of rectification from Metricon, and reached a settlement with Metricon in January 2015. Metricon then made a claim on its public and products liability policy with Great Lakes Insurance (GLI). The policy had three insuring clauses, but only the insuring clause in Section 3 of the policy was determined to be relevant to the claim.
GLI denied indemnity on the basis that the loss (being the payment to the owners) arose from Metricon’s beach of contract rather than from property damage and that, in any event, various exclusion clauses applied so as to deny cover.
The court rejected GLI’s submission regarding the nature of the loss and determined that, when given its ordinary meaning, damage to property could include damage flowing from building defects during construction, meaning that the claim was covered by the relevant insuring clause.
The court went on to examine the exclusions relied on by GLI including a professional services exclusion. The court decided that, even though Metricon had outsourced relevant engineering designs to others, the provision of those services to the house owners under the “design and construct” contract constituted a professional service the kind of which was intended to be captured by the exclusion.
This meant that, even though the claim was found to be covered by Section 3 of the GLI policy, Metricon’s claim was defeated due to the operation of the professional services exclusion clause. The court found, in addition, that other exclusion clauses may also have applied.
In examining the operation of the exclusion clauses, the court went into significant detail to explain its views on the principles of policy interpretation in Australia. It focused on “plain” reading of policy conditions and exclusions, with the policy needing to be read as a whole (consistent with Re Media Entertainment & Arts Alliance; ex pate Hoyts Corp Pty Ltd).
Implications for you
It is important for insurers to apply plain reading and whole instrument interpretation principles when considering claims for indemnity. This is particularly relevant where policies have what appear to be overlapping sections or exclusions.