Policyholder withstands the pressure of insurer’s attempt to deny indemnity Policyholder withstands the pressure of insurer’s attempt to deny indemnity


Policyholder withstands the pressure of insurer’s attempt to deny indemnity

6 April 2017 | Building, Construction & Property

Builder and insurer liable for damage to residential property following severe storm because cause of damage was defectively installed windows.

In Issue

  • Whether a construction supervisor was liable for the improper installation of windows by a third party resulting in catastrophic damage
  • Whether an insurer was able to deny indemnity by arguing that a freak storm was not in connection with a policyholder’s business

The Background

The home of Graham and Lynette Bigby (the plaintiffs) suffered severe damage as a result of improperly installed windows. Due to over pressurisation, the windows gave way during a storm, causing the failure of the roof and external walls of the house. The construction of the house was overseen by the first defendant, (Mr Kondra), who held Business Insurance with the second defendant, Zurich Australian Insurance Ltd (‘Zurich’). The windows were installed by a third party contractor.

The relevant issues before the court included consideration of whether there was a contractual duty on the part of Mr Kondra to supervise the construction of the house, whether the Mr Kondra failed to adequately supervise the construction, and whether the Zurich was liable to indemnify the Mr Kondra under the Business Insurance policy.

The Decision

At trial, Daubney J relied on the reasoning of Barwick CJ in Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588 in coming to the conclusion that the first defendant was indeed under a contractual obligation to supervise the construction of the house, and his failure properly to do so rendered him liable to the plaintiffs in negligence. His Honour held that due supervision of the third party’s installation of the windows would, or ought to, have revealed the patent inadequacy of the installation.  Mr Kondra’s evidence of the difficulties he experienced in communicating with and obtaining information from the third party installation contractor was did not relieve him of the duty to ensure proper installation of the windows.

With respect to the Zurich’s liability to indemnify Mr Kondra, the issue essentially hinged upon whether the property damage happened “as a result of an occurrence in connection with [Mr Kondra’s] business or product”. Zurich contended that the “occurrence” was the storm which took place on 16 November 2008, and that this was not in connection with Mr Kondra’s business.

Justice Daubney was of the view however that it was not the storm per se which caused the implosion of the house, nor was it the faulty windows which directly caused the damage. Rather, his Honour found that it was the defective installation of the windows which was causative of the explosive over-pressurisation and resulting damage. The supervision of the installation of the windows was found to be part of Mr Kondra’s business, and therefore the occurrence was in connection with his business.

The court then turned to consider Zurich’s reliance on Clause 5 in the policy which intended to exclude liability for property damage to products if the damage was attributable to any defect in them or to their harmful nature or unsuitability. This involved consideration of whether the plaintiff’s house was Mr Kondra’s “product”.

Relying on Aspen Insurance UK Limited v Adana Construction Limited [2015] EWCA Civ 176, Justice Daubney held that the plaintiff’s house was not a “product” of Mr Kondra, as such a conclusion would conflict with the fundamental purpose of the policy. Justice Daubney specifically noted the presence of Clause 15, which purported to exclude cover for “personal injury or property damage caused by the demolition, underpinning, removal of support, dewatering, alteration, renovation, construction, erection of and/or addition to any building, structure, plant or equipment by or on behalf of an insured person”, where the contract price exceeded $500,000. Though not directly applicable as the contract price was for $460,000, his Honour interpreted this as expressly and unequivocally applying to the construction or erection of any building, and therefore held that the policy ought to be read as extending to property damage to a building constructed by the first defendant. To construe these exclusions otherwise would lead to an “unacceptable tension” between Clauses 5 and 15.

It was held therefore that the Mr Kondra was liable to the plaintiffs in negligence, and Zurich was liable to indemnify Mr Kondra in respect of that liability.

Implications for you

This decision is indicative of the willingness of courts to give effect to the underlying purpose of an insurance policy when considering the meaning of its terms in a particular factual context.   

Bigby v Kondra & Anor [2017] QSC 37

This case note was authored by Ben Seymour.

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