Corbett v Vero Insurance New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Fitzgerald J
• Judgment Date: 30 July 2019
• Neutral Citation: [2019] NZHC 1823
• Docket Number: CIV-2018-404-1991
• Court: High Court
• Date: 30 July 2019

Between

Barbara Anne Corbett, Frederick John Mccall and Gibson Sheat Trustees Limited as trustees of the Mathews Family Trust

Plaintiff

and

Vero Insurance New Zealand Limited

Defendant

[2019] NZHC 1823

Fitzgerald J

CIV-2018-404-1991

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Contract, Insurance — claim under insurance policy — exclusion clause relating to defective materials and workmanship — interpretation — whether windows which were scratched during the construction of a house were damaged, or defective, or defective because they were damaged

Counsel:

NR Campbell QC for plaintiffs

CM Brick and AR Durrant for defendant

JUDGMENT OF Fitzgerald J

This judgment was delivered by me on 30 July 2019 at 3:45 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date

Introduction

1 This proceeding turns on whether windows which were scratched during the construction of a house are “damaged”, or “defective”, or “defective” because they are “damaged”.

2 The issue arises because if the windows are damaged but not defective, the cost to repair or replace them will be covered by a construction works policy taken out by the plaintiffs with the defendant (Vero). If the windows are defective, however, an exclusion clause in the policy will apply and cover will be excluded. The windows are bespoke, high quality, triple-glazed joinery made in Germany. The cost to repair or replace them has been estimated at around $385,000.

3 In December 2018, Associate Judge Bell directed that there be a hearing of the following separate question:

Is the plaintiffs' claim under the contract works insurance policy for scratching to the 54 glazing units as pleaded in the statement of claim excluded by the following exclusion in the policy:

The Company will not indemnify the insured against:

6. the costs of repairing, replacing or rectifying any part of the contract works which is defective in material or workmanship.

However, this exclusion shall only apply to that part of the machine or structure immediately affected, and not to loss or damage to other parts of the contract works resulting therefrom.

4 This judgment determines the separate question.

Factual background

5 The plaintiffs are the trustees of a family trust which owns the property and house in question. In or around December 2015, they contracted with a building contractor for the construction of a new house on the property (the construction contract).

6 At the same time, the plaintiffs took out a Contract Works Insurance Policy with the defendant (Vero) in respect of the construction contract (the Policy).

7 Under the construction contract, the builder was obliged to leave the new house clean and tidy at practical completion. In fulfilment of this obligation, the builder engaged a subcontractor to carry out a clean of the entire house prior to practical completion, which included cleaning the windows. The cost of the cleaning work was included in the contract price payable by the plaintiffs.

8 In about late May 2017, prior to practical completion or the plaintiffs taking possession of the new house, the subcontractors cleaned the house, including the windows. There was dust and grit on the windows which was not removed before the main clean. As a result, the dust and grit was rubbed into the windows' glass, with the result that all or many of the windows were scratched.

9 In August 2017, the plaintiffs made a claim under the Policy in relation to the scratched windows. There is no dispute for the purpose of determination of the separate question that:

• (a) the subcontractors' cleaning works were works carried out under the construction contract;

• (b) the cleaning works were part of the works to be carried out in order to achieve the contractual works under the construction contract;

• (c) the windows were part of the ‘contract works’ as defined in and insured under the Policy at the time the scratching occurred;

• (d) the scratching occurred during the period of insurance under the Policy; and

• (e) that as a result of the scratches, the windows have suffered physical damage.

10 Vero declined cover on the basis that, as a result of being scratched, the windows were “defective in workmanship,” and thus the exclusion clause set out at [3] applied (Exclusion 6).

Other relevant terms of the Policy

11 The Policy's insuring clause provides as follows:

If at any time during the period of insurance physical loss of or damage occurs to any item of the property insured, then subject to the terms, conditions and exclusions of this policy the Company will indemnify the insured for such loss or damage.

[Emphasis added]

12 The clause refers to the “property insured”, a term which is not defined in the Policy. However, as noted at [9](c), the parties agree the windows were part of the contract works insured under the Policy.

13 The Policy then contains a series of exclusions to the above insuring clause (including Exclusion 6). It is necessary to set them out in full:

The Company will not indemnify the Insured against:

• 1. loss or damage directly or indirectly caused by earthquake, hydrothermal activity or volcanic eruption;

• 2. loss or damage to any item of machinery or plant, which has been installed as part of the insured contract, directly caused to that item by its testing or commissioning.

  However, this exclusion shall not apply to new building services plant forming an integral part of new buildings being constructed and insured by this policy, unless such plant is more specified by the sub-contractor(s);

• 3. consequential loss, loss of use, loss due to delay, penalties, fines, liquidated damages aggravated, punitive or exemplary damages, or liability of any nature whatsoever;

• 4. loss or damage to property directly caused by cessation of work whether total or partial;

• 5. the cost of repairing, replacing or rectifying any part of the contract works in which there is a fault, defect, error or omission in design, plan or specification.

  However, this exclusion shall only apply to that part of the machine or structure immediately affected by such fault, defect, error or omission, the Company's liability in respect of loss or damage to other parts of the contract works resulting therefrom shall not exceed $25,000;

• 6. the cost of repairing, replacing or rectifying any part of the contract works which is defective in material or workmanship.

  However, this exclusion shall only apply to that part of the machine or structure immediately affected and not to loss or damage to other parts of the contract works resulting there from;

• 7. loss or damage to:

  • a. any employees tools and equipment unless otherwise agreed by endorsement;

  • b. any item of contractors plant (which may also be described as construction plant) shown in the policy schedule directly caused by its own explosion, mechanical or electrical breakdown, derangement or other operating cause, but resultant damage arising from such causes is insured;

• 8. loss or damage caused by wasting, wearing away, discolouration, staining, aesthetic defects, delamination, corrosion, erosion or gradual deterioration, including that due to atmospheric conditions;

• 9. loss or damage arising out of or resulting from rot, mould, mildew, fungi;

• 10. loss or damage to accounts, bills, bonds, currency, stamps, deeds, evidence of debt, money, notes, securities, cheques, credit cards, files, computer software, drawings and plans;

• 11. loss of any property by disappearance or shortage revealed only by the making of an inventory or by periodic stocktaking, and where such loss is not traceable to any specific event;

• 12. loss or damage to the contract works or any part thereof which has been taken into use or occupation by the principal, unless such loss or damage occurred during any maintenance period specified in the policy schedule and arose in the course of any operations carried out by the contractor solely for the purpose of complying with the stated obligations under the maintenance clauses of the contract;

• 13. loss or damage to any existing structures belonging to the principal, unless such loss or damage occurred to property specified in the policy schedule which forms part of the insured contract and arose directly out of the performance of the insured contract;

• 14. loss or damage arising out of rectifying existing or aggravated defects not forming part of the insured contract;

• 15. the excess shown in the policy schedule which shall be the amount borne by the Insured in respect of each and every claim for which indemnity is provide under Section 1.

  For the purposes of this exclusion:

  • a. a series of events arising from or caused by subsidence, erosion, flood, inundation, landslip, cyclone, storm or tempest during any period of 72 consecutive hours will be treated as one event for the purposes of applying the excess;

  • b. the excess shown as applying to contract works shall also be applicable to architects fees and removal of debris. In the event of a loss arising from the same source and original cause giving rise to a claim against more than one of these items, the excess will not be cumulative. The aggregate adjusted loss will be subject to the highest excess only being applied.

14 There then follows a series of conditions, only the first of which is relevant:

In the event of loss or damage to the property insured, for which indemnity is provided under this policy, the basis of any settlement shall be:

• (a) in the case of damage which can be repaired, the cost of the repairs necessary to restore the item(s) to their condition immediately before the occurrence of the damage less any salvage; or

• (b) in the case of a total loss, the actual value of the item(s) immediately before the occurrence of the loss less salvage.

15 There follows a...