Corbett v Vero Insurance New Zealand Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeFitzgerald J
Judgment Date30 July 2019
Neutral Citation[2019] NZHC 1823
Docket NumberCIV-2018-404-1991
Date30 July 2019

[2019] NZHC 1823

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Fitzgerald J

CIV-2018-404-1991

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
Counsel:

NR Campbell QC for plaintiffs

CM Brick and AR Durrant for defendant

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

The Court held that the phrase “defective in material or workmanship” was not a particularly natural or ordinary usage of language. The phrase sought to convey that the exclusion applied to any part of the contract work which was defective due to the materials used in it, or workmanship carried out on it. The use of the word “in” could be seen to be a short form way of saying “due to”. There was a natural distinction between a part of a contract work being “damaged” and being “defective”. Before being scratched, the windows had been installed correctly and there was no suggestion they were not capable of performing and being operated as expected. The windows were therefore not in a defective condition (due to either materials or workmanship) at the point at which they were then damaged, in the sense of having undergone a physical transformation. As a result of being damaged, (and even if due to defective workmanship), they had not become “defective”. The concept of something being “defective” conveyd an inherent issue or fault with the windows or the way in which they had been built.

The contractual context to the exclusion clause supported that interpretation. The exclusion was not directed to the insuring event itself (i.e. physical loss or damage) or, importantly excluding certain risks which caused that damage (for example, defective workmanship). Rather, it was directed to contract works which were in a particular state. The distinction was also seen in the proviso to the exclusion, which carved out of the exclusion loss or damage to other parts of the contract works resulting from the part which was defective. The clause excluded the costs to repair works in a defective condition because of workmanship carried out on them, but did not extend to works which were damaged because of defective workmanship.

A number of authorities supported the distinction between something being “damaged” and being “defective”.

The exclusion clause did not apply to the scratched windows.

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...

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