WASC 258 20 July 2015
Public Liability Cover for Owner Builders
The scope of cover may be surprising to some insurers
The risk exposure for owner builders to personal injury claims resulting from some defect in the building work can be as long as the proverbial length of string.
Accordingly, people who have discharged those duties need to give special consideration about adequate insurance perhaps for as long as they live. Disposal of the property does not end the liability risk.
While attending a party at a friend's home in October 2009, many of those present were surprised when the host's balcony collapsed injuring many of them.
The cause of the collapse was inadequate installation of the balcony when the home was constructed 16 years beforehand. That inattention set in train the risk that the catastrophe may happen well into the future and without intermediate warning.
The original owner builder, Mr Verini, had no special building skills. He subcontracted many of the tasks including the design and construction of the relevant balcony. Unbeknownst to him, its support system was insufficient and the absence of an adequate system constituted a serious failure on the part of the subcontractor. The balcony was left as an accident waiting to happen.
Whether a certifying authority in relation to the building work might also be exposed to risk was not explored in this litigation.
A few years after completion, Verini sold the house to the person who hosted the party.
There were at least 14 victims and all of them commenced litigation against Verini to recover damages for their personal injuries.
At the time of the accident, Verini was insured for public liability with WFI Insurance. It was part of his home owner’s insurance package but the home insured was not where the accident occurred.
While the home and contents policy did not relate to the location of the accident, the public liability extension was not confined to the location of the insured property.
But for an exclusion which came to be the subject of the insurance dispute with WFI, it admitted that it had to indemnify Verini if he was liable to the victims and reimburse his defence costs incurred with its consent.
WFI did not raise a contention that the scope of the cover did not extend to Verini's potential liability as builder of the balcony.
WFI contended, however, it could not be liable due to the operation of an exclusion which said:
This policy does not insure you...against any liability...
6. For personal injury...directly or indirectly caused by or arising out of...
A breach of your duty as the owner or occupier of a building or structure we did not insure at the time of this occurrence (the balcony collapse) that covered the personal injury.
An obvious commercial purpose of the broad scope of public liability was to encourage home owners to take out first party insurance for their home and contents.
A narrower scope of public liability cover may well have encouraged potential insureds to insure elsewhere.
In essence, there was no geographical limitation in relation to the operation of the public liability cover.
The Legal Proceedings
Because WFI declined to indemnify, Verini issued a third party notice in the victims' proceedings that WFI indemnify Verini for such liability as he might incur in relation to the victims' proceedings.
The victims' claims were settled on the second day of the trial on terms not to be disclosed.
Given the common law in relation to the liability risk of an owner builder to a person injured due to some building defect, we assume that the settlement was for a substantial sum notwithstanding the considerable lapse of time between the time of construction and the date of the accident.
As a matter of limitation law, the limitation period for Verini’s liability to the victims only commenced to run from the date of the accident. If Verini was pursued by the host, as purchaser for the property damage the commencement of the limitation period and the risk of liability would probably have been different to Verini’s risk to the victims.
WFI unsuccessfully challenged the claim under the policy on the basis that Verini's liability was as owner or occupier in relation to property this cover was excluded because the dwelling where the accident occurred was not the subject of insurance with WFI.
In rejecting WFI's submissions, the judge said:
If Mr Verini has a duty of care to the plaintiffs, it is a duty that arises out of the activity that he undertook in building the house, including the balcony...(and) the duty is independent of whether (he) was at (that) time the owner of the building.
The time for an appeal has not yet expired.
While the case obviously produced an unexpected result for WFI, the case probably has no real elements which are likely to interest an appellate court.
Lessons for Insureds and Brokers
In taking out liability insurance when an insured has previously discharged the responsibilities and obligations of an owner/builder, the policy needs careful scrutiny to ensure:
Where an insured no longer owns a home in respect of which they were the builder that the scope of the liability cover is not solely confined due to the operative clause or an exclusion to a particular location.
Exclusions which might permit an insurer to decline liability in circumstances akin to Verini's case are not ignored.
That if a continuing insurer has altered its renewal terms so as to overcome some of the difficulties which WFI encountered in Verini's case then that is not ignored. Those changes could be manifest in the operative clause, explanatory notes, the content of introductory words in exclusions, the content of particular exclusions, the addition of new exclusions.
Attempts by insurers to alter future policies to take account of Verini's case by way of exclusions may also run into technical difficulties due to the operation of section 54 of the Insurance Contracts Act but the resolution of issues arising under that section may take many years to be revealed.
Since the commencement of the Insurance Contracts Act, the courts have tended to throw their weight against insurers who through form attempt to defeat substance.