What is in a claim?

In June 2021 the High Court released a significant judgement for councils and insurers in relation to an $18 million building defect claim.
In Napier City Council v Local Government Mutual Funds Trustee Limited (RiskPool)* the court found that a weather tightness exclusion barred an entire building defect claim – even though many of the defects were not weather tightness related.

The case arose out of a building defect claim against Napier City Council (NCC) by the Body Corporate and owners of units in a multi-unit apartment block called the Waterfront Apartments. The alleged building defects were a mix of weather tightness defects, structural defects and fire-proofing defects. The claim for the cost of remedial work and consequential losses was in the region of $18 million. It settled at mediation. NCC had notified the claim to its insurer RiskPool, who declined cover based on an exclusion clause.

The key issue
The exclusion clause provided that the Protection Wording did not cover liability for “Claims” alleging or arising out of weather tightness defects. “Claim” was defined as “any claim made under the Protection Wording.”  NCC accepted that the exclusion clause excluded cover for claims that related to weather tightness defects, but said that non-weather tightness defects were not excluded from cover. NCC submitted amongst other things that it could produce absurd results if an entire claim was excluded from cover if only a very small part related to an alleged weather tightness defect.
The key issue was: did the exclusion clause cover the claim related to non-weather tightness defects where remedial work was needed only as a result of that defect?

The Court’s decision
The key finding in the High Court by Justice Grice was that:
– The background evidence to the exclusion clause wording was such that it intended to exclude all defects included in a claim where weather tightness was a factor;
– The exclusion clause should be read widely, and a ‘claim’ under the Protection Wording was excluded in its entirety if the exclusion clause applied.
In reaching its decision, the Court considered it needed extrinsic evidence on the mutual intention of the parties and analysed years of communication between Riskpool and NCC. The Court found that on the evidence, the parties’ mutual intention was to exclude non-weather tightness defects.

Brief observations
Justice Grice appears to have given the longstanding relationship between the parties and their extensive communications considerable weight in reaching her decision. It is unclear whether the same outcome would follow, in the absence of such extensive communications. The decision also does not appear to resolve the issue of how a policy should be interpreted where only a small part of the allegation is related to an alleged weather tightness defect.

Either way, the decision is of significance to councils and insurers in this space and provides some guidance on how these types of policies will be interpreted under similar circumstances. That said, an appeal to the decision has been lodged, so the matter is not yet settled. We will await the Court of Appeal’s decision with interest.

*[2021] NZHC 1477

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