A Legal Guide to Contract Works and Construction …

1 Carter Newell Lawyers1989 2009A Legal Guide to Contract Works and Construction Liability Insurance in AustraliaA Legal Guide to Contract Works and Construction Liability Insurance in AustraliaBr isbaneLevel 13, 215 Ade laide Stree tBrisbane QLD Australi a 4000 GPO Box 2232 Brisbane QLD 4001 Phone +61 7 3000 8300 Emai l cn@carternewell .comSydneyLevel 6, 60 Pi tt Stre et Sydney NSW Australi a 2000 Phone +61 2 9241 6808 Melbourne469 La Trobe TerraceMelbourne VIC Australia 3000(Via Agency) Mead2nd 117/9/10 9:40:51 AMINSURANCE Construction & ENGINEERINGRESOURCESCORPORATECOMMERCIAL PROPERTY LITIGATION & x 210mm7mmAWARDS AND RECOGNITION2010 Finalist Lawtech Award for Innovation in Legal IT 2010 Finalist Brisbane Law Firm of the Year Macquarie Bank ALB Australasian Law Awards2009 Finalist Brisbane Lord Mayor s Business Awards 2009 Independently recognised as a leading Brisbane firm in the practice areas of Insurance | Building & Construction | Mergers & Acquisitions | Energy & Resources 2008 Winner Employer of Choice Queensland Law Society 2008 Winner Brisbane Law firm of the Year Mettle ALB Australasian Law Awards 2008

2 Independently recognised as a leading Brisbane firm in the practice areas of Insurance | Building & Construction | Mergers & Acquisitions | Energy & Resources2006 Winner Best Small Law Firm in Australia BRW-St George Client Choice Awards CARTER NEWELL LAWYERS Carter Newell is a leading dynamic Queensland-based firm providing specialist Legal advice to Australian and international corporate Construction & Engineering Insurance Team is headed by partners, Patrick Mead and David Rodighiero who, for many years, have advised and acted for a large number of national underwriters, principals, contractors, engineers and suppliers.

3 As a leading specialist, Carter Newell provides high level advice and defence of litigated claims in the areas of Construction All Risk Insurance, Defective Building Claims and Construction Professionals Liability. Areas of Expertise Advice on Policy Coverage and Policy Terms & Conditions Interpretation of Policy exclusions, defective workmanship, materials and design Defence of litigated claims Recovery actions Defence of subrogated proceedings Advice on project coverage & gaps in cover NB: Due to the extensive nature of this Guide and the pace of reforms being maintained, there may be some reference to legislation and its provisions which are no longer current, yet to be proclaimed, amended or repealed.

4 The Guide attempts to draw out the most significant points in the relevant legislation. Whilst all care has been taken to ensure that the most up to date information has been included, not all aspects of the legislation have been considered. The material contained in this Guide is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering and, if necessary, taking appropriate professional advice upon his or her own particular circumstances. Carter Newell 2010 Newell LawyersA Legal Guide to Contract Works & Construction LiabiLity insuranCe in AustrALiA 1 Carter Newell PublicationsBrisbane Sydney MelbourneA Legal Guide to Contract Works & Construction Insurance in AustraliaBy Patrick Mead, Partner, Carter Newell LLB (Hons), LLM (QUT), MIAMA, Graded Arbitrator (IAMA), Accredited Mediator (IAMA/ Qld Supreme Court), Registered Adjudicator (BCIPA Qld)A Legal Guide to Contract Works & Construction Liability Insurance in Australia2nd EditionPatrick MeadPartnerLLB (Hons), LLM (QUT), MIAMA,Graded Arbitrator (IAMA),Accredited Mediator (IAMA/Qld Supreme Court),Registered Adjudicator (BCIPA Qld)

5 Carter Newell LawyersiiCONTRACT Works AND Construction LIABILITY INSURANCE IN AUSTRALIAP refaceThis book has been prepared for insurers, their advisors, contractors and other professionals involved in the Construction and engineering aim of this book is to examine the issues arising from the interpretation of Contract Works and Construction liability insurance policies by courts in Australia and the United chapter explores different aspects of these policies through the use of case analysis and the judicial interpretation of policy is hoped it will afford the reader a greater understanding of the process of, and approach to, policy wordings by the courts through the detailed analysis contained MeadPartnerLLB (Hons), LLM (QUT)

6 , MIAMA,Graded Arbitrator (IAMA),Accredited Mediator (IAMA/Qld Supreme Court),Registered Adjudicator (BCIPA Qld)Direct Line: +61 7 3000 8353 Mobile: +61 414 267 305 Email: Newell LawyersiiiCONTRACT Works AND Construction LIABILITY INSURANCE IN AUSTRALIATABLE OF CONTENTS PAGECONTRACT Works AND CONTRACTORS ALL RISK POLICIES ..1 Introduction ..1 Overseas authorities ..1 Petrofina ..1 Imperial Oil ..4 Stone Vickers (first instance) ..6 Stone Vickers (appeal) ..8 National Oilwell ..10 Australian authorities ..18 Trident ..19 Special Leave Application ..22Co-Operative Bulk Handling ..23 Pacific Dunlop ..29 The impact of the Insurance Contracts Act 1984 (Cth) ..31 CIRCUITY OF ACTION AND WAIVER OF SUBROGATION.

7 33 Circuity of action ..33 Summary of of Co-operative Retail Services ..35 Decision ..36 Implications ..38 Waiver of subrogation ..41 The policy of insurance ..41 The majority judgment ..43 The dissenting judgment ..44 Implications ..45 Circuity and waiver of subrogation revisited ..46 The decision at first instance ..47 The decision on appeal ..49 Implications of the decisions ..50 Carter Newell LawyersivCONTRACT Works AND Construction LIABILITY INSURANCE IN AUSTRALIATABLE OF CONTENTS PAGEAPPLICABILITY OF DUAL INSURANCE WHERE THERE IS PRINCIPAL CONTROLLED COVER ..51 Facts ..52 The Court of Appeal decision ..54 Recent authorities ..55 Devices to limit recovery ..59 DAMAGES FOR BREACH OF Contract FOR FAILING TO NOTE OTHER PARTIES INTERESTS.

8 61 Background ..61 Recent case ..62 Facts ..62 Decision ..63 Implications ..66 Construction LIABILITY POLICIES ..67 Compensation ..67 Scope for implication of a term ..69 Occurrence ..73 One or more deductibles?..75 AN(Y) INSURED OR THE INSURED : RECENT DEVELOPMENTS IN THE INTERPRETATION OF CROSS LIABILITY CLAUSES AND WORKER TO WORKER EXCLUSIONS ..77Re FAI General Insurance Co Ltd & Fletcher ..77 WorkCover Queensland v Royal & Sun Alliance Insurance Australia Ltd ..79 Recent authority ..79At first instance ..79On appeal ..81 Conclusion ..82 Carter Newell LawyersvCONTRACT Works AND Construction LIABILITY INSURANCE IN AUSTRALIATABLE OF CONTENTS PAGECONTRACT Works POLICIES DAMAGE AND POLICY EXCLUSIONS WITH RESPECT TO DEFECTS IN DESIGN, MATERIALS AND WORKMANSHIP.

9 83 The meaning of Damage ..83 Physical damage ..87 Was the Damage Unforseen ? ..89 Policy exclusions ..90 The Coffer Dam and Bank ..91 Three Coats of Paint ..91 Sewerage Tanks ..93 Compacted earth mounds ..96 What is meant by defective design and defective building work ? ..97 London Market design clauses and the London Engineering Group defects wording ..100 Road and pavement failures ..101 The Australian London Market Defect Exclusions ..102 The UK Authorities ..103 Summary ..107 Scratching To Glazed Surfaces ..108 The London Market Defect Exclusions ..109 The Australian and New Zealand Authorities ..110 Summary ..113 Stainless Steel Piping failures ..113 Policy Response Is there damage ?

10 114 The Exclusions ..116 Summary ..119 Conclusion ..119 Carter Newell LawyersviCONTRACT Works AND Construction LIABILITY INSURANCE IN AUSTRALIATABLE OF CONTENTS PAGEDETAILED ANALYSIS OF AUSTRALIAN CASE AUTHORITY IN RELATION TO A DEFECTIVE WORKMANSHIP EXCLUSION IN A Contract Works POLICY ..120 Facts ..120 The decision on appeal ..120 The case against the insurer ..121 The findings on appeal ..123 Conclusion ..125 Construction PROFESSIONAL INDEMNITY INSURANCE POLICY RESPONSE UNDER A contractor S D&C POLICY..127 Background ..127 The Decision at First Instance ..128 The Appeal Judgment ..128 The Cause of the Failure ..128 The Exclusion ..130 Conclusion ..131 POLICY RESPONSE UNDER ISR POLICY.