Liability insurers, especially those involved in leaky building
claims, can breathe a sigh of relief at the Court of Appeal's
decision in Lumley General Insurance v Body Corporate 205963
and Leuschke Group Architects Limited (In Liquidation).
Leuschke Group were architects involved in designing residential
units in Auckland. The units leaked and require repairs costing
more than $3 million.
As Leuschke was in liquidation, the home owners applied to join
Leuschke's insurers, Lumley and ACE, to the proceedings. Lumley
consented to being joined only on the basis that the Court ruled on
whether the policy applied.
Lumley argued that the policy did not apply due to a leaky
building exclusion. The leaky building exclusion provided that
Lumley had no liability to indemnify Leuschke against
For loss or damage of whatsoever
nature to any building or structure arising directly or indirectly
from moisture or water ingress through any exterior cladding or
roofing system (and any associated waterproofing treatment and
flashings) designed, specified or approved by the Insured,
including but not limited to monolithic claddings and face sealed
systems, fibre cement sheets, expanded polystyrene sheets,
cellulose fibre sheets, PVC sheets, stucco plaster and proprietary
This exclusion shall not apply to any exterior cladding system, the
design of which allows or promotes the ready escape of moisture and
The issue in this case was that some of the leaks were not
through the exterior cladding but were through metal balustrades
fixed through horizontal surfaces of the decks; metal cappings
fixed through to the top vertical surfaces of the balconies; metal
cappings on the tops of wing walls between the units; and downpipes
penetrating the top of the wing walls between the units.
The home owners said that those defects were not caught by the
exclusion as it was not a claim arising from water ingress through
any exterior cladding.
Lumley argued that the exclusion dealt with liability for water
ingress through any exterior cladding system. Lumley said that the
phrase 'exterior cladding or roofing system' really meant
any exterior cladding system or roofing system.
This argument failed in the High Court which said that the word
system only related to roofing.
This approach was rejected by the Court of Appeal.
The Court of Appeal judgment started by saying that, although an
exclusion clause should be construed narrowly, that does not mean a
strained interpretation is to be adopted. The Court then went on to
say that the word 'or' in the phrase any 'exterior
cladding or roofing system' was not disjunctive so that the
phrase concerned two distinct concepts. Rather the word system was
associated with both exterior cladding and roofing. That was the
natural and ordinary meaning of the language used.
The Court backed that up in two further ways. First, it looked
at the list of claddings in the second half of the exclusion. Some
of those things, like stucco plaster, must relate back to exterior
cladding and could not only relate to roofing systems.
The next critical feature was that the proviso made no sense if
exterior cladding in the first part of the exclusion did not
include an exterior cladding system. There would have been no need
to write back cover for an exterior cladding system in the proviso
if it had not already been excluded by the first part.
These conclusions now seem obvious. Reassuringly, the Court of
Appeal did not strain to find against the insurer. Rather, it used
ordinary principles of contractual interpretation to find a
sensible, logical and rational result.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).