New Zealand: High Court Determines When An Occurrence Based Liability Policy Responds To A Leaky Building Claim

Last Updated: 5 October 2009
Article by Peter Leman

General Liability Policies insure liability for property damage occurring during the period of insurance. Up until now it has been unclear how these policies will respond to damage that progressively worsens across several policy periods.

In the recent case of Arrow International Limited v QBE Insurance (International) Limited,1 the High Court was asked to consider two common, but problematic policy coverage issues:

1 When did the damage occur?

2 Did the products exclusion apply?

Facts Arrow was the design and build contractor of an apartment complex in Wellington, which was a leaky building. The apartment owners issued proceedings against Arrow and a number of other parties involved. These proceedings were settled and involved a substantial payment by Arrow.

Construction of the complex started in November 1999 and it was practically completed in December 2000. QBE was on risk as Arrow's general liability insurer between May 2002 and 2005.

In August 2003, a tile on the deck of one of the units collapsed while being walked on. Subsequent investigation revealed extensive damage and water damage. In early 2006, the Body Corporate engaged consultants to investigate. That investigation showed major problems.

Policy terms

The insuring clause of the QBE policy provided that there was cover for Arrow's legal liability for 'accidental physical loss of or damage to any tangible property... happening... during the Period of Insurance...'

When did the damage occur?

Arrow argued that damage to the building occurred during the period QBE was on risk. QBE argued that by the time it came on risk in May 2002, the damage to the building had already occurred.

The essential question was whether, under the QBE policy, there was damage 'happening during the period of insurance'. Arrow's expert said that 10-25% of the damage had occurred before the policy incepted. QBE's expert said that this percentage was 50%. This led to a discussion on whether to apply the 'continuous trigger' theory or the 'single trigger' theory. Arrow submitted that the trigger in terms of the insuring clause is the date of manifestation of the damage ('manifestation'). QBE submitted that the trigger is the point when the damage occurred ('injury-infact').

MacKenzie J found that the policy wording was clear that what is covered is damage happening during the policy period, not damage becoming manifest during the policy period. He also found that it was necessary to find a single point in time at which that damage occurred, favouring the single trigger approach. In order to answer this question, he looked at how the Supreme Court of Tasmania interpreted the word 'damage' in Ranicar v Frigmobile Pty Ltd2 and found:

...the question is when has there occurred an alteration to the physical state of the timber which impairs its value or usefulness as a component in the building.

His Honour said that damage had clearly been suffered when rotting of the timber had occurred, before that rotting had advanced to a point where structural damage resulted. Further, a large part of the settlement sum related to the cost of remedial work to replace rotting timber, where no structural damage had yet occurred.

Based on the evidence from the microbiologists, MacKenzie J was satisfied that the damage had occurred well before 30 May 2002. The stage that the damage had reached by May 2002 was such that the only way of repairing it was to open up all the areas where exposure to moisture was likely and replace the affected timber.

On that basis, QBE's policy did not respond as by the time it came on risk, the damage had already occurred.

Was the building complex Arrow's 'product'?

MacKenzie J also considered the defective products exclusion.

The question here was whether the apartment complex was a 'product'. The exclusion was as follows:

Defective Products

This Policy does not insure against liability for the cost of rectifying any defect in any Product, or the cost of repairing or replacing or making any refund of the price paid for any Product, by reason of the product having proved defective, harmful or unsuitable for its intended purpose.

The definition of 'product' is:

'Products' or 'Product' means any property... manufactured, constructed, erected...sold, supplied or distributed by the Insured, after the property has ceased to be in the insured's possession and control.

QBE argued that the defective products exclusion applied, which meant indemnity for the part of the settlement sum attributable to remedial works would have been excluded. Arrow argued that the apartment complex was not a 'product' and that any ambiguity in the language of the exclusion should be resolved against QBE.

The Court found that a building comes within the definition of 'product' in the policy because the word 'property' is not limited to goods. It therefore found that the defective products exclusion would have applied, so as to exclude liability for the cost of repairing or replacing the defects. His Honour formed this view even though the building work was entirely done by sub-contractors and not Arrow itself.

Implications for insurers

This case provides useful guidance on the exposure of insurers for leaky building claims, especially where successive insurers have been involved. In this case, the work was completed in December 2000 and the Judge was satisfied that the damage had occurred before May 2002.

Whilst we would expect the time taken for rot to occur to vary, it is useful to note that the Judge was prepared to find that the damage had occurred within 18 months of construction.

The case is also provides useful guidance on the application of the products exclusion. The exclusion applies to a developer of a building, even although the developer does not personally carry out any of the construction.


1 23/06/09, MacKenzie J, HC Wellington, CIV 2007-485-74.

2 [1983] Tas R 113.

© DLA Phillips Fox

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 particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

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”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions