Broadform and public liability policies insure liability
for property damage occurring during the period of insurance. In
Arrow International Limited v QBE Insurance (International)
Limited1, the Court of Appeal has confirmed how
these policies will respond to damage that progressively worsens
across several policy periods.
Arrow was the design and build contractor of an apartment
complex in Wellington. Construction of the complex started in
November 1999 and it was practically completed in December
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
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.
QBE went on risk as Arrow's general liability insurer in May
The insuring clause of the QBE policy provided that there was
cover for Arrow's legal liability 'consequent on...
physical ... damage... happening...during the period of
High Court findings
Arrow argued in the High Court that where damage occurred over a
period, as was the case with wood rotting, and where the damage was
hidden, the Court should only find that damage occurred when it
became obvious and that the Court should not look for a single
point in time when the relevant damage occurred.
The High Court disagreed with both points. Because the insuring
clause used the words '...damage... happening... during the
period of insurance', the policy was triggered at the
point in time when damage occurred, not when it became
The High Court had found as a matter of fact that, before QBE
came on risk, the wood had already rotted to such an extent that,
although further rot occurred after QBE went on risk, it was not
going to cost the owners any more to fix that further damage. As
Arrow was already liable for the full amount of the claim before
QBE was on risk, QBE had no liability under the policy.
Court of Appeal
The Court of Appeal approved this approach. It referred to an
argument advanced by Mr Ring QC for QBE that if a car is damaged in
an accident to the extent that it is a write-off, any further
damage to that car by a second accident is irrelevant. The person
responsible for the second accident has no liability to the car
owner as that person has not caused any additional damage.
The Court of Appeal also agreed with the High Court that,
because of the clear wording of the insuring clause, there was no
basis for finding that liability is triggered only when the damage
Implications for insurers
One further issue touched on by the High Court was the
application in these circumstances of the products liability
exclusion. Although it did not form part of the reasoning of the
Court, Justice MacKenzie in the High Court thought that QBE would
have been able to decline the claim on the basis that the
apartments were Arrow's products. The Court of Appeal did not
review this issue at all. 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 the time taken for rot to occur will vary, it is useful
to note that the witnesses for both parties agreed that, once a
building starts to leak, there will be enough moisture in the wood
to promote fungal growth within 3-6 months. During the next 6
months, decay will advance so that it is well underway such that
the strength of the wood is compromised. Physical damage in terms
of the policy has occurred by then.
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
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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