In this important construction insurance case, Judge Mackie at first instance had ruled that a “lump of concrete”, cast in situ by a building contractor, was not a “product” under Adana’s liability insurance policy. The Court of Appeal recently agreed with this, in different terms. In partially overturning the Judge, the Court of Appeal held that Aspen does not insure Adana Construction in respect of damage to a crane which collapsed due to the failure of its foundation works to fulfil their intended function, but does face potential public liability exposure in respect of other (alleged) liabilities to third parties. The appeal Court’s judgment contains findings and observations of general importance for Public and Products liability insurance in the construction context.
Adana was sub-contracted to supply labour, plant and materials so as to fabricate (but not design) four concrete crane-base/pile caps. Four piles had already been installed (by another), one for each crane-leg. Adana drilled four holes into the top of each pile, then inserted and bonded a “dowel” rod into each hole, each protruding one metre above the surface. Adana cast reinforced concrete caps on each pile, encasing the protruding dowels. The caps would support the crane legs, and the bonded dowels would resist upwards tension when the crane was loaded. Unfortunately, the crane collapsed when the dowels were pulled, intact, out of the piles. Adana were sued for resulting damage to the crane and liability to others. It was neither decided nor clear whether the failure occurred due to faulty design, or due to Adana’s failure to follow the design or specification regarding the dowels. Adana’s Building Services Combined Contractor’s Liability policy contained a public liability section which effectively excluded liability caused by any product (as defined), and a products liability section which excluded liability arising in connection with the failure of any product to fulfil its intended function. The Court was concerned solely with policy coverage.
Evidence was adduced that where there was both product and public liability cover in place for a building contractor, there was a market understanding that cover under the former ceased in respect of events occurring following the handover of completed works. This evidence was not accepted, although as a matter of practical reality, it was recognised that it is only latently defective workmanship which will not have revealed itself by the time of handover, so that resulting post-handover liability is usually for products.
Disagreeing with Aspen and upholding Judge Mackie, the Court held that each concrete base/pile cap as a whole, including the dowels, was not a “product”. Applying the conventional and natural meaning of the word, a hallmark of a “product” was something which “at least originally, was a tangible and moveable item which can be transferred from one person to another, and not something which only came into existence to form part of the land on which it was created.” Adana did not construct a product, instead it carried out concreting works for securing a foundation for the crane on and in site. The fact that the works created something did not mean that everything created was a product. The concrete base was therefore not a product, so neither the public liability exception nor products liability cover could apply in relation to the pile caps as a whole.
However, contrary to the Judge’s finding, the dowels were found to be “products” which had been supplied and installed by Adana. If any liability of Adana was caused by a defect in the dowels, there would be exclusion from public liability and inclusion in product liability cover (subject to the “intended function” exception to the latter.) But the dowels had not failed (i.e. broken or fractured.) Leaving aside the possibility of design defect, what went wrong was that the holes drilled into the piles were either too short or too narrow so that the dowels were inserted insufficiently deeply into the piles, and were pulled out of the piles when placed under tension. If this did involve fault on Adana’s part, it amounted to faulty installation/workmanship, which did not therefore lie within the product liability exception in the public liability cover (nor could it lie within the products liability cover, notwithstanding the fact that the product definition extended to installation of it, since a product which is fine but which is badly installed does not give rise to a product liability).
The Court therefore did not need to deal with the “intended function” exception to the products liability cover. Nevertheless, obiter dicta, the Court said that the dowels did not fail to “fulfil [their] intended function” for the purposes of the products liability exception, since they neither broke nor fractured.
Finally, dealing with the overall “Foundation Clause” exception, this excluded damage to any “superstructure arising from the failure of the assured’s foundation works to perform their intended function.” The Court agreed with Aspen (and disagreed with Judge Mackie) that the crane itself, albeit a temporary structure, was a “superstructure”. This term was not restricted to buildings above the ground, since under a general building contractor liability policy for 12 months, one would expect the insured work to embrace temporary erection of a crane. The damage to the crane itself did result from the failure of Adana’s foundation works to fulfil their intended function, and so this was excluded.
Accordingly, Aspen faces potential public liability exposure in respect of Adana’s alleged faulty workmanship regarding the installation of the dowels, other than in respect of damage to the crane itself.
This case seems to be the first occasion on which this policy wording has come before the Court, and it contains valuable guidance as to what constitutes a product in the construction liability context.