If a builder is responsible for the supervision of a construction project, it will not be sufficient, in avoiding liability, to rely on the work performed by other parties, or point to the practical difficulties in supervising other parties.
Graham and Lynette Bigby (owners) retained Daniel Kondra (builder) on 23 October 2003 to build them a house at the Gap (property), and to supervise the construction generally. The owners ordered the window units directly from Gateway Alumininum (Qld) Pty Ltd (third party), and the third party installed the defective windows.
The builder held a Business Insurance policy with Zurich Australia Insurance Limited (insurer). The policy excluded property damage attributable to any defect in the 'Product' and liability for property damage caused by the construction of any building whose value exceeded $500,000.
In 2008 severe storms hit the Gap, and the property was badly damaged. The owners claimed the cost of reconstruction from the builder. The builder made a claim under his insurance policy.
An expert engineer reported that the principal failure mechanism resulting in the damage to the property was an 'explosive' over-pressurisation of the east wing of the upper level, which was most likely caused by defective installation of several windows (defective installation).
The owners pleaded that the builder was negligent in failing to adequately supervise the installation of the windows by the third party. The builder argued that to the extent he owed a contractual duty to supervise, it only extended to work undertaken by him, his workers or his subcontractors and, in any event, the third party was supervised to the requisite standard.
The court held that the builder was negligent in failing to adequately supervise the third party, and that the insurer was liable to indemnify the builder.
Daubney J determined that the contractual duty of supervision was not limited to supervision of the builder's own employees or subcontractors, and that the builder owed a common law duty to exercise due care and skill in the performance of those supervisory services.
His Honour concluded that the builder had to make reasonable arrangements of a reliable nature to be kept informed of the installation of the windows by the third party, which should have included clear and express instructions that the window installation should not be finalised until the builder had inspected progress. It was not enough to rely on the third party workers whose work the supervisor was employed to supervise..
Despite arguments from the insurer that the relevant 'occurrence' for the purposes of the insurance policy was the storm, Daubney J considered that the relevant 'occurrence' was the event which damaged the property, being the explosive over-pressurisation event. As this occurrence resulted from the defective installation, and as the installation was in connection with the builder's business, Daubney J determined that the insurance policy responded.
His Honour held that the property was not a 'Product' for the purposes of the policy, and therefore the exclusion clause did not apply. Daubney J concluded it was clear that the policy ought to be read as extending to property damage to a building constructed by the builder if the contract price did not exceed $500,000.