A Federal Court judge has allowed the insurer of a manufacturer of combustible aluminum composite panels to be joined to an action against the manufacturer. This decision is significant because the manufacturer is under administration and unlikely to meet any monetary judgment.
The Owners – Strata Plan No 91086 v Fairview Architectural Pty Ltd (No 3)  FCA 814, concerned an interlocutory application by an owners corporation of two residential buildings to join Fairview Architectural Pty Ltd's product liability insurer, AAI Limited, to a proceeding.
The proceeding concerned aluminum composite panels which were manufactured and installed on the building by Fairview. The owners alleged the panels were "not of merchantable or acceptable quality" and that there was a risk the panels were not compliant with the Building Code of Australia, banned by regulatory authorities and posed a material risk of rapid fire spread. Accordingly, the owners sought compensation for the loss or damage arising from the supply of the Panels, including the costs of and incidental to, removing the panels and remediating the damage caused by affixing the panels to the building.
The central issue was whether the insurer's policy responded to Fairview's claim or potential liability to the owners. To determine this, Justice Wigney had to consider if Fairview's potential liability arose from any property damage and whether such damage was caused by an occurrence (being an event which results in property damage that is neither expected nor intended).
It was found that "the affixation of the panels had an instant and damaging effect on the building because the panels posed an immediate and unacceptable danger to the residents of the building" and that the physical damage to the "top hat" substructure of the façade occurred during the period of insurance.
To arrive at this conclusion, Justice Wigney considered:
- the technical evidence around the damage that would likely be done in replacing the cladding, being to the existing top hat subframe, the screws fixing the top hats together and to the walls, the disposal of the existing top hat subframe, filling holes in the concrete and stud wall frames, and repair of the sarking; and
- the relevant authorities in relation to "property damage" (observing, for example, that installation of the combustible panels was somewhat analogous to incorporating into a building a dangerous or toxic substance like asbestos).
Justice Wigney did not conclude whether the policy would actually cover the claim (being an interlocutory application) but found that it was "at least arguable" that it would.
The decision was significant for Justice Wigney's finding that the installation of the defective panels constituted an occurrence causing property damage, through the need to remove and replace the panels. This opened up the possibility that the insurance policy will respond.