Insurers should always be careful when it comes to policy drafting, especially exclusion clauses, as highlighted by the recent Western Australian Supreme Court decision of Austin v Verini [2015] WASC 258.

Between 1993 and 1994 Mr Verini (the defendant in the action) constructed a house as an owner-builder in Ballajura, a suburb of Perth, that featured a timber balcony. Mr Verini did not construct the balcony in accordance with the plans and failed to include a vertical support beam. Mr Verini sold the house in 1996, and the house changed hands a number of times before being sold to the current owners in 2002. In 2009, the balcony collapsed when a number of people (including the plaintiffs in the action) were standing on it. Each plaintiff suffered personal injury as a result of the collapse and brought legal action against Mr Verini. The court entered judgment for the plaintiffs against Mr Verini with damages to be assessed. 

Mr Verini made a claim for indemnity against his liability to the plaintiffs under a home and contents policy he held with WFI Insurance Ltd (WFI). While this policy had a policy period that included the date of the collapse, it related to a different property. The policy contained an exclusion for personal injury directly or indirectly caused by or arising out of a breach of Mr Verini’s duty as the owner or occupier of a building or structure WFI did not insure at the time of the occurrence that caused the personal injury. WFI attempted to rely on this clause to deny indemnity, on the basis that Mr Verini’s liability to the plaintiffs arose out of his duty as owner of the property, and it did not insure the Ballajura property at the time of the collapse (ie the occurrence).

While it was accepted that WFI did not insure the Ballajura house at the time of the collapse, Justice Allanson held that if Mr Verini owed a duty to the plaintiffs, it arose out of the activity that he undertook in building the house, a duty that was independent of whether he was, at any time, the owner or occupier of the house. In other words, Mr Verini’s status as an owner-builder gave rise to the duty, not his status as owner of the property. As a result, WFI was not able to rely on the exclusion clause and was found liable to indemnify Mr Verini.

While WFI may not have intended to insure Mr Verini for liability arising out of a property he had not owned for over 10 years, the nature of the wording of the exclusion clause meant that any duty he owed that did not arise out of his status as owner or occupier of a building could not be excluded by the clause.

The decision is currently pending appeal, and we will await the Court of Appeal’s decision with interest. In the meantime, the message for insurers is that careful drafting of exclusion causes is paramount.