The decision in Metricon Homes Pty Ltd v Great Lakes Insurance1 emphasises the importance of building and construction companies having sufficient cover for liabilities arising from professional services.
Metricon (the insured) operated a business of building homes and offering home and land packages in Australia. Great Lakes Insurance (the insurer) was the successor to a construction insurance policy issued by Calliden Insurance (the policy).
In 2007, the insured entered into a design and construction contract for a residential dwelling. The residence was delivered in mid-2008, but by January 2011 the owners complained about damage to the house. The owners subsequently commenced proceedings in the Victorian Civil and Administrative Tribunal, seeking damages for the cost of rectification and transitory rent from the insured, and the claim was settled in January 2015.
The insured subsequently sought indemnity under the policy for amounts it paid towards settlement of the owners’ claim, on the basis that the damage to the house was “damage to property”. The insurer denied liability, arguing that, even if the claim was captured by the insuring clause, the liability arose out of “the rendering of or failure to render professional advice or service” and was therefore excluded under the policy.
The insured commenced proceedings in the Supreme Court of Victoria and the following issues were considered:
- Whether the damage for which the insured was liable to the owners was “damage to property” and therefore covered under the policy; and if so
- Whether the insured’s liability arose out of its failure to render “professional service” such that it was excluded under the policy.
The Court determined that, given its ordinary meaning, “damage to property” included damage resulting from building defects during construction and the claim fell within cover.
However, the Court also found that, as the damage was caused by defective design of the foundations and timber roof trusses by two professional engineering and design subcontractors (for which the insured was responsible), the claim arose out of a failure to render “professional service” and was therefore excluded from cover under the policy.