Justice Kim Hargrave in the Victorian Supreme Court today delivered reasons for judgment in an insurance dispute between commercial house builder Metricon and its insurer. The decision may have consequences for home builders and the insurance industry.
A house built by Metricon during drought years in Victoria was completed and handed over to its owners in mid-2008. The house later was damaged extensively when, after the drought broke, water penetrated the clay soil underneath and around the concrete slab. The clay soil expanded and the slab moved, causing damage to the whole of the house. An expert report prepared for the owners indicated that the cheapest way of remedying the damage was to demolish the house and rebuild.
In 2014, the owners sued Metricon in the Victorian Civil and Administrative Tribunal for damages, including the costs of demolition and rebuilding. Metricon settled the owners’ claims, and then sought to recover the settlement sum and associated legal costs from its insurer. The insurer refused to indemnify Metricon under the relevant insurance policy and the parties brought the matter to the Supreme Court.
The first issue was whether the damage for which Metricon was liable to compensate the owners was ‘damage to property’, which would be covered under the terms of the policy. The Court found that, subject to any exclusion clauses, damage to the house was covered by the insuring clause.
The second issue was whether the insurer’s liability was excluded under the terms of the policy. The Court found that the insurer’s liability was entirely excluded due to a ‘professional service’ exclusion in the policy. Put shortly, the expert report stated that a principal cause of the damage to the house was the defective design of the concrete slab and associated drainage by an engineer, who had been engaged by Metricon and for whose actions the company was responsible. Further damage was caused by the defective design of the roof trusses which, again, were done by a professional truss designer engaged by Metricon.
The Court then considered whether other exclusions applied to the insurer’s liability. It found two further exclusions applied but, when read together, those exclusions did not extinguish all of the insurer’s liability. Metricon, however, did not provide sufficient evidence to prove the amount by which the insurer’s liability would have been reduced under those exclusion clauses.
The Court held that if the ‘professional service’ exclusion clause in the insurance policy had not excluded the insurer’s liability in its entirety, then Metricon would have been entitled to an award of nominal damages only.
Metricon’s claim against its insurer has failed.
NOTE: This summary is necessarily incomplete. It is not intended as a substitute for the Court’s reasons or to be used in any later consideration of the Court’s reasons. The only authoritative pronouncement of the Court’s reasons and conclusions is that contained in the published reasons for judgment.