The decision is important for both insurers and other stakeholders involved in major leaky building claims. ‘Mixed’ defect claims are common, and consultants and territorial authorities will often be insured under a professional indemnity policy covering both insured and uninsured liabilities. The starting point will always be the terms and conditions of the policy, and this decision provides helpful clarification on the interpretation of exclusion clauses for ‘mixed’ cause claims. The decision also supports a careful analysis of the defects in evaluating whether non-weathertightness defects are related to uninsured liabilities.
We have previously set out a detailed background to the case in our article relating to the Court of Appeal decision.
The Supreme Court upheld the Court of Appeal’s findings. In dismissing RiskPool’s appeal, the Supreme Court focused on the following issues.
Exclusion clause
The Supreme Court agreed with the Court of Appeal as to the true construction of the exclusion clause. The clause is to be construed strictly and the common intention was to exclude only the risks specifically referred to, namely weathertightness. The Council faced liability for separate and divisible loss arising from breaches of the weathertightness and nonweathertightness aspects of the Building Code. Only the former was excluded from cover although the claim was presented on a mixed basis.
There was nothing in the language of the exclusion clause which suggested divisible parts of a claim that did not relate to weathertightness issues were intended to be excluded. Clear language would have been required to achieve this effect.
Application of the Wayne Tank principle
RiskPool argued that the Court of Appeal failed to apply the Wayne Tank principle, which provides that where there are two equally effective and interdependent causes of loss – one covered by the policy and one excluded by it – the exclusion applies to the entire claim. This argument was rejected by the Supreme Court.
Wayne Tank did not assist RiskPool because it was possible (in this case) to apportion loss between that caused by weathertightness issues and that not caused by weathertightness issues. The causes of loss were separate and divisible. It is important to note that the Supreme Court decision does not change the Wayne Tank principle. Instead, the decision clarifies that the principle is narrowly confined to situations where the causes of loss are equally effective and interdependent.
Context and commercial purpose of the policy
RiskPool contended that, if the Court of Appeal had started from the text of the policy, it would have reached the view that the commercial purpose of the policy was to exclude weathertightness claims – including mixed claims. The Supreme Court rejected this argument and found that RiskPool’s position on the commercial purpose did not add anything to its case. The purpose rather supported the view that mixed claims were only to be excluded to the extent they are linked to weathertightness defects.
The Supreme Court also found that RiskPool’s previous letter to the Council advising that RiskPool had resolved to cease providing weathertightness cover did not assist RiskPool. There was nothing in that letter to suggest that the cover excluded mixed claims. The contextual matters relied on by RiskPool did not have any impact on the proper interpretation of the insurance contract.
What is the significance of the judgment?
The Supreme Court’s decision provides helpful clarity for the insurance industry and in particular for members of the RiskPool scheme and other schemes that have the same wording. There is now a judgment from the highest appellate court in New Zealand affirming that the relevant weathertightness exclusion only applies to those defects which have a causal connection to weathertightness defects.
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