Napier City Council and its weathertightness exclusion

• Published date: 08 August 2021
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Wynn Williams Lawyers
• Author: Ms Emily Walton

In Napier City Council v Local Government Mutual Funds Trustee Limited ¹ the High Court recently found that a weathertightness exclusion in professional indemnity cover excluded indemnity for both weathertightness and non-weathertightness defects. While not strictly an insurance policy, Justice Grice's decision is relevant to the wider insurance community.

Background

The Local Government Mutual Funds Trustee Limited (RiskPool) is a mutual fund. Local authority members make annual contributions in return for Riskpool providing indemnity cover for members, including for civil liability. Riskpool operated much like a commercial insurer. It issued 'Protection Wording' which was similar to a commercial insurance policy, but Riskpool also had 'absolute and unfettered discretion' whether or not to indemnify.

Napier City Council (NCC) was a member of RiskPool in 2014 when the owners of Waterfront Apartments (Waterfront) brought a claim in negligence against it.

The claim alleged both weathertightness and non-weathertightness defects. NCC provided the building consents, inspections, and granted Code Compliance Certificates for the apartments.

NCC settled Waterfront's claim at mediation for a global figure for all defects and negotiated contributions from the other defendants.

NCC notified RiskPool of the claim. RiskPool refused cover on the basis that exclusion clause 13 of its Protection Wording excluded the entire claim, as it involved weathertightness defects. NCC sued RiskPool for breach of contract.

Exclusion clause 13

Exclusion clause 13 provided that 'liability for claims alleging, arising directly or indirectly out of, or in respect of ' [weathertightness defects]' were not covered under the Protection Wording.

The decision turned largely on how 'claim' was interpreted in this specific wording; whether it meant one, albeit mixed claim, or whether it could be subdivided into its constituent parts for the purpose of indemnity.

The Court found the use of the word 'claim' in other exclusion clauses, provided little assistance due to the inconsistent way it was used.

Submissions on the meaning of 'claim'

NCC submitted that exclusion clause 13 only excluded liability for claims (or parts of claims) that related to weathertightness defects. It said non-weathertightness defects should still be covered even if they were found as a result of investigating weathertightness defects.

This interpretation arose from the natural and ordinary meaning of the words, in part...