Delayed damage versus design

In December 2017 a judgement was issued by the Victorian Supreme Court which was interesting.

In essence, Metricon (insured by GLA) constructed a home in mid-2008 in Victoria, during a long period of drought. When the drought broke, some time after the completion of the home, water penetrated the clay beneath and around the concrete slab on which the home was built. The clay expanded and the slab moved, causing extensive damage throughout the home.

The cheapest option to remediate the damage was to demolish and rebuild the home.

Experts concluded that the principal cause of the damage was defective design of the slab (and associated drainage) by an engineer engaged by Metricon. GLA declined Metricon’s product liability claim and the Court found that GLA was correct in excluding liability on the basis of the “professional services” exclusion in the policy.

Metricon’s Professional Services policy exclusion excluded liability “arising out of the rendering of or failure to render professional advice or service by the Insured or any error or omission connected therewith…”
The court appears to have concluded that the design service rendered to Metricon by the engineer was a professional service provided by Metricon to the home owner.

It is reasonable to surmise that if Metricon did have Professional Indemnity cover, it may have excluded claims for damage to the building.

MECON’s Professional Services exclusion, in our latest policy, is quite different from Metricon’s. Even so, it is unreasonable to speculate to what extent MECON’s policy would have actually responded to this claim without far greater detail on the claim. However, MECON’s Professional Services exclusion does allow cover for physical loss or damage to, and also consequent loss of use of, property:

  1. arising out of a breach of duty with respect to design, plan or specification, or
  2. arising out of advice for which an insured has not charged a fee.

Furthermore, MECON’s Errors and Omissions endorsement would also have provided significant cover for a loss of this nature.

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Update from Glenn Ross

Latest update from Glenn Ross

Dear all Firstly a word to the wise: If you have been following the media relating to the construction industry, you will know that your clients