Australia Apartment Building Defects Will Be Covered by Insurers, Court Says 

What happens after a building manager is put on the line for construction defects?
By: | October 15, 2021

After 300 residents were evacuated from the 36-story apartment building known as Opal Tower in Sydney, Australia, the builder of the tower was pulled into the fray to address a crack that developed in a load-bearing concrete panel.

The building itself was only completed a few months prior to the crack surfacing in the foundation. Icon, the builder’s company, had entered into a $155 million contract to build the tower and held separate insurance policies with both Liberty Mutual and QBE through the building’s initial completion.

Once the crack was discovered, however, Icon was required to fix it.

In the total of repairs, Icon spent in excess of $31 million, including $17 million in property rectification costs, $8.5 million in alternative accommodation costs for residents and $530,000 in legal fees defending a class action launched against the company.

The residents returned after the series of renovations were completed.

Meanwhile, Icon turned to its insurers for defense costs in the underlying class action suit.

Liberty denied coverage, stating that its policy expired when the initial construction project was completed nearly five months earlier. Icon however saw it differently.

As court documents reported, “The essence of Icon’s argument … [is that] commercially sensible parties in the position of Icon and Liberty would have expected that the Liberty policy covered Icon during the defects liability period.”

However, Liberty countered, its policy did not extend to an alleged 12-month “defects liability period,” which would have encompassed the time the crack was discovered and repaired.

Likewise, QBE also denied coverage, in part because its policy was worded so that any “product” of Icon’s would be protected. The question came down to whether or not Opal Tower itself was a “product” under the terms of the policy.

Scorecard: In the Liberty case, the court determined that the policy would cover the building after construction. With QBE, the court decided Opal Tower was a product and ruled in Icon’s favor.

Takeaway: Though in Australia, this tale, coupled with the collapse of the Floridian Surfside Condo in July, shows that sturdy infrastructure is a must. Insuring faulty buildings can lead to large payouts. Reviewing structures is nonnegotiable. &

Autumn Demberger is the content strategist at Risk & Insurance®. She can be reached at [email protected].

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