The Full Court of the Federal Court of Australia has held Liberty Mutual Insurance liable for covering the claim made by builders Icon on the defective Opal Tower building in Sydney. However, the judges ruled in favour of QBE, which had appealed an earlier decision handed down by the Federal Court in October 2020.
Opal Tower is a 37-storey mixed residential and commercial building in Sydney Olympic Park built by Icon, which entered into a design and construct contract in October 2015. The contract provided for a 12-month defects liability period. The project reached practical completion in August 2018; however, the residents were evacuated later the same year when the building developed cracks across three floors, raising questions about its stability and safety.
By February 2020, Icon had paid out over $31 million as a result of the incident, including $17 million in rectification costs, $8.5 million in alternative accommodation costs for the residents and $5.5 million in legal fees incurred in the dispute with its insurers since the issues occurred during the defect liability period.
In the case before the Federal Full Court between Icon and its two third-party liability insurers – Liberty Mutual Insurance and QBE, the disputes related to the response or engagement of the policies in question by reason of expiry of cover (Liberty policy) and by reason of the defined scope of cover: whether the building was a ‘Product or thing’ (QBE policy).
The primary judge had, in October 2020, found that both Liberty Mutual Insurance and QBE were liable to indemnify Icon, leading to the latest round of appeals by the insurers.
Dismissing the appeal by Liberty Mutual Insurance with costs, the Court said:
“Icon’s case against Liberty was that at all material times the parties understood and intended that cover was being written on a contracts commencing basis such that cover would be available under the policy on foot at the time a construction project was commenced for liability in connection with that project occurring at any time prior to the expiry of the defects liability period, and that cover to that effect was indeed secured.”
"...we would allow the cross-appeal by Icon on the basis that in the circumstances condition 15 of the Liberty policy, properly construed, was able to be engaged and was engaged so as to entitle Icon to indemnity."
QBE’s appeal concerns whether the Opal Tower and its component parts are a ‘product or thing’ for the purpose of the defined scope of cover under the QBE policy, being a third party liability policy that Icon entered into for the period 20 September 2018 to 31 December 2018.
Accepting QBE's appeal, the Court concluded that:
"…the fact remains that cover for “Completed Operations” would be reduced by operation of exclusions 5 and 6.2 if “Completed Operations” are also “Products”. The parties have introduced these separate concepts and have agreed upon a different scope of cover for each of them. When regard is had to the exclusions in the context of the policy as a whole, it is evident that the parties did not intend the definition of “Products” to extend to “Completed Operations”, thereby eroding the distinction between them."
In July 2019, Opal Tower residents commenced a class action in the Supreme Court of New South Wales against the Sydney Olympic Park Authority, which cross-claimed against Icon.