The insurance debacle that has surrounded the Opal Tower since Christmas Eve 2018 may now have been put to rest, but the lessons, it is hoped, won’t be easily forgotten.
Liberty Mutual Insurance’s Australian branch and Lloyd’s managing agent QBE Underwriting Limited were, in October 2020, both found liable to indemnify builder Icon Co (NSW) Pty Ltd. Now, following the appeals, the Full Court of the Federal Court of Australia has ruled against Liberty and in favour of QBE.
The 138-page ruling seen by Insurance Business stated: “As to the claim against Liberty, for the reasons that follow, 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.”
“That conclusion removes the need for rectification; but we have dealt with the appeal on rectification on the assumption that we are wrong on the question of construction, and because the primary judge has made orders which cannot stand consistently with the premise of cover which we have found,” the document went on to read. “On this hypothesis, we would dismiss Liberty’s appeal.
“As to the claim against the underwriter under the QBE policy, we would allow the appeal.”
The Sydney-based Opal Tower, practical completion of which was in August 2018, suffered “extremely serious” defects before Christmas of the same year, resulting in the evacuation of residents. As noted by the court, Icon had paid out, by February 2020, more than $31 million in costs spanning rectification, alternative accommodation, and legal fees.
“There was no dispute between the respective parties about whether there was damage or an occurrence for each of the relevant policies,” said the Full Federal Court.
“The disputes between Icon, as insured, and Liberty and QBE under the separate policies, were as to the response or engagement of the policies in question by reason of expiry of cover (as to the Liberty policy) and by reason of the defined scope of cover: whether the building was a ‘product or thing’ (as to the QBE policy).”
In the decision favouring QBE, the Full Federal Court cited the reasons why it considered that the primary judge erred in the 2020 outcome.
Commenting on the development, Clyde & Co Australia insurance head Lucinda Lyons told Insurance Business: “This judgement is a reminder of not only the importance of considering a policy of insurance as a whole, but the court’s preparedness to ensure that any interpretation provides commercial efficacy and reflects the common intention of the parties.
“In this case, the success of both Icon and QBE in their respective appeals came down to their ability to articulate an interpretation that better reflected the commercial efficacy of the policies to which they were parties.”
Lyons’ camp, which was not involved in the cases, previously pointed to the implications surrounding insurance policy drafting and other matters in relation to risk placement.
Brokers, for instance, must ensure that the agreed cover is indeed the cover defined within the scope of the policy, by closely reviewing wordings and endorsements. Meanwhile insureds, in Clyde & Co’s view, should question key insurance policy documents.
Liberty and QBE both declined to comment when contacted by Insurance Business.