Major implications for insurance industry after leaky schools decision

by Maryvonne Gray 24 Jul 2015

Major implications for insurance industry after leaky schools decision

A large chunk of New Zealand’s insurance industry will feel the ramifications of a Court of Appeal decision issued yesterday regarding leaky schools.

The bulk of the Ministry of Education’s lawsuit against Carter Holt Harvey for the negligent supply, design and manufacture of cladding products has succeeded, with the upheld claims now due to be determined in the High Court.

This means that while claims against building contractors may be statute barred, claims against the manufacturer or supplier of building products may be brought for a further six years.

The claimants – the Minister of Education, the Ministry of Education, the Secretary of Education on and the Board of Trustees of Orewa Primary School - brought a claim against Carter Holt Harvey, after it was established faulty cladding systems installed in 5590 school buildings had caused weathertightness issues.

There were five sets of allegations all up with the Ministry alleging that Carter Holt:
  • was negligent in designing, manufacturing, importing and supplying the so-called defective cladding;
  • failed to warn the Ministry about the cladding;
  • owed a duty of care to not make ‘false, misleading or negligent misstatements’ about the cladding;
  • breached guarantees in the Consumer Guarantees Act; and
  • breached the Fair Trading Act
Carter Holt applied to the High Court to have all but the Fair Trading Act claim thrown out but was turned down last year.

It then challenged that decision in the Court of Appeal and was partly successful, with the Court agreeing to strike out the negligent misstatement claim from the Ministry’s case.

The judges dismissed the appeal regarding the other parts of the case, however, and upheld the High Court’s decision that the case was not brought out of time.

An industry source said the implications of the decision were major, and not just for insurance lawyers keen to help claimants get ‘another bite of the cherry.’

“It affects those who insure the whole construction industry and the roughly 1,400 schools in New Zealand.

“While claims against building contractors may be statute barred due to the long stop period under the Building Act, claims against the manufacturer or supplier of building products may be brought years later.

“Just when we thought claims arising from the leaky building issues were over it seems that they may have only just begun.”

The source said: “Insurers who were looking to soften exclusions under professional indemnity policies and general liability policies will now have to put that on hold and underwriters may find building product suppliers and manufacturers less appealing as a risk.”

This is the second Court decision this week with significant implications for the insurance industry.

On Wednesday, the Supreme Court upheld a decision that Southern Response must pay property owner Avonside an extra $300,000 in costs associated with rebuilding a home.

There was speculation that tens of millions of dollars in extra payments may be at play for Cantabrians, giving insurers further earthquake-related headaches.

Both Southern Response and the Insurance Council of New Zealand were still considering the decision and its implications.

Insurance Business hopes to bring an update with their comments on that case in the next edition.