A Federal Full Court judgment has found a Liberty Mutual liability policy provides cover for the builder of Sydney’s Opal Tower, while ruling in favour of QBE on a separate claim related to the troubled project.

Builder Icon took the insurers to court after Liberty declined a claim as it said the policy had expired, while QBE denied indemnity as the building was not a “product” for the purposes of its wording.

The initial Federal Court decision last December found both policies did respond, triggering appeals by the insurers and a cross-appeal from Icon.

Full Court justices James Allsop, James Besanko and John Middleton this week ruled the “Liberty policy, properly construed, was able to be engaged” and the builder was entitled to indemnity, but QBE’s appeal was allowed and Icon ordered to pay its costs.

Icon reached “practical completion” on the 37-storey Sydney Olympic Park tower in August 2018 under a contract worth $154.7 million, but residents were evacuated soon after moving in when cracks in panels and floor slabs were found on Christmas Eve across three floors.

The court document says that by February last year Icon had paid out more $31 million due to the incident, including $17 million in rectification costs, $8.5 million in alternative accommodation costs and substantial legal fees.

The Liberty dispute started in 2012, when Icon first took out the Liberty policy covering third party liability, and reached forward to 2015, when Icon entered into the Opal Tower contract and arranged cover, the court documents say. The issues extended through to late 2018 when the claim was made and rejected.

The QBE dispute was narrower and concerned events towards the end of the period and related to a liability policy issued by two Lloyd's syndicates, with QBE as managing agent.

Icon, in the Liberty cross appeal, successfully argued cover was provided under a “Run-Off” section of the policy. That argument had been rejected by the primary judge, who nevertheless found cover was intended and valid on a “contracts commencing” basis, which would extend to the defects liability period.

The initial December judgment on the QBE claim rejected the arguments that the Opal Tower, as a whole, wasn’t a “product” under its definition. The judge had said construction companies deliver large-scale buildings and QBE’s “well-crafted” submissions overcomplicated the issue.

QBE said the omission of the words “built” or “constructed” in a “product” definition containing seventeen other verbs was significant, and its wording treated separately the risk of liability associated with completed buildings and the risk of liability associated with the supply of products.

The appeal judges, finding in favour of QBE, said a policy overall should be taken into account when considering a word definition.

“A difficulty arises if one adopts a too broad definition of the term ‘product’ (including a ‘thing’) when the policy is considered as a whole,” they say.

“Even a literal meaning of a word in a definition provision must not be permitted to prevail where it would produce a result not consistent with the object and purpose of the policy.”

The decision is available here.