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Opal Tower builder gains insurance win

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The builder of Sydney’s Opal Tower has won Federal Court action taken against Liberty Mutual and QBE over insurance claim denials for construction problems at the high-profile development.

Icon reached “practical completion” on the tower in August 2018 under a design and build contract worth $154.7 million, but newly moved-in residents had to be evacuated when major cracks in panels and floor slabs were found on Christmas Eve across three floors.

Residents were allowed to return to the property over the course of last year after problems were fixed, and a class action has since been launched.

The court heard Icon had paid out more than $31 million due to the issue as of February, including about $17 million in rectification costs, $8.5 million in alternative accommodation and $530,000 in legal fees related to the class action.

Icon’s Liberty liability policy related to the construction period while the QBE third-party liability policy was for September 20 to December 31, 2018.

The Liberty dispute centred on whether the policy provided cover past the practical completion date to include an extended defects liability period, while the QBE dispute focused on whether the incident met its “product” definition.

Icon argued there was a “common intention” for the Liberty policy to be under a “contracts commencing” basis, which provides the extended cover, rather than on a “turnover” basis.

That was not reflected in the written terms, through a mutual mistake, and the court should order that documents be rectified, the builder said.

The insurance was arranged through Austbrokers Countrywide and placed through underwriting agency Chase.

“Liberty can point to no communication from it to Chase, or from Chase to Austbrokers, expressly denying that the cover provided did not include the defects liability period,” Justice Michael Lee said.

The court earlier this year heard evidence about phone conversations and emails exchanged between Austbrokers and Chase that related to their understanding of the issues when cover was being arranged.

“The parties knew enough of each other’s intentions for it to be said that they commonly held the contracts commencing intention,” Justice Lee said, in deciding the rectification case should succeed.

Two other alternative arguments put forward by Icon to support its Liberty claim were rejected by the court.

QBE denied cover as it maintained the Opal Tower didn’t come under the meaning of “product” in its policy, with the insurer highlighting the absence of the words “built” or “constructed” in the definition.

“It said that to contend that a whole building, or even its constituent parts, is a ‘product’ would be curious in the absence of those verbs,” the judgment says.

QBE argued Icon did not “merely erect” the Opal Tower; it created the fabric of the building, and in particular the elements of the building that failed during the incident.”

But Justice Lee said QBE’s “well-crafted” submission overcomplicated the construction issue and the incident fell within the policy’s cover.

“In the context of an insurance policy issued to a construction company which delivers large-scale building projects, it is hard to imagine what other product or thing, besides a building, would be erected such to fall within the meaning of the definition,” he said.

The QBE policy was through a syndicate of underwriters at Lloyd’s, of which it is a member.

The parties are due to come back to the court regarding the orders. The decision is available here.