The Federal Court has ruled in favour of QBE in a dispute with Allianz which was triggered after apartment development works in Sydney’s Double Bay damaged a neighbouring property.

QBE took action arguing both insurers should share the excavation firm’s settlement and court defence costs under the claim, while Allianz said a policy it provided for project works did not extend to the sub-contractor.

The development causing the dispute involved the demolition of dwellings and the construction of a building with seven apartments, parking and other amenities.

Developer QIG retained head contractor Southern Cross Constructions, which brought in Pile & Bucket (P&B) for the excavations.

Owners of an adjacent property complained of building damage due to the works and took action against the three companies “and other persons”. The matter went to the Supreme Court in 2013 and P&B later settled for $676,854.14 plus $150,000 in court costs, covered by QBE.

Justice James Allsop notes the dispute involves wordings of two separate building contracts, one between QIG and Southern Cross and the other between Southern Cross and P&B.

Under the first, it was agreed the main contractor would take out public liability insurance, which would also cover subcontractors. A policy was subsequently arranged with Allianz which provided $20 million of cover.

The sub-contract between Southern Cross and P&B also agreed on insurance arrangements being in place.

Allianz says wordings only required Southern Cross to ensure that a public liability policy was in force for sub-contract works, but didn’t extend the Allianz coverage to P&B.

The insurer “posited a conflict” between the QIG/Southern Cross contract and the Southern Cross/P&B contract, saying the second should prevail as the first represented only a general provision.

It also pointed to a closing instructions document in the Allianz policy which required contractors and sub-contractors to hold public liability insurance of no less than $5 million and noted that P&B did take out cover with QBE.

But Justice Allsop said Southern Cross was required under the contract with QIG to provide cover, there was nothing in the sub-contract to the contrary, and the closing instructions document was not designed to remove that cover.

“There is no conflict posited at all. P&B is an insured,” he said.

Allianz also argued there was “no right of contribution” for legal costs as QBE appointed its own lawyers and spent its own money in conducting the Supreme Court defence for P&B.

Justice Allsop says contributions should be paid, whether or not there are different policy approaches over whether costs are paid up front or reimbursed.

The question is whether the obligation could be characterised as of the same nature and to the same extent, he says.

“The insured here was entitled to its defence costs in defending the claim. QBE by defending and paying those costs relieved Allianz from its obligation to do just that for the insured,” he said.

“There is no reason in justice or equity why the appropriate proportion of those costs should not be shared justly between the insurers, at least those costs referable to defending the claim for which both insurers were liable to indemnify the insured.”

The case is available here.