Ask an Expert


A client was commissioned to build a steel frame on which to place a silo. Several months after it was built, the silo was filled up and the frame collapsed. It has since been found that the failure was due to ™a slight eccentric loading and inadequate structural integrity∫. The failure mechanism was ™buckling of the western PFC bearer∫ which had a notch cut in it to accommodate another frame. This is a high stress point and the notch would have materially reduced the strength at this point. On top of this, the silo had been filled and emptied twice previously to the collapse with no issues however there were high winds leading up to the collapse and it is likely the wind event moved the frame causing a slight eccentric loading on the PFC bearer (which is what the notch was cut in).

The insured has a faulty workmanship extension which states:
[The insured] agrees to indemnify the insured for personal injury or property damage whilst in New Zealand for liability for the costs of rectifying defective or faulty workmanship including materials, consequent upon accidental damage to property on which you are or have been working, where the damage is caused by your faulty workmanship; Providing that: 

(a) the faulty workmanship is done or undertaken by any of the persons insured during the period of insurance; and 
asub limit of $100,000 shall apply to this extension subject to an excess of $1000 for each occurrence Workmanship means work done in the process of manufacturing, constructing, erecting, installing, servicing, repairing or treating property. 

The insurer is in part relying on the following exclusion to decline the costs of rebuilding the stands:

Own property and property in the insured's care, custody or control property damage to: 

(a) property owned by the Insured, or in the Insured's care, custody or control; or

(b) the insured©s products arising out of such products or any part of such products.

They are stating that because the insured built the stands they are therefore the insured's products and any damage that happens to completed operations (or the insured©s products) that arises out of that product/completed operation is excluded by the above.

My argument is that this exclusion is intended for damage which arises out of the failure of a product itself, i.e. faulty steel or bolts used which go rusty after two weeks and cause a collapse. Taking the insurer's approach, anything which the insured builds would not be covered by the faulty workmanship extension and therefore defeats the entire purpose of paying additional premium to have that extension.
What is your opinion on the insurer's interpretation of the above exclusion?

Reply: Crossley Gates

The steel frame your client built will be a “product” as that word is usually defined. 

The description of the cause of the failure (inadequate structural integrity) sounds more like faulty design than faulty workmanship. But maybe the inadequacy only arose because of the notch you refer to. Who made the notch - I assume your client did? Presumably, the workmanship of the notch itself is fine? So is this really a faulty workmanship issue or more a faulty design issue?

I assume the exclusion you quote is not either of exclusions 4.8 or 4.18 that don't apply to the extension. 

The extension is unusually worded. Paraphrased it says it covers the insured for property damage for liability for rectifying faulty workmanship CONSEQUENT UPON damage to property on which the insured has been working [my capitals]. It is difficult to follow the intention.

As a generalisation, cover for liability for damage to property caused by the insured's faulty workmanship to it, must have the products exclusion removed from the cover for it to work. Something the insured works on will always be a product.


June 2019

Training & Qualifications

Professional IQ College offers workshops, online courses, webinars and qualifications.
For upcoming events:

Click here

Knowledge Base

Where members can access industry Resources & Media Content

Click here