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The claim involves a customer's benchtop. The customer wishes to claim against the Insured for a new benchtop.

The Insured installed the benchtop two years ago at their customer's house. The Insured advised it appears a join wasn't flush, and so when the customer ran something heavy with force over the join, it has caused the laminate to chip.

Insurer has declined the claim by virtue of Policy Exclusion, 'Reinstatement, Repair or Replacement of your Products' which states, "You are not insured for liability for damage to your product arising out of such product or any part of such product." 

Insurer considers the installation of the benchtop falls within the definition of an excluded product. Product being defined under the policy as "Anything (after it has ceased to be in your possession or under your control) manufactured, constructed, erected, assembled, installed, applied, repaired...sold, supplied or distributed by you..."

Our arguments are :-

    1)     There is no way to determine the root cause of the damage. Even if the benchtop is pulled apart, it is likely this can never be 100% determined. The issue isn't so much the chip, it's that the benchtop warped due to (potentially) water ingress over time. The installer who was engaged by the Insured to install the benchtop has already left the country.

    2)     Whilst the Insurer has cited Policy Exclusion relating to 'Reinstatement, Repair or Replacement of your Products,' the Insured's policy has the 'Property being Worked On' extension which, in our view, supersedes the Policy Exclusion raised by Insurer.

The 'Property Being Worked On' extension extends to cover the Insured "for all sums that the Insured shall become legally liable to pay for (a) damage to property Insured is or has been working on, where the damage happens in NZ during the period of insurance as a result of an event in connection with the business; (b) faulty products where the Insured's products have caused accidental physical loss or destruction to other tangible property, where the accidental physical loss or destruction happens in NZ during the period of insurance caused by an event in connection with the business."

For the purpose of this extension: Faulty products means the cost of repairing, correcting, removing, or replacement of the whole or part of Insured's product which is faulty, defective, harmful or has failed to perform the function for which it was sold, supplied, manufactured or installed.

Our question is, can the Insured's claim be covered under the 'Property Being Worked On' extension of the Broadform Liability Policy?

Crossley Gates Replies:

In my opinion, the drafting of 2) (b) is unclear. 

Based on the words you have quoted, it insures legal liability for faulty products where those products have caused accidental damage to other tangible property.

Where a faulty product damages other property, and the insured is legally liable, that liability will be for the damage to both the faulty product and the other property.

However, does 2) (b) cover liability for damage to both the faulty product and the other property or just the other property? The words used are not clear about this.

To compound the confusion, the definition of faulty product doesn't refer to why it is faulty but to the cost of fixing it. The fact that there is a cost to fix it doesn't automatically mean the product contained a fault.

June 2024

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