QUESTION:
I’d welcome expert views on interpreting NZI’s Defective Work – Trades Endorsement, particularly around resultant damage.
Scenario: A trade contractor installs flashing incorrectly (workmanship, not design). The flashing later allows water ingress, damaging other parts of the building (e.g. linings, framing). The contractor is legally liable.
Policy - NZI Broadform with Defective Work – Trades Endorsement
Key wording points:
The endorsement (posted below):
• covers defective work (cost to remediate or replace faulty work), subject to a $100,000 sub limit;
• states that Exclusion 5.3(c) – Building Defects does not apply to the Extension; and
• notes that “this sub-limit does not apply to any liability for resultant damage to other property.”
The wording does not say the extension stops applying to resultant damage — only that the sub limit does not. Given the policy elsewhere clearly distinguishes between whether cover applies and whether a limit applies, this appears intentional.
Read together, this suggests the endorsement is designed to:
• cap exposure for fixing the insured’s own defective work, while allowing resulting physical damage to other property to respond outside that cap, with Exclusion 5.3(c) switched off for claims within the extension.
That also seems consistent with the broader liability structure, where faulty workmanship itself is excluded but resultant damage is preserved.
However, I’ve been advised the insurer’s claims position is that resultant water damage remains excluded under the Building Defects exclusion.
Question:
On policy interpretation alone, is the stronger view that:
1. once the Defective Work – Trades Endorsement applies, Exclusion 5.3(c) is not applied for both defective work and resultant damage; or
2. the endorsement only reinstates the cost of correcting defective work, with resultant moisture damage still excluded?
Interested in how others would read this
EXPERT ANSWER:
Crossley Gates - Glaister Keegan
I suspect the underwriting intention here is to write back cover for faulty workmanship to the insured’s product, sub-limited
to $100,000.
Usually this requires the removal of the products’ exclusion (as what the insured works on is a product) and the building defects’ exclusion where buildings are concerned (to the extent of the cover provided by the extension only). This means any liability for resultant damage beyond the faulty workmanship remains excluded where a building is concerned.
The third bullet point is inconsistent with this and I believe it is probably a drafting error. As it must be interpreted objectively, it certainly opens the door to arguing that the extension does provide cover for liability for resultant damage.
