Public Liability Insurance: Defective Workmanship – Claims

1 Claim example: Legal Liability/ Defective Workmanship

Jafa Builders Ltd is constructing an office that they are planning to sell upon completion.  Jafa Builders Ltd is funding the materials and labour.

They attach an air conditioner to the wall but fail to secure it properly. As the builder connects the electrical supply, the air conditioner falls off the wall and there is damage to the unit itself and the tiles on the floor of the building.

The air conditioner and the tiles are the property of the builder. There is no legal liability to pay for this damage. No claim would be paid under the Public Liability insurance/defective workmanship wording.

2 Claim example: Legal Liability/ Consequential Loss/ Resultant Damage/Defective Workmanship

Public Liability Insurance Claim example Legal Liability Consequential Loss Resultant DamageDumpling Bakers Ltd decides to replace their very old oven and purchase a new oven from a local wholesaler. Dumpling Bakers Ltd employs Jafa Builders Ltd to remove the old oven and install the new oven.

The builders connect the new oven to the electrical supply but do not check the voltage assuming that the correct oven was purchased. The voltage is too high for the oven and when the builder switches on the oven, the circuit board burns out. The oven has been damaged, there is smoke damage above the oven and Dumpling Bakers Ltd bakery cannot operate for three days due to the lack of an oven. The replaceable oven would have to be delivered from Wellington.

The damage to the oven and the consequential loss to the business, would be insured under the defective workmanship extension. The redecoration/ smoke damage repairs would be covered under the basic Broadform insurance policy wording as “resultant damage”.

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3 Claim example: Time of damage/Defective Workmanship

Seaside restaurant Ltd decides to replace their very old oven and purchase a new oven from a local wholesaler. Seaside restaurant Ltd employs Jafa Builders Ltd to remove the old oven and install the new oven.

The builders connect the new oven to the electrical supply but do not check the voltage assuming that the correct oven was purchased. The voltage supply is too high but power is not applied until the following morning. The damage happens after the builder had left the site. The oven has been damaged, there is smoke damage above the oven and Seaside restaurant Ltd cannot operate for three days due to the lack of an oven. The replaceable oven would have to be delivered from Wellington.

The damage to the oven and the consequential loss to the business, would be insured under the defective workmanship extension. The redecoration/ smoke damage repairs would be covered by Broadform policy wording as “resultant damage”.

4 Claim example:  Damage

Public liability insurance Claim example:  DamageSmart Lawyers Ltd buys a heat pump from a wholesaler and employ ABC Builders Ltd to install it. ABC builders’ attach it to the wall but fail to secure it properly. The heat pump works but when it is operational, it vibrates against the wall producing horrible noise.

Smart Lawyers Ltd is dissatisfied with ABC Builders Ltd work and ask Flop Electricians Ltd to rectify the problem.  The electricians attach the heat pump properly, the vibration stops and they submit their invoice to the lawyers. The lawyers pay for the electricians work but deduct this from the invoice of ABC Builders Ltd.

ABC Builders Ltd submited a claim, under the defective workmanship extension, for the shortfall in the payment they received.

There has been no damage and for this reason, an insurance company would reject this claim. 

5 Claim example: “Property being worked on” / Defective Workmanship

FUNKY Painters Ltd is employed to paint window frames at a house. Some paint gets onto the glazing. They remove it with a razor and scratch the glass.

The damage to the glass would be insured under the defective workmanship extension.

6 Claim example: Building defects and mould

Jafa Builders Ltd is employed to repair a roof of a building.

The next time it rains, water seeps through the roof and damages the ceilings and floors of the building. Jafa Builders Ltd makes a claim for the damage under the defective workmanship extension.

The “Building defects and mould” exclusion would still operate. The insurer would not provide cover if the work done by Jafa Builders Ltd fails to prevent water penetrating the building or develops mould, rot or decay or fails to comply with a building code. 

7 Claim example: Concrete Contractor/Defective products

Public Liability Inusrance Claim example: Concrete Contractor/Defective products/Defective Workmanship

Defective Workmanship

Parallel Concrete Ltd is employed to supply the concrete for the foundations of a commercial building. The concrete is poured and the builder proceeds with the project.

Seven days later, the structure above the concrete sinks 10 cm into the concrete. The concrete is tested and the analysis reveals that the mix of materials within the concrete was incorrect and will not support the weight of the building. The concrete contractors (Parallel Concrete Ltd) realize that there has been a problem with their quality control system and the concrete supplied for this project was unsatisfactory.

The concrete has not been damaged, it is just defective.

The insurer would pay for demolition of the property above the concrete, that had been erected after the defective concrete had been poured and for the cost or re-erecting this property, above the replacement concrete. This would be covered by Broadform policy wording as “resultant damage”.

The insurer would not pay to excavate, dispose of and replace the defective concrete.

8 Claim example: Winery “Defective product” /Defective Workmanship

Hoppy Wine Ltd is a contract wine maker. They receive supplies of grapes from vineyards and they undertake to supply an agreed quantity of wine, depending on the volume of grapes supplied.

A specific wording will apply to wine making risks, but the key issues are:

  1. If the winemaker has followed the standard winemaking and bottling process, but the vineyard is just dissatisfied with the flavour, colour or bouquet of the finished wine, no protection would be provided under the defective workmanship wording.
  2. If the winemaker follows standard processes and the juice deteriorates or contains an inherent vice and doesn’t develop into the wine anticipated, no protection would be provided under the defective workmanship wording.
  3. If the winemaker commits an error and contaminates the wine by allowing a foreign body to affect the wine or they add the wrong quantity of ingredients and this damages the wine, cover would be provided under the defective workmanship extension.

9 Claim example: Motor Trade / Defective Workmanship

Mr Keys takes his car to Jag Motors Ltd. The garage advise Mr Keys that his automatic transmission is faulty and requires to be adjusted.

Mr Keys instructs the garage to proceed and after the work is done, the car is returned to him. After driving for a short distance, the transmission seizes. Mr Keys has the car towed to the dealers who advise that the transmission had been repaired incorrectly and is now damaged. In addition, there is some engine damage. Mr Keys makes a claim against Jag Motors for the repairs to the transmission, the cost of towing and the repairs to the engine.

The towing cost and the engine repairs would be recoverable under the standard “Motor and watercraft repair” extension. The repairs to the transmission would be covered under the defective workmanship extension.

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