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Fletchers fails to get declaration on third-party insurance after SkyCity fire

9 Jun 2023

| Author: Heidi Bendikson

High Court Rules 2016, rr 12.2(1) and 15.1(1) – application for declaratory relief via summary judgment – application to strike out cause of action – insurance policy interpretation – insurance cover for construction contract indemnity – whether third party insurance policy includes voluntarily assumed liability – whether third party insurance policy includes claims arising from damage to works 

Fletcher Construction Company Limited v Chubb Insurance New Zealand Limited [2023] NZHC 943 per Gardiner AJ.

Fletcher Construction Limited (Fletchers) was head contractor working on the construction of the convention centre and car parks (contract works) for SkyCity Entertainment Group. The building contract included an indemnity clause in which Fletchers indemnified SkyCity against any liability incurred by it in respect of the contract works.

SkyCity had entered a contract with MPF Parking NZ (MPF) to deliver car parks at specified dates. The car parks for the project were to be completed in two tranches, the first being completed at the end of 2018.

SkyCity negotiated Fletchers’ third-party insurance for the contract works with Chubb Insurance New Zealand. The policy provided that the insurers would pay for insured sums, which the insured would become legally obligated to pay as compensation for property damage and included a “damage to works” exclusion (exclusion six).

In 2019, after MPF had taken possession of the first tranche of car parks, a fire engulfed the roof of the convention centre under construction. Water from firefighting efforts reached other levels of the building and damaged 600 car parks below.

SkyCity demanded Fletchers indemnify it for the $22 million demanded by MPF for the late delivery of both tranches of car parks.

Chubb agreed to pay out third-party insurance in respect of the completed first trancheof car parks, but declined cover for the remaining tranche, saying they were still under construction when the fire occurred and therefore were not third-party property covered by the policy.

Applicable principles –  whether Chubb’s interpretation of policy reasonably arguable –discussion about distinction between claims advanced in contract and tort and claims pursuant to an indemnity clause in the contract – High Court found it was at least reasonably arguable that Chubb did not intend that Fletchers would be indemnified against any third- party liability assumed under a contract for indemnity, unless the indemnity was specified in the policy – High Court found it was reasonably arguable that exclusion six excludes liability to a third party for economic loss originating from loss or damage to the contract works – whether the meaning of the policy could be resolved without further background context (High Court found it could not) – High Court noted evidence between SkyCity’s broker and insurer may be relevant to interpretation – discussion about contextual evidence –  whether, even if summary judgment declined, statement of claim should be struck out because the court could not make declaration sought without further information – discussion of principles around declarations – discussion of factual assumptions required, including whether the fire (or other factors such as covid-19) caused the delay in car parks – High Court found declaration problematic in requiring the court to interpret policy and indemnity without critical facts about the claim and in the absence of SkyCity – discussion between difference in Fletchers’ liability to SkyCity under construction contract, which relates to “any liability incurred”, and the policy that relates to “all sums which the insured shall become legally obligated to pay as compensation” – High Court found it could declare, on the facts before it and without the involvement of SkyCity, the declaration sought, but declined to strike out on the basis the declaration could be confined to the proper meaning of the policy.

Held: Fletchers’ interlocutory application for summary judgment dismissed. Chubb’s interlocutory application to strike out is dismissed. Fletchers to replead statement of claim within 25 working days. Costs on summary judgment reserved. Chubb awarded costs on strike-out application despite dismissal of application because of its argument the pleaded statement of claim disclosed no arguable cause of action.

fletcher_v_chubb_jud_20230531

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