What is the product of a product definition?

Key Point
  • Queensland judge restricts the definition of a “product” in a Zurich liability policy.

A recent decision of the Supreme Court of Queensland restricts the definition of “product” in a liability policy.

Despite the detailed and expansive definition of ‘product’ in the policy, care needs to be taken to interpret the words in policies having regard to the commercial context of the policy and the policy as a whole.

In Bigby v Kondra and Zurich [2017] QSC 37 Daubney J of the Supreme Court of Queensland had to wrestle with the definition of “product”.

The plaintiffs’ home was severely damaged in a storm. The windows were improperly installed with the result that, during the storm, the windows catastrophically failed under the stress of the atmospheric pressure change, ‘exploding’ part of the house outwards.

The plaintiffs sued the builder. The builder was insured under a Business Insurance liability policy with Zurich.

The builder was found liable to the plaintiffs in negligence for failing to adequately supervise the construction of the house.

One of the grounds upon which Zurich sought to deny indemnity was the application of the exclusion for “damage to products”. That exclusion could only apply if the house was a product. The judge pointed to some conflicting judgments but ultimately held (despite the very detailed definition of “product” in the Zurich policy) that the house was not a product.

The judge relied heavily upon a decision of the English Court of Appeal in Aspen Insurance UK Ltd v Adana Construction Limited [2015] EWCA Civ 176 in which it was held that “… a hallmark of a product … was something which … was a tangible and moveable item which can be transferred from one person to another; and not something which only came into existence to form part of the land on which it was created.”

As pointed out by the judge, this conclusion is at odds with the decision of the High Court of New Zealand in Arrow International Ltd V QBE insurance (International) Limited [2009] 3 NZLR 650.  It will be interesting to see whether Zurich appeals against the decision.

Post by Paul Hendriks

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