Insurer loses multi-million dollar stoush with Napier council over leaky building clause in policy

The Waterfront Apartments on Humber St, Napier, have been the subject of a long-running court battle between Napier City Council and the insurer Riskpool. Photo / Ric Stevens

An insurance company has lost a long-running, multi-million dollar legal stoush after it refused a claim over defects in an apartment building, because some of them were caused by weathertightness issues.

The Supreme Court on Tuesday ruled in favour of Napier City Council in its protracted stand-off with the insurer RiskPool.

The council says it will now try to get back some of the money in dispute - estimated in a previous judgment to be around $4.4 million.

The origins of the dispute date back a decade, to 2013, when a group of owners in the Waterfront Apartment buildings in Ahuriri, built six years earlier, sued the council for negligence in issuing building consents and code compliance certification.

Their claim covered a mixture of defects in the apartment building, some related to weathertightness issues and some to other issues, such as building code breaches linked to fire risk.

The council settled with the apartment owners for $12 million in 2019, then made a claim to retrieve some of the money from its insurer, RiskPool, also known as Local Government Mutual Funds Trustee Ltd.

RiskPool refused to pay out, saying an exclusion clause which excluded insurance for weathertightness issues applied to all of the council’s claim - even those defects linked to other issues.

The parties then ended up in the courts, with the council suing RiskPool to cover the parts of its claim not related to weathertightness, such as the fire risk defects.

RiskPool stood firm, maintaining that because the apartment owners’ original claim included weathertightness, the whole of the council’s claim against the insurer was excluded.

“RiskPool said this [exclusion] clause meant the claim could not be divided into separate parts and the insurer was liable neither for weathertightness defects nor for the unrelated defects,” according to the Supreme Court judgment just released.

The High Court found in favour of RiskPool, causing ripples in the insurance industry generally as its decision went against normal practice to separate out weathertightness issues and other causes when settling claims.

The Court of Appeal reversed the decision of the High Court on liability. That decision was greeted by a specialist law firm, Fee Langstone, as a “return to normal” in a website post.

RiskPool took the matter to the Supreme Court, where a full bench of five justices has now unanimously found in the council’s favour.

The Supreme Court rejected RiskPool’s arguments about the wording of the exclusion clause, saying that when it was read as a whole it clearly intended to exclude only the risks specifically referred to - namely weathertightness.

“We have concluded that there was no error in the Court of Appeal’s construction of the exclusion clause nor in the court’s associated conclusion as to liability under the contract,” the Supreme Court justices said.

The portion of the original $12 million settlement not related to weathertightness issues has been costed at $4.4 million.

The Court of Appeal previously referred the question of how much RiskPool should pay to the council back to the High Court.

The Napier City Council said in an emailed statement on Tuesday it would now “take steps” to recoup the non-weathertightness liabilities, in line with the Supreme Court decision.

It confirmed this involved going back to the High Court, where the amount would be determined.

The Supreme Court imposed $25,000 costs on RiskPool.

Ric Stevens spent many years working for the former New Zealand Press Association news agency, including as a political reporter at Parliament, before holding senior positions at various daily newspapers. He joined NZME’s Open Justice team in 2022 and is based in Hawke’s Bay.