INsurance and the Court of Appeal

Hi All,

Although I have raised this with a few people and I am sure that it is being considered by them, the wider readership needs to take notice of the Court of Appeal decision and consider the effects of it on you as an individual as well as your company.

The effect is that if you provide advice that a BCA relies on you will not have the privilege of the 10 year long stop and will be exposed to claims for many years after that 10 years expires.

The Court of Appeal quietly dropped its judgment in Beca Carter Hollings & Ferner Ltd v Wellington City Council [2022] NZCA 624, confirming that contribution claims are not precluded by the 10-year limitation longstop for claims under Building Act 2004. Instead, the 2-year limitation period for contribution claims under the Limitation Act 2010 will apply, even if that falls more than 10-years after the building work is done. This decision provides breathing room for defendants facing defective building claims brought near the end of the long-stop period.

Beca was an appeal from BNZ Branch Properties Limited v Wellington City Council [2021] NZHC 1058. In brief, BNZ was an unsuccessful strike-out application by Beca against a contribution claim brought by Wellington City Council against Beca under the Law Reform Act 1936. The claim was brought in 2019 for Beca’s actions related to building work in 2007 and 2008 (i.e. over ten years later) and Beca argued the Council was too late to join it. WCC argued that the relevant limitation period was actually s 34 of the Limitation Act 2010 (rather than s 393 of the Building Act 2004), which allows defendants to seek contribution from other liable parties up to two years after the claim against them is quantified, whether by judgment against them or through settlement.

Clark J in the High Court dismissed Beca’s strike-out after carefully considering the legislative history and existing case law. Clark J found that the specific limitation period for contribution claims took precedent over the more general longstop limitation for claims related to building work. Her Honour noted that the exclusion of contribution claims from the 10-year Building Act long-stop was consistent with the way contribution claims are not precluded by the 15-year long-stop period for other civil claims.

While BNZ was a departure from a line of previously established High Court authority, the Court of Appeal in Beca emphasised that this approach to the interplay of the two different limitation periods is in line with a long standing recognition of the bespoke nature of contribution claims. A contribution claim is not based on when the original wrongdoing occurred, but comes into existence on the date that a jointly liable wrongdoer is “enriched” by not bearing their fair share of liability. That date is when liability is quantified through a judgment or settlement.

I think it is likely that the Beca decision will be appealed. However, in the absence of a Supreme Court decision finding the other way, the Court of Appeal’s decision in Beca provides some relief and certainty for defendants in defective building claims which have been relying on the BNZ to seek contribution from other parties outside of the 10-year limitation period.

I think that I am correct in my assumption that this would extend to the issuing of Producer statements, 2, 3 and 4`s emails, inspections and actual fire reports for designs etc…

stay safe everyone.

Further to Alan’s post, this has a lot of implications for engineers, both personally and companies, and even engineers who are employees. A lot of this is as a result of the NZ legal approach of “joint and several” liability, where the last one standing pays for everyone else. This is usually Councils as they have deep pockets and cannot disappear, which is the reason they are so risk adverse and costly for issuing building consents. It is the reason that Australia moved to proportionate liability (you pay only your share) in the ‘90s as the construction industry was going to fall over otherwise.

To put some time frames on it, there is 10 years to bring a case under the 10 year long stop of the Building Act and these are often lodged in year 9, and in one case, 2 days before the 10 years was up. Court cases are slow and 5-7 years is not uncommon. The defendants then have 2 years to claim the contribution from you as a third party, so 17- 19 years after you did the work, you get sued out of the blue. Even better, you have had no input into the settlement or original court case, so you may have information or testing or documentation that the claim was overcooked or invalid, but you are now being sued for all of it.

Insurance companies hate unquantified risk as they can’t price it accurately. This is why working outside your scope or area of expertise, or taking on responsibility for other designer’s work can and has led to insurance companies voiding policies, or not covering the claim.

From my discussion with an insurance expert with a major insurer recently, we can expect to see premiums rise, and policies become more limited in scope. Potentially, insurance companies will no longer cover engineers, and this has happened in the past with AIG, as the NZ market is small and not worth the risk vs return. Insurance would then be limited to large multinational companies that have global policies where NZ is a drop in the bucket or have deep enough pockets globally to self-insure. The Names of Lloyds of London are famous for insuring any risk – for a fee, but I am sure most small companies couldn’t afford it.

I have been asked by clients in the past to change the standard 6-year term of liability (from the Limitations Act) in the standard IPENZ agreement to 10 years to match S393 of the Building Act. The answer from the insurer was “no way”, even if I offered to pay extra premiums for special cover. This is because it increased their potential exposure and reduced their options for invalidating or defending a litigation claim against the engineer.

A significant change in the claims against engineers in the last few years, either directly by the plaintiffs or as third parties brought into the action by other defendants such as Councils is the addition of claims against people personally as well as the company. This stops companies being liquidated at the first hint of trouble and then the claim failing as there is no defendant any more.

Typically, these have been company directors, but not always. I know of 2 cases where employees of the company were sued personally and were not directors or similar. In one particular case some years ago, the person involved was not covered by insurance as the company was long gone and hadn’t paid any insurance premium. They were personally tens of thousands of dollars out of pocket for legal costs, through no fault of their own.

In the case of a PS4, as it is signed by the PS4 author personally against their CPEng number, it sets you up more directly as a target. Even if you set foot on site, you are now lined up for construction defects as “you should have seen it”. Under joint and several liability, you also get to pay for everyone else as well.

If you sign a PS4, especially for construction such as fire stopping which we know is often poorly done, you now own all those defects. Producer statements were intended for reviewing work design in detail by the engineer. The background of them is from structural engineering, where a structural engineer designs, documents and issues drawings for a portal frame with 3 bits of steel, 2 holes, some rebar and concrete. The PS4 covers only those items (on reasonable grounds) and against the original design and documentation by the engineer. They are that the works match the design and drawings, the rebar is still in the hole when the concrete is poured etc. This is a much more reasonable and defensible position than what a lot of fire engineers are doing by being building inspectors and certifying works they did not design and had no control over. The lesson is to be extremely specific as to what your site inspection documentation covers and even more detailed on what it doesn’t cover, so if someone relies upon it outside the specified scope then it is on them. This won’t stop you being sued by an ambulance chaser, having years of stress and legal costs, but every little bit helps.