Liability of Hawkins’ insurer to homeowner for wasted rebuild costs

The High Court examined the liability of QBE, as insurer of the liquidated Hawkins companies, to the homeowner, the Daverns, and their insurer, IAG, for wasted costs arising from sequencing errors in the rebuild of the Daverns’ house.

The Daverns’ home was on an excavated sloping site in Redcliffs, Christchurch. It was severely damaged in the Canterbury Earthquake Sequence (CES). It had to be demolished and replaced.

IAG brought the Daverns’ case as a subrogated recovery. IAG also sued Hawkins in its own right pursuant to the contract negotiated directly between Hawkins and IAG. The Court described IAG and the Daverns as suing as Co-Plaintiffs. The Judge did not distinguish between the losses claimed by the Daverns and those claimed by IAG.

The Plaintiffs claimed $1,804,829.32 as damages for wasted costs attributable to a sequencing error. Their case was that Hawkins had failed to allow for the construction of a retaining wall until after the dwelling had been rebuilt. At the time the retaining wall was rebuilt, access was severely restricted due to the siting of the dwelling. This resulted in increased costs, including negotiating and purchasing land and rights of access across a neighbouring property.

The Court referred to the decision of the High Court and Court of Appeal in Sleight. That involved considering a similar contract between IAG and Hawkins for the rebuild of a property damaged by the CES. It found that Hawkins’ role was one of administration and coordination. It only had a very limited quality assessment function.

Hawkins had an obligation to scope the rebuild works. The Plaintiffs’ argued that when it became clear the retaining wall needed to be rebuilt, the scope of works for the dwelling should be revised to take account of the rebuild of the retaining wall, in particular to ensure efficient access. The Court considered that Hawkins’ role could reasonably be described as project manager for the Daverns in achieving their domestic house repairs. As such, the services fell within a definition of personal, domestic or household services. The Court held that Hawkins was a supplier of services and responsible for the quality of those services which were guaranteed under ss 28 & 29 CGA.

The Court found a breach of s 28 (reasonable skill and care) and s 29 (fitness for a particular purpose). The key finding was that, as of March 2016, Hawkins should have updated the scope of works so as to avoid the wasted costs that were ultimately incurred in building the retaining wall.

The Court rejected arguments that IAG and the Daverns had failed to mitigate their loss. It held the Daverns were entitled to rely on IAG as their insurer. Further, that IAG had appointed suitably qualified experts in the form of Hawkins and Cook Costello to administer and monitor the rebuild. Although IAG was aware of the need to rebuild the retaining wall, it was not informed that construction of the dwelling needed to be suspended pending a design, scope and construction of the retaining wall.

QBE successfully argued that a $50,000 excess applied to the Daverns’ claim and was therefore not payable by QBE. The Daverns and IAG had argued that the excess had been exhausted in the Sleight claim because there was a single originating cause, namely the liability of Hawkins pursuant to its monitoring contract with IAG. The Court found Hawkins’ liability in this case was a distinct claim to that in Sleight.

This case reinforces the need for careful consideration of the far-reaching effect of the CGA. It applies where services are being provided to a consumer regardless of whether there is a contractual arrangement between the provider and the consumer. The operation of the CGA guarantees the standard of service regardless of any contractual obligations and imposes liability regardless of any contracting out or limitation of liability clauses.

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