Key Points

  • Although the insurance contract was “to pay” not “to reinstate” the insurer is liable to pay for the costs of achieving “when new” standard including the cost of defective repairs.
  • IAG breached its obligations to the Sleights under the Consumer Guarantees Act (CGA) by failing to appoint a suitable builder, failing to ensure the scope of works was appropriate and failing to ensure the Project Manager adequately monitored the repairs.
  • The Project Manager, Hawkins, was liable to the Sleights under the CGA for failing to ensure the scope of works was adequate, failing to monitor the quality of the builder’s work and for wrongly certifying milestone payments.
  • Exclusion clauses in the building contract assisted IAG and Hawkins in relation to the Sleight’s claims in tort and equity but not under the CGA.


The Sleight’s Christchurch property was significantly damaged during the Canterbury Earthquake Sequence (CES). IAG insured the property. The reinstatement standard in the policy was “to a condition as similar as possible to when it was new”.

IAG established a managed repair programme in response to the CES. It assigned one of its approved builders, Farrell Residential Ltd (Farrell) (in liquidation), to the job. It appointed a Project Manager, Hawkins Management Ltd (Hawkins) (now in receivership and liquidation) to monitor the building repair works. Hawkins held a professional indemnity insurance policy with QBE.

The Sleights and Farrell entered into a building contract. That included various clauses which limited and excluded the liability of IAG and Hawkins. IAG and Hawkins entered into a separate contract called a Rebuild Solutions Master Agreement (RSMA). That contained indemnities both for and against IAG and Hawkins.

The Sleights’ Claim

The Sleights alleged the scope of repairs was inadequate and the work done was faulty.

They claimed against IAG in contract under the policy, in negligence, under the CGA and estoppel.

The Sleights claimed against Hawkins in negligence and under the CGA.

They sought declarations that exclusion and limitation clauses in the building contract were voided as unconscionable.

Both IAG and Hawkins cross-claimed against each other, seeking indemnity under the RSMA.


Gendall J found that the obligation under the insuring clause was “to pay”, not “to reinstate”. However, he went on to find that IAG had not complied with its policy obligation to pay for repairs to a “when new” standard, because IAG had not yet met its promise to repair to that standard. He held the policy standard would only be achieved when the further repair work had been completed, was done in compliance with the building consent, and a Code Compliance Certificate had been issued.

IAG relied on a Faults and Defects exclusion. The Judge found that related to the cause of damage which gave rise to the claim, not to faults and defects occurring during reinstatement. IAG also relied on an exclusion in the building contract, which stated that its liability is set out in the policy and it had no additional liability to the Sleights arising from repair work. The Judge rejected the application of that exclusion because IAG was liable for its failure to meet the policy standard rather than additional liability arising from the repair work.

The Sleights’ claim against IAG under the CGA succeeded. The Judge rejected IAG’s submission that it was providing a “scaled up claims handling service”, finding that it was arranging for reinstatement work to be carried out through a managed repair programme. He found IAG breached the CGA by failing to appoint a suitable builder, failing to ensure the scope of work was appropriate and through Hawkins’ failure to adequately monitor the repair works.

Justice Gendall found IAG owed a duty of care to the Sleights which had been breached in the same way as breach of the CGA. He rejected the estoppel cause of action for limitation reasons.
The Judge also found Hawkins owed duties to the Sleights under the CGA. He held those were breached as it failed to ensure the scope of the repair works was adequate, and it failed to monitor Farrell’s work and to properly certify milestone payments.

Further, the limitation exclusion clauses in the building contract were clearly expressed and should be given their natural and plain meaning. He rejected the submission that the Sleights had entered an unconscionable bargain in agreeing to those terms by reason of their age and vulnerability. The clauses were effective in defeating the causes of action in tort and equity but not under the CGA.

Finally, the Judge rejected the Sleights’ submission that general damages were payable. Neither IAG nor Hawkins had acted so unreasonably as to justify an award of general damages.


In order for QBE to be liable under s9 Law Reform Act 1936, Hawkins had to be liable for the policy to be triggered. The Judge found that the policy responded and in doing so rejected QBE’s argument that the exclusion for assumed liability applied because Hawkins’ liability arose at law. However, Hawkins’ liability was limited to loss caused by wrongly certifying certain milestone payment claims.


With the exception of Hawkins’ liability to IAG for wrongly certifying milestone payment claims, IAG was liable to indemnify Hawkins/QBE for Hawkins’ liability to the Sleights. This turned on the wording of the RSMA.


The Judge’s finding that an insurer’s liability under a “to pay” policy required it to pay for the costs of defective repairs effectively removes the distinction between a “to pay” and a “reinstatement” policy. This finding is open to question.

Limitation and exclusion clauses incorporated within a building contract between the insured and builders may provide protection for insurers and their appointed project managers for commercial reinstatement projects. However, the recognition of wide obligations under the CGA is important for insurers underwriting and dealing with claims in relation to consumer risks. Effectively any involvement in the reinstatement process could create a risk of liability for defective repairs for the insurer and its project manager.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.