Civil Engineering June 2022 | Vol 30 No 5

56 June 2022 Civil Engineering T he booklet, titled ENSafrica Construction ENSurance: recent influential court decisions and what they may mean for your business references judicial decisions made in 2019 and 2020. Although many of these deci- sions originate in the United Kingdom, Australia and Canada, they are worth paying attention to as they may prove to be influential on future decisions made by South African courts. We have selected five topics and provide our expert analysis and commentary in respect of each one. While this is not intended to be a reference work, we do hope that it will be useful to those in the construction and insurance industries. The five topics and the judicial decisions to which they relate serve to demonstrate the significant interconnectedness between the fields of construction and insurance law. The selected topics are: 1. The status of interim payment certificates on cancellation of a con- struction contract and implications for construction guarantees and guarantee insurers. 2. Coverage implications for insurers in a construction contract in circum- stances where the construction all risks insurance policy and the reinsur- ance policy are not back-to-back. 3. Contractual liability exclusion clauses in liability insurance cover, including construction all risks covers. 4. The rectification of an on-demand construction performance guarantee issued by an insurer and the doctrine of strict compliance. 5. The controversial defective workman- ship exclusion in construction all risks insurance policies. In this article we unpack the fifth topic listed above. TOPIC FIVE UNPACKED The controversial defective workmanship exclusion in construction all risks insurance policies The application of defective workmanship exclusion clauses in the context of con- struction insurance covers, more specifi- cally contract works insurance, very often presents as a bone of contention. Contract works insurance covers are known vari- ously and among others as construction all risks, contract works all risks, builders’ all risks, contractors’ all risks and erection all risks insurance covers. Defective workmanship exclusion clauses serve to exclude cover for the cost of redoing/remedying defective workmanship and ensure that the insured contractor is not paid twice for work done. The cost of remedying such defects is regarded as a commercial or business risk to be borne by the insured. Such clauses will often contain an exception (carve back) within the clause which writes back cover for resultant damage to property, in other words, damage which is the consequence of defective workmanship. The contentious issue centres on the complexity of the divisibility between the defective work and the resultant damage. Adding to the complexity is that the defective work and the resultant damage may be in respect of the same property. Equally, the defective work and resultant damage may be in respect of different property, whether or not in close proximity to each other. It is interesting to consider legal cases involving the application of defective workmanship exclusion clauses (notwith- standing the very often widely differing wordings of such clauses), to understand how courts in each instance draw the line between defective work and resultant damage. While there is a dearth of re- ported decisions in South Africa relating to the interpretation of such clauses, builders all risks policies are widely used in Canada, and the Canadian courts have, in recent years, been a source of numerous such decisions. The latest Canadian decision (2020) is that of the Alberta Court of Appeal in Condominium CorporationNO. 9312374 v Aviva Insurance Company of Canada . The decision involved the interpreta- tion of a faulty workmanship exclusion Construc t i on and i nsurance law Recent influential court decisions and what they may mean for your business – Part 5 Rob Scott Insurance Practice Group | Executive ENSafrica rscott@ENSafrica.com Zara Sher Insurance Practice Group | Senior Associate ENSafrica zsher@ENSafrica.com Zoë Wein Associate ENSafrica zwein@ensafrica.com ENSafrica has released a booklet on construction insurance topics with reference to judicial decisions made in 2019 and 2020. This article forms part 5 of a series that unpacks the various topics covered in the booklet.