The NSW Supreme Court has rejected a property owner’s bid to sue the insurer of a builder that went broke.

The judgment is significant for the insurance industry because the court’s refusal to grant leave to sue Chubb is based on a finding there is no arguable case for coverage under its policy, Clyde & Co partner Ross Donaldson told insuranceNEWS.com.au.

The court emphasised the need for a “clear, written demand for compensation to satisfy a definition of a claim required by a policy”, he says.  

The judge read communications between the property owner and the builder over alleged defects and delays and found there was no demand for compensation within the policy term.

The builder did not notify Chubb of a claim, and Mr Donaldson said the message to brokers who become aware of a dispute is to encourage the insured to tell the insurer early.  

The property’s owner – a company called 374, 376 New South Head Road – contracted SMLXL Projects (NSW) for design and construction work on a project in the Sydney suburb of Double Bay. SMLXL went into liquidation in July 2023 with the work uncompleted.

The owner sought to sue SMLXL for breach of contract and argued that if it were found liable, the builder could call on one of its three professional indemnity policies with Chubb.

Chubb did not dispute that SMLXL might be liable, or that it probably could not pay any judgment against it, but argued the policy would not respond to any such claims.  

Mr Donaldson said the decision should give insurers some comfort that not all building disputes will become claims.  

The court pointed out that although the bar to joining an insurer was not particularly high in NSW, plaintiffs still had to satisfy the court that they had an arguable claim under the policy.

The judgment is available here.