Construction Insurance – “Property Damage” from a Builder Affixing a Defective Product

The Star Entertainment Sydney Properties Pty Ltd v Buildcorp Group Pty Ltd [2026] NSWSC 27

The boundary between defective work and “property damage” is regularly a disputed issue in a construction insurance context.  Under a liability policy, the builder’s liability for damage will ordinarily trigger the policy’s insuring clause.  However, the policy will usually exclude cover for the builder’s defective work, or perhaps only provide cover to a limited extent.

In recent years, the Australian Courts have grappled with the question of whether there is “property damage” when a builder attaches a defective product to an existing building.   The line of authorities traces back to Austral Plywoods, with more recent decisions in Capral and The Owners – Strata Plan No 91086.

Now, the NSW Supreme Court’s decision in The Star Entertainment Sydney Properties Pty Ltd v Buildcorp Group Pty Ltd [2026] NSWSC 27 adds another authority to the list.

Background

From 2014 to 2016, the plaintiff, Star Casino, undertook three refurbishment projects at its Sydney casino.  The work included installing ‘aluminium composite panels’ (or ACPs) to the façade.  

The ACPs were unfortunately a fire safety risk.  In 2017, after the catastrophic fire at Grenfell Tower in London, which also had aluminium composite panels, the NSW Government required Star to remove the ACPs from its casino.

Star claimed against its builder, seeking approximately $4m in damages for remediation costs.  Star was successful in its claim for the third project.  But its claim failed in relation to the first and second project.

The builder, in turn, claimed against the architect and also the sub-contractor who had installed the ACPs.  The sub-contractor was in liquidation, and so its liability insurers were joined into the proceedings. 

The sub-contractor’s insurance policy provided cover for its legal liability to pay compensation in respect of “Property Damage”, which was defined as “physical loss, destruction of or damage to tangible property”. 

The builder argued that the ACPs were defective, such that affixing them to the building and removing them caused damage.  The insurers disagreed.  They argued that there was no alteration of the physical state of the building when the ACPs were installed, and no evidence of damage caused by their removal.

Legal Analysis

The NSW Supreme Court noted the principle that damage requires:

(i)                  a physical alteration of tangible property;

(ii)                that impairs its value or usefulness, i.e. a “negative consequence”.

This is a question of fact and degree, which involves comparing the state of the property immediately before the incident with its state immediately after. 

Citing from Capral, the Court explained that there can be “Property Damage” where a defective product is incorporated into larger property, in a way that physically alters that property.  The incorporation may impair the property’s value or usefulness if the defective product must be removed at substantial cost.

Applying those principles, the Court concluded that affixing the ACPs to the building caused “Property Damage” as there was a physical alteration which impaired the building’s value or usefulness in two ways. 

“First, a significant public building now had a combustible external façade. This created a liability for those responsible for ensuring that the building complied with the law. And like any building defect, it meant that anyone interested in acquiring an interest in the building would factor in the cost of fixing it. The affixation of non-compliant ACPs to the external cladding also changed the usefulness of the building, as it reduced its fire-resistance.”

Secondly, the Court explained that:

“… it was the nature of the defect that the incorporated product must be removed. Removing the product would damage the building as it would be necessary to un-do the means by which the ACPs were affixed to the building in the first place. Presumably, the initial means of affixing the ACPs was sufficiently secure to withstand the elements. Removing the ACPs and the associated screws and caulking / mastic seal would leave screw holes and gaps, as well as cause some damage to adjacent building elements. The evidence of the three quantities surveyors establishes that removing the product and repairing the resulting damage comes at a substantial cost. It follows that there is Property Damage.”

In terms of quantum, the parties agreed that the insurers were only liable for the cost of removing the non-compliant ACPs and returning the building to a state in which new panels could be installed.  The insurers were not liable for the cost of new cladding.   

Comment

One of the crucial points about the decision worth noting is that there is no reference in the decision to any exclusions, which typically exclude the cost of repairing the insured’s defective workmanship or materials, and damage to the insured’s products.  This may limit the precedent value of the decision.

The Court’s finding that the removal of the defective product will constitute ‘damage’ is not consistent with other decisions which have characterised this as the cost of repairing or replacing the insured’s product, or defective work. 

An interesting point to consider from this decision is when did the “damage” happen, as that will determine the policy period that applies.  Did all the damage happen when the ACPs were first installed, or was any further damage suffered when the ACPs were later removed from the building?  To have two points of ‘damage’ being sustained arising from the same work or supply seems conceptually wrong.  

The Court refers to two different ways in which the value of the building was impaired.  The first relates to affixing the panels.  That caused a fire safety issue, and immediately impacted on the building’s value, as any purchaser would factor in the cost of fixing the issue.  This supports the view that “damage” happened immediately upon affixation of the defective product.

The second way relates to removing the panels from the building, which led to screw holes and gaps, as well as ‘damage’ to adjacent building elements.  However, was that new damage?  The screw holes, and gaps, may be an expected consequence of undertaking the remedial work, and the need for that remedial work arose upon affixation.   

The Court’s decision does not seem to go so far as to say there is new damage upon removal, beyond the damage already suffered upon affixation.  

Finally, while this decision adds to the line of Australian decisions, it remains to be seen whether it will be applied in New Zealand, or whether other decisions, particularly from the United Kingdom, hold sway. Ultimately, it is a question of fact whether and when “damage” is suffered in such cases.

andrew durrant is a special counsel at fee langstone