Mercantile Mutual Insurance (Australia) Ltd v Moulding (No 2)

Mercantile Mutual Insurance (Australia) Ltd appealed to the New South Wales Court of Appeal against a decision of the Supreme Court of New South Wales concerning a claim made by Mr Moulding and his wife under a home building insurance policy. The dispute centred on whether the insurer was liable for the cost of rectifying defective work carried out by a builder on the Mouldings' property.

The primary legal issues before the Court of Appeal were whether the policy covered the cost of rectifying defective workmanship, and if so, whether the insurer was entitled to rely on certain exclusions within the policy, specifically those relating to faulty design and latent defects. The court also considered the proper measure of damages in circumstances where rectification work was required.

The Court of Appeal, in dismissing the appeal, held that the insurance policy, properly construed, covered the cost of rectifying defective workmanship, even if that defect arose from faulty design or was a latent defect. The court reasoned that the policy was intended to provide cover for the insured against the financial consequences of defective building work, and the exclusions were not sufficiently clear or broad to exclude such cover. The court affirmed that the measure of damages should be the cost of rectification, provided it was reasonable and proportionate to the defect.