This is an exclusion in most construction and liability policies these days. It stemmed from the leaky homes crisis and effectively excludes any claim where water has penetrated a building through its external envelope. This sucks for trades who are working on this envelope, such as roofers, external waterproofers and those installing cladding. It has even been extended to deny claims from people who have accidentally penetrated existing structures while doing some small job, such as installing a heat pump, TV aerial or skylight. This is a typical example:
We will not indemnify You for any claim under this Policy in respect of or alleging Personal Injury or Property Damage arising out of:
a) the failure or alleged failure of any building or structure to meet or conform to the requirements of the New Zealand Building Code contained in the First Schedule of the Building Regulations 1992 or any applicable New Zealand Standard (or amended or substituted Regulation or Standard) in relation to leaks, water penetration, weatherproofing, moisture, or any effective water exit or control system; or
b) mould, fungi, mildew, rot, decay, gradual deterioration, microorganisms, bacteria, protozoa or any similar or like forms in any building or structure.
Unfortunately, insurers are unwilling to take on the risk of water penetration following the leaky homes crisis, so damage caused in this way is not insured. They take the view that any penetration that lets water in is a breach of E2, which triggers the exclusion.
We always work to minimise the application of this clause to our clients’ claims, but this is proving increasingly difficult.