US issues two decisions on the LEG 3 defects exclusion – implications for the Australian market

In the absence of any legally binding authority, the United States District Court for the District of Columbia (applying Illinois law) in S. Capitol Bridgebuilders “SCB” v. Lexington Ins. Co¹(SCB v Lexington) ruled against an insurer attempting to restrict coverage under a LEG3 exclusion, after finding that it was ‘ambiguous’ and should therefore be interpreted in favour of the insured. This decision was followed, with a similar outcome, by the United States District Court of Florida on 12 January 2024 in Archer Western – De Moya Joint Venture v Ace American Insurance Co²(Archer Western v Ace).

The LEG3 exclusion is part of a series of defect exclusions prepared by London Engineering Group (LEG), a consultative body for insurers of engineering class risks. These exclusions, numbered LEG1, LEG2 and LEG3, provide different levels of coverage, with LEG3 providing the broadest level of coverage. Although LEG3 is often used in builder’s risk/contract works policies internationally until now there have been no authoritative cases providing judicial guidance on the interpretation of LEG3.

Footnotes

1. 2023 U.S. Dist. LEXIS 176573 (D.D.C. Sep. 29, 2023)
2. Docket No: CASE NO. 1:22-CV-21160-GOODMAN