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Insurance Case Law Update

Written by Brett Morley, Christina Bryant and Shukti Sharma on April 28th, 2014.


In this update, we summarise insurance decisions issued at the close of 2013 and in first quarter of 2014.  Litigation arising from the Canterbury earthquakes continues to dominate the insurance landscape, with the Supreme Court granting leave for the appeal of many of the judgments discussed in our December report.
 
There have now been several decisions dealing with question of whether an insured can claim for damage sustained in successive earthquakes.  This is a vexed issue in claims where the building is underinsured or has ultimately been destroyed.  There are conflicting High Court decisions on whether damage suffered in an earlier event merges in the final destruction of the building.  The scope of the doctrine of merger was debated before the Supreme Court on 10 March 2014 at the hearing of Ridgecrest New Zealand Ltd v IAG New Zealand Ltd.  The Court’s judgment on the issue is awaited.
 
Detailed information on judgments having a wider impact on the insurance sector is linked to the case names highlighted in the summary table.  For further information on any of the issues raised in this update, please contact the Hesketh Henry insurance law team.

Summary Table 
 
Case Issues Decision / Principle
BFSL 2007 Ltd v Steigrad (SC) Application of s9 of the Law Reform Act 1936 to costs-inclusive policies The statutory charge under s 9(1) attaches to insurance proceeds that could be paid out under a liability policy.  The insurer is at risk if it pays out defence costs under a costs-inclusive policy and the maximum level of cover is not sufficient to satisfy both the obligation to pay defence costs and the obligation to indemnify the insured if liability is established in the underlying claim.
Skyward Aviation 2008 Ltd v Tower Insurance Ltd (CA) Interpretation of Tower’s Provider House Policy The insured, not the insurer, has the right to elect to reinstate the property and to choose between options for reinstatement.  If the insured elects to purchase a replacement property, he or she is not obliged to purchase a property which is comparable with the original property when new.
Mr V  v Sovereign Assurance Co Ltd (HC) How insurers should approach an assessment of entitlement to a benefit Sovereign made an assessment that an insured was not eligible for a benefit under an income protection policy.  The judgment lists the principles the insurer must apply when exercising a contractual power to determine “to its satisfaction” whether a benefit should be paid.
Marriott v Vero Insurance New Zealand Ltd (HC) Entitlement to recover damage caused by successive earthquakes
Automatic reinstatement of cover
When a property is destroyed
There was an automatic reinstatement of cover after each successive earthquake.  Notice to prevent the automatic reinstatement had to be given before a further loss-causing event took place, but there was no implied term requiring notice to be given within a “reasonable period”.  Under the terms of the policy, the insurer could elect to pay the depreciated replacement cost of the buildings and had no obligation to pay for repairs unless and until those costs were incurred.   “Destroyed” did not mean uneconomic to repair (a constructive total loss).
Crystal Imports Ltd v Lloyds (HC) Entitlement to recover damage caused by successive earthquakes
Automatic reinstatement of cover
Application of the doctrine of merger
There was an automatic reinstatement of cover after each successive earthquake.  Notice to prevent the automatic reinstatement had to be given before a further loss-causing event took place.  The Court applied the doctrine of merger, with the result that the insured was only entitled to claim for the destruction of the building.
Sydenham Recycling Ltd v IAG New Zealand Ltd [2013] NZHC 3518 Scope of an additional increased cost of working provision under a business interruption policy The purpose of the additional increased cost of working provision was to insure SRL for business interruption during the one year indemnity period.  A claim for moving and re-housing the business would fall within the scope and purpose of the policy if there was a pressing need to relocate.  However, the existing premises were safe to occupy due to temporary repairs undertaken by the insurer and SRL had successfully operated its business from those premises throughout the indemnity period.
Vero Insurance New Zealand Ltd v Weathertight Homes Tribunal [2014] NZHC 342 Scope and exercise of the WHT’s jurisdiction to remove a party from proceedings Successful application for judicial review of tribunal member’s decision not to remove Vero as a party.  WHT had jurisdiction to determine at an interlocutory stage which insurance policy applied and to construe an exclusion provision in that policy in circumstances where there was no genuine factual dispute.  Section 11 of the Insurance Law Reform Act 1977 does not apply to exclusion clauses specifying the kind of loss or quantum of loss to which cover does not apply.
Angus v Ace Insurance Ltd [2014] NZHC 258 Whether a fire was deliberately lit by the insured The balance of probabilities is the standard of proof in civil cases of suspected arson.  The judge noted that the appearance of witnesses is of limited value in determining truth.  Where possible, conclusions should be reasoned on the basis of contemporary materials, objectively established facts and the apparent logic of events.
 
Progress of Appeals
 
Case Issues Decision / Principle
Ridgecrest New Zealand Ltd  v IAG New Zealand Ltd [2013] NZSC 108 Whether an insured is entitled to be paid for damage caused by successive earthquakes up to the limit of the sum insured The hearing of the appeal to the Supreme Court took place on 10 March 2014.  Judgment has been reserved.  To read our summary of the Court of Appeal decision click here.
Jackson v IAG New Zealand Ltd [2014] NZSC 12 Whether “in connection with” requires a direct causal connection
Dishonesty exclusion
Leave to appeal to the Supreme Court declined.  The Supreme Court confirmed the test for dishonesty is a mixed objective-subjective test: a person’s subjective knowledge is measured against “normally acceptable standards”.  To read our summary of the Court of Appeal decision click here.
University of Canterbury v Insurance Council of New Zealand Inc [2014] NZSC 13 Whether local authorities can require owners to increase the seismic strength of buildings above 33% NBS Leave to appeal to the Supreme Court granted.  To read our summary of the Court of Appeal decision click here.
Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand Ltd [2014] NZSC 19 Whether sum insured was inclusive or exclusive of EQC cover Leave to appeal to the Supreme Court granted.  To read our summary of the Court of Appeal decision click here.
 
Fowler Developments Ltd v Minister for Canterbury Earthquake Recovery Lawfulness of 50% rateable offer to owners of vacant land and uninsured improved properties in the red zone Fowler Developments Ltd and the Quake Outcasts have applied for leave to appeal; the Supreme Court’s decision on the application for leave has yet to be delivered.  To read our summary of the Court of Appeal decision click here.
 
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