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Insurance Case Law Update

Written by Christina Bryant, Nick Gillies, Stephanie Corban, Gennise Luen and Nina Thomson on July 3rd, 2015.


In this update, we summarise significant decisions released in the first half of 2015.  
 
It has been a busy June, with various substantive judgments released by the High Court and Court of Appeal.  Judgments given on preliminary questions are now being tested against findings of fact.  The decision of Kós J in Jarden v Lumley General Insurance (NZ) Ltd highlights the importance of factual evidence and the evidential standards that must be met: “Tea leaves are no substitute for testimony”. 
 
A more extensive discussion of particular judgments is linked to the case names highlighted in the summary table. For further information on issues raised in this update, please contact the Hesketh Henry insurance law team.
 
Summary of cases:
 
Case Issues Decision / Principle
Quake Outcasts v Minister for CER [2015] NZSC 27 Lawfulness of Crown offers to purchase uninsured and vacant red zone land Decision to offer to purchase uninsured and vacant land for 50% of its 2007 rateable value was not lawfully made and requires reconsideration.  Crown should not have used its prerogative to create the red zone, but declaration would serve no purpose.
New Zealand Fire Service Commission v Insurance Brokers Association of New Zealand Inc [2015] NZSC 59 Calculation of fire service levies under Fire Service Act 1975 
 
SC overturned the long standing practice of calculating fire service levies on the indemnity value nominated in the insurance policy, rather than the actual indemnity value.  A composite policy held by eight companies was, on its terms, to be treated as eight contracts, each with a separate indemnity sum on which the levy is payable.  NZFSC agreed the SC’s ruling should not have retroactive effect.
Vero Insurance New Zealand Ltd v Morrison (CA) Assessment of damage in multiple earthquake events Consideration of the weight to be given to computer modelling evidence when attributing damage to a particular earthquake event.
Medical Assurance Society of NZ Ltd v East (CA) Payment of repair costs
Meaning of “as new”
If insured elected to restore, insurer’s obligation was to meet actual costs as they were incurred.  “As new” means in accordance with current building consent requirements.
Kraal v EQC [2015] NZCA 13, [2015] 2 NZLR 589, [2015] 18 ANZ Insurance Cases 62-055 Whether loss of a right to occupy due to a risk of future damage is “physical loss or damage to the property” “Red Zone” property owners unable to occupy home because of risk of rock falls from neighbouring land, claimed loss of possession and use constituted “natural disaster damage” under the EQC Act and “damage” under a private insurance policy.  CA upheld HC judgment that physical damage to the land or buildings is required.  Deprivation of use does not qualify.  Not a test case by EQC: costs follow the event.
EQC v Whiting [2015] NZCA 144 Costs on discontinuance If a defendant pays a claim following the issue of proceedings, and the plaintiff discontinues the proceeding, the Court may – at its discretion – award costs to the plaintiff.
Body Corporate 326421 v Auckland Council (HC) Leaky buildings: response of PI policy to claims with multiple causes Claim against main contractor for design and construction defects in the Nautilus apartment tower.  Defects caused by both design and construction errors: cover excluded.
Domenico Trustee Ltd v Tower Insurance Ltd (HC) Insurer’s right of election Insurer did not elect whether to reinstate or make a payment while negotiations and proceedings were underway.  Delay was not reasonable; law imposed an election to pay the indemnity value subject to any increase for rebuilding costs actually incurred.
Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd (HC) Assessment of damage in multiple earthquake events
Whether settlement based on a misunderstanding can be set aside
Measure of loss under an indemnity policy is the market value of the building, if the insured does not intend to reinstate the building.
No basis to set aside a full and final settlement in circumstances where the insured received independent advice and the insurer acted transparently and in good faith.
Body Corporate 346930 v Argon Construction Ltd [2015] NZHC 129 Leaky buildings: liability of Building Industry Authority for regulation of building certifiers BIA does not owe a duty of care in tort to investigate whether a building certifier is acting within the certifier’s scope of authority in circumstances where there is cause to query the certifier’s conduct.  BIA may owe a duty to keep the register of building certifiers up to date.
Houghton v Saunders [2015] NZHC 548 Litigation funders and costs The involvement of litigation funders does not in itself give rise to a right to indemnity costs.  Funders jointly and severally liable for a costs order against the funded party.  A contractual cap on costs in the funding agreement was held to limit the funder’s liability to other parties for their costs.
McCullagh v Underwriters Severally [2015] NZHC 1384 Extra territorial reach of s 9 of the Law Reform Act 1936 Amounts payable by overseas-based underwriters under policies of insurance are not subject to a charge under s 9.  Charge does not descend when payment is made to an insured within NZ.
AAI Ltd v 92 Lichfield St (in rec and liq) [2015] NZHC 1421 Whether a settlement offer was “subject to contract” Offer included a statement that if the settlement was acceptable, a form of discharge would be sent for the appropriate sum.  A dispute arose as to the appropriate sum and the discharge terms.  Parties intended to be bound when the offer was accepted; contract was not dependent on execution of the discharge.  Insured entitled to issue statutory demand for the settlement sum.
Jarden v Lumley General Insurance (NZ) Ltd [2015] NZHC 1427 Causation and proof House with pre-existing construction defects was damaged in two earthquake events.  Plaintiff has burden of proving cause of damage on the balance of probabilities.
Topics: Insurance Law
 
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