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Insurance Case Law Update

Written by Christina Bryant, Nick Gillies, Anna King, Nina Thomson, Mary Battersby and Richard Belcher on December 17th, 2015.


In this insurance law update, we summarise significant decisions released in the second half of 2015.  
 
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.
 
Case Issues Decision / Principle
Southern Response v Avonside Holdings Ltd [2015] NZSC 110 Assessment of notional costs of rebuild Right to acquire another property capped at the cost of rebuilding the insured property on the existing site.  Notional cost of rebuild includes an estimate for contingencies and professional fees.
Carter Holt Harvey Ltd v Minister of Education (CA) Product liability Refusal to strike out claims in tort and under the Consumer Guarantees Act against a manufacturer of building products by the end-consumer.  Building Act 10 year limitation longstop does not apply to product manufacture and supply.  Leave granted to appeal to Supreme Court. 
Tower Insurance Ltd v Domenico Trustee Ltd (CA) Insurer’s right of election Finding of election by delay not available on the pleadings, judgment set aside and proceeding remitted to High Court.  Reservation expressed as to whether Court can itself make an election for an insurer by reason of delay.
JCS Cost Management Ltd v QBE (CA) Interpretation of a professional indemnity policy Policy required a causal nexus between the claim made and the professional services.  Definition of services did not include free advice given to a client to secure prospective work.
Vero Liability Insurance Ltd v Heartland Bank Ltd (formerly Marac Finance Ltd) [2015] NZCA 288 and [2015] NZSC 168 Commercial Crime Policy Policy covered direct financial losses consequent on act(s) of dishonesty by an employee with a clear intent to cause loss to the insured.  Appeal allowed: no clear intent to cause loss to Marac.  Loans were made dishonestly but in the belief that continued trading by the debtor would lead to repayment of all that was owed.  No direct losses during the policy period: advances made were less than repayments.  Supreme Court declined leave to appeal.
HHR Christchurch NTL Ltd v Crystal Imports Ltd [2015] NZCA 283 Interpretation of a composite material damage policy
Estoppel
 
Tenant requested an insurance certificate to confirm that the landlord’s interest was covered by the tenant’s material damage policy.  Insurer provided the requested certificate.  Dispute as to whether the policy covered the landlord’s interest.  Tenant and insurer estopped from denying cover.   
AAI Ltd v 92 Lichfield Ltd (in rec & liq) [2015] NZCA 559 Use of statutory demand procedure
Contract interpretation
 
AAI applied to set aside a statutory demand based on a debt allegedly owed under a settlement agreement.  Substantial dispute as to terms of the agreement (based on the factual matrix) and whether an agreement had been concluded.  The statutory demand was an abuse of process, as the debt was known to be subject to a genuine dispute.
Northern Farm Services Ltd v Codylan Farms Ltd [2015] NZCA 567 Test for breach of professional services contract Performance is measured by common professional or industry practice, provided that practice can withstand logical scrutiny on an assessment of relative risks and benefits. 
Parkin v Vero Insurance New Zealand Ltd (HC) Repair to standard “when new”
Breach of Fair Insurance Code
If an element has only a functional purpose, a repair which restores function to a “when new” condition is sufficient.  “Jacking and packing” concealed foundations met this repair standard.  Alleged failure to explain policy entitlements not pleaded or made out on the facts.
C&S Kelly Properties Ltd v EQC (HC) EQC right of election
Exercise of discretionary rights
EQC’s statutory right of election is equivalent to a contractual right.  EQC’s right to elect to reinstate was lost through delay.  Insured given option of either a cash settlement or reinstatement. 
Miah v National Mutual Life [2015] NZHC 993 Ownership of life insurance policy Life insurance policy jointly owned by husband and wife.  Wife died following bankruptcy of husband.  Official Assignee refused to assign policy on his release from bankruptcy.  Husband sued insurer as executor of his wife’s estate.  Held: the benefit of the policy is owned solely by the surviving spouse, whose rights had vested in the Official Assignee.
Southland Indoor Leisure Centre Charitable Trust v Invercargill CC [2015] NZHC 1983 Duty of care owed by councils for defects in commercial buildings
Councils’ ability to limit liability in contract
GST payable in subrogated claims
The Trust successfully sued the Council for the Stadium Southland roof collapse.  The action was a subrogated claim, and the amount recovered by the Trust and paid to the insurer would be subject to GST.  The Trust sought to recover GST on top of damages from the Council.  Held: 1) a damages award is not a taxable supply 2) as the Trust is GST-registered, its loss is limited to the net cost of repairs and lost rent 3) a damages award is not a payment under the insurance contract (the Trust’s right to damages is independent of that contract).  The payment from the Trust to the insurer is received in a different context, which justifies a different tax treatment.  Subrogated recoveries are a source of revenue in the insurer’s business.
Banicevich v AMP Services (NZ) Ltd [2015] NZHC 2273 Avoidance of policy for breach of utmost good faith, disclosure and fair dealing Insurance agent took out trauma cover to generate commission income while in financial difficulty and did not intend to pay premiums on the due date.  Policy avoided as a result.  Policy also validly cancelled and did not cover claimant’s disease.
Newbery v AA Insurance Ltd [2015] NZHC 2457 Contract interpretation Contents policy restricted cover for works of art, including ornaments and sculptures, not specified in the policy schedule.  Reasonable contracting parties would understand “ornaments” (but not “sculptures”) to include Lladro figurines.
Walters Law v AIG Insurance New Zealand Ltd [2015] NZHC 2701 Requirements for advance notification Firm acted for Blue Chip and investors on a number of property settlements.  In anticipation of a change to its professional indemnity insurance, the firm made an advance notification of all Blue Chip transactions.  Insufficient information in notice to establish a substantial link between notification and claim made; summary judgment declined.
Topics: Insurance Law
 
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