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Insurance Case Law Update

Written by Christina Bryant, Nick Gillies, Helen Macfarlane, Gennise Luen, Hannah Yiu, Anna King, Nina Thomson, Mary Battersby, Richard Belcher, Rob McStay and Ella Collis on September 19th, 2016.


Our Insurance Law team has written a new on-line publication for LexisNexis, known as Insurance Practical Guidance.  It is the first on-line insurance product of its kind in New Zealand.
 
With that now complete, we provide our regular update on the latest decisions of interest to the insurance sector.
 
Summary of cases:
 
Case Issues Decision / Principle
Blackwell v Edmonds Judd [2016] NZSC 40 Solicitors’ negligence
Failure to enquire into client objectives
Supreme Court overturned Court of Appeal’s finding that a law firm’s negligence did not cause loss.  The firm ought to have inquired into client’s objectives for setting a low purchase price on the sale of a farm; advice on legal effect of transaction alone was insufficient.  Firm liable to pay the $1m shortfall, plus interest.
Body Corporate 368533 v Napier City Council [2016] NZHC 1470 s9 Law Reform Act 1936 Leave granted under s9 of the Law Reform Act 1936 to make a claim directly against an insolvent party's insurer for alleged design defects. The insurer failed to show a sufficiently clear defence (based on a policy exclusion) to oppose its joinder as a defendant. 
The policy exclusion related to failures to meet or conform to the Building Code and any applicable standards for weathertightness.  Not all of the plaintiff’s claims arose from a failure of that type. 
Body Corporate 78462 v IAG New Zealand [2016] NZHC 320 Joinder Unsuccessful application by VXJ, a body corporate member, to be joined as a defendant or interested party.  The proceedings were brought by the body corporate against the building’s insurer over cover for earthquake damage.  VXJ wanted to be heard on reinstatement issues as these stood to affect its hospitality business.  The potential prejudice to the plaintiff’s claim outweighed any harm to VXJ not being joined into the proceedings.
Carter Holt Harvey Ltd  v Minister of Education     [2016] NZSC 95 Liability for defective building products Supreme Court declined to strike out claims in tort and under the Consumer Guarantees Act 1993 against the manufacturer of an allegedly defective cladding system.  The existence of a contractual chain, and the absence of a statutory duty, does not rule out a claim in tort.  The 10-year longstop period under s 393(2) of the Building Act 2004 does not apply to the plaintiff’s claim for defective products. 
Emmons Developments New Zealand Ltd v Mitsui Sumitomo Insurance Co Ltd [2016] NZHC 1244 Costs Award of costs against the insured following withdrawal of a summary judgment application.  As it was clear the claim was not suitable for summary judgment, the usual rule, that costs should await the final outcome, did not apply.
Gidder v IAG [2016] NZHC 948 Enforceability of a settlement agreement An agreement to proceed in good faith with rebuilding an earthquake damaged house was binding on the insurer in a summary judgment application.
The agreement about how to move forward with the claim was reached after a protracted claims process.  Subsequently, upon further scoping, the insurer sought to repair the house on the basis the cost of this fell outside the 80/20 rule for deciding whether to repair or rebuild.  However, that role was not an implied term of the agreement and the insurer was committed to rebuilding.
Holler v Osaki [2016] NZCA 130 Immunity of residential tenants to claims for negligent damage. Sections 268-270 of the Property Law Act 2007 apply to residential tenancies.  The tenant is immune from suit by the landlord (or the landlord’s insurer in a subrogated recovery) where the tenant negligently causes loss or damage to the rental property and the landlord is, or should be, insured.  There are specific exceptions listed in s 269(3).
Hotchin v New Zealand Guardian Trust [2016] NZSC 24 Requirements for coordinate liability Overturning the High Court and Court of Appeal, the Supreme Court (3-2) declined to strike out H’s contribution claim against NZGT under s 17(1)(c) of the Law Reform Act 1936.  H is seeking a contribution from NZGT towards a settlement with the FMA for alleged securities breaches in relation to Hanover Finance, for which the NZGT was the trustee. 
Taking a pragmatic approach, the majority considered that H and NZGT, as joint tortfeasors, were arguably liable for the "same damage", being the investors’ losses.  Their finding assumed NZGT should have intervened earlier, which would have to be proven at trial. 
The decision may encourage more contribution claims in multi-party disputes.
Jarden v Lumley [2016] NZCA 193 Multiple events
Top-up cover
Private insurer is not bound to accept an agreement between a home owner and EQC.  The correct level of earthquake cover cannot be determined until (a) final repair costs, and (b) the monetary effect of any EQC apportionment, are known.
LWR Durham v Vero Insurance New Zealand Ltd [2016] NZHC 826 Discovery of insurer’s reserves
 
Unsuccessful discovery application.  The insurer’s reserves were not relevant to the matters at issue.  Their possible use in cross-examination did not justify an order for discovery.
Nand v Tower Insurance [2016] NZHC 1455 Insurer refused summary judgment
Whether cover may be declined for property damage caused by son
Unsuccessful application for summary judgment by the defendant insurer.  Cover declined after property destroyed by fire following methamphetamine cooking by son (the tenant).  The son was not an "insured" and, in any event, the policy wording was not sufficiently clear to deprive an innocent co-insured of cover.  A specific exception for deliberate damage by tenants prevailed over a more general condition not to cause damage.
New Zealand Fire Service Commission v Legg [2016] NZHC 1492 Whether reasonable precautions condition breached
Whether exclusion for  loss caused by business activity applied
Claim under Forest and Rural Fires Act 1977 to recover costs of fighting a fire which originated from a property belonging to the Leggs' and which also contained refuse from their business Evolving Landscapes Ltd (the defendants).
The defendants sought indemnity from their respective insurers, who disputed cover.  The insurers were unable to rely on "reasonable precautions" conditions; the insured’s conduct was negligent but not reckless.  Nor was the Leggs’ insurer able to rely on an exclusion for loss caused by the business activities of Evolving since the fire would have likely started from the burning of domestic waste alone.
Prattley v Vero Insurance New Zealand [2016] NZCA 67
See our note on the High Court decision in the June 2015 update
 
Assessment of damage in multiple earthquake events
Whether settlement based on mistake can be set aside
Court of Appeal declined to reopen / set aside a settlement agreement for an alleged misunderstanding about the entitlement under the agreement for earthquake cover.  If there was a misunderstanding, Prattley had assumed the risk of a mistake in the agreement.  The High Court decision was upheld. 
Leave has been given to appeal to the Supreme Court, with the hearing on 10-11 October 2016.
Southern Response Unresolved Claims Group (suing by its representative Preston v Southern Response Earthquake Services Ltd.[2016] NZHC 245
 
 
Representative actions in earthquake claims
 
Declined application for leave to bring a representative action on behalf of 46 insureds with unresolved earthquake claims.  The group needed to be definable by reference to common issue(s) of fact and law, the resolution of which would fundamentally/materially advance the determination of each member’s claim.  The application/current proceeding was too wide to allow the Court to identify issues of liability on which the group could be aligned.  The decision was made without prejudice to the group’s ability to make a modified application curing the Court’s concerns, so this may not be the last word on the matter.
Weaver v HML [2016] NZHC 473 Costs uplift on Calderbank offer Defendant awarded 50% uplift on scale costs for the period following expiry of a Calderbank offer, which the plaintiff failed to beat at trial.
The plaintiff's failure to respond to (let alone accept) the Calderbank was also considered unreasonable given: the defendants were willing to enter into settlement discussions; the Court encouraged the plaintiff to explore settlement; and the amount in dispute (for failure of building remedial works) was modest in comparison to the costs of multi-party litigation.
Quake Outcasts v Minister for Canterbury Earthquake recovery [2016] NZHC 1959 Judicial review of revised offers for uninsured Canterbury properties The Crown’s revised offer to purchase uninsured residential properties for 100% of land value (and nothing for improvements) was lawfully made.  The Minister was within his rights to consider insurance status, including fairness to those in the red zone and those uninsured in greater Christchurch, and the moral hazard of dis-incentivising people to hold insurance when formulating a compensation offer.

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.
 
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