9.05.2018

Crystal Imports Ltd v Certain Underwriters at Lloyds of London [2013] NZHC 3513

Like Ridgecrest, Marriott and Wild South,[1] this claim concerns damage sustained by an insured property in successive earthquake events.  The question arising in all of these claims is whether the insured can claim the cost of remedying damage caused by each earthquake.  Crystal Imports is of particular interest due to Cooper J’s decision that the doctrine of merger applied to the material damage policy at issue in that proceeding.

Crystal Imports owned five properties in Christchurch damaged in the 4 September 2010 earthquake and the 22 February 2011 earthquake.  The insurer had paid $70,000 towards investigation and repair when the February earthquake struck, but the majority of the repairs had not been done.  Three of the five properties were subsequently demolished.

The insurance policy included a provision for the automatic reinstatement of cover following an event of loss, unless either party gave written notice to the contrary.  Notice was not given in the period between the two earthquakes.

The Court held that the insured’s right to be indemnified by the insurer arose when physical damage to the property occurred during each earthquake.  Cover was reinstated at the same time.   Subsequent notice to the contrary would mean that the reinstatement of cover was not effective, but notice had to be given before a further loss-causing event took place.

The insured was accordingly entitled to have the property reinstated after each earthquake up to the maximum limit of cover.  However, the Court held that the doctrine of merger means that a partial loss which is not repaired merges into a subsequent total loss.  As a result, the insured was only entitled to claim for the total loss in the February event, although the insurer remained liable for the cost of investigations and repairs which had already been incurred.

The doctrine of merger has only previously been applied in marine insurance cases, where the obligation to pay for unrepaired damage to a vessel does not arise until the repairs are undertaken.  Cooper J disagreed with the High Court judgment in Ridgecrest, where Dobson J took the view that merger does not apply to wider categories of material damage insurance.  The Court of Appeal in Ridgecrest did not express a view, but the issue was the subject of extensive argument before the Supreme Court.  The Supreme Court’s judgment, which has yet to be delivered, may clarify the issue of whether merger applies to event-based policies, where liability arises when the damage is incurred.

Crystal Imports also reviewed the meaning and effect of an Average provision in the policy.  Average clauses address under-insurance, by reducing the amount payable under the policy for loss in proportion to the difference between the sum insured and the true value of the property.  The dispute in Crystal Imports concerned the basis on which the true value should be calculated; the insured asserted the value was the depreciated replacement cost at the time of the February earthquake ($4,580,000), the insurer said it was the full replacement cost on the same date ($9,569,320).  The former measure would limit recovery to 67% of the loss, the latter to 32% of the loss.

The judge held that the appropriate measure depended on whether Crystal Imports elected to reinstate the property.  The policy included a reinstatement memorandum (“new for old” cover), which did not apply if the insurer chose not to reinstate.  The policy did not specify the method by which the indemnity would be calculated in that event.  The Court held that “generally applicable principles” meant that the indemnity would be based on the depreciated replacement cost of the property or the market value loss.  If Crystal Imports elected not to reinstate, the true value of the property for applying Average was the depreciated replacement cost.

Back to Summary Table

 


[1] Ridgecrest New Zealand Ltd v IAG New Zealand [2013] NZCA 291, [2013] 3 NZLR 618 (CA), Marriott v Vero Insurance New Zealand Ltd [2013] NZHC 3120, Wild South Holdings Ltd v QBE Insurance (International) Ltd [2013] NZHC 2781
Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Bereavement Leave Confirmed for Miscarriages and Stillbirths 
New Zealand has become the second country in the world to pass legislation that provides bereavement leave for mothers and their partners after a miscarriage or stillbirth.
26.03.2021 Posted in Business Advice & Employment Law
Court of Appeal Overturns Employment Court’s Decision in Tourism Holdings
Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment (Tourism Holdings) is the first decision in which the Employment Court considered section 8(2) of the Holidays Act 2003 (Act). The Court of Appeal has recently overturned this decision.
26.03.2021 Posted in Business Advice & Employment Law
Guarantees must be in writing and signed to be enforceable
For a guarantee to be enforceable, the requirements set out in section 27 of the Property Law Act 2007 (Act) must be strictly complied with.  This is what the NZSC held in Brougham v Regan. The key i...
19.03.2021 Posted in Business Advice
UK Supreme Court Delivers Decision on Uber Driver Employment Status
The distinction between employee and independent contractor can be complex, particularly where the nature of the business model blurs the lines of standard employment practices.
16.03.2021 Posted in Business Advice & Employment Law
Holidays Act Overhaul – Taskforce Recommendations
There have been calls for an amendment of the Holidays Act 2003 (Act) for some time.
16.03.2021 Posted in Business Advice & Employment Law
Unwanted Land Covenants and Easements: Seeking a Court Order
The Supreme Court recently considered an application by Synlait Milk to modify a land covenant restricting the burdened land use to farming, grazing and forestry operation to protect the ability of the benefited land owner to develop a quarry.  This article looks at the circumstances in which the courts might give relief to parties in an application to extinguish or modify a covenant or easement.
15.03.2021 Posted in Property Law
New ICC Arbitration Rules 2021 come into force
The revised International Chamber of Commerce (ICC) Arbitration Rules for 2021 (2021 Rules) have now come into force and apply to all ICC arbitrations begun after 1 January 2021.  While the new Rules...
10.03.2021 Posted in Litigation & Dispute Resolution
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.
-->