28.04.2014

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
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

Efficiency in Focus: The High Court at Auckland’s New Commercial List
On 13 June 2025, Justice Sally Fitzgerald announced the introduction of a new Auckland High Court Commercial List (Commercial List) which is expected to come into operation in October 2025.  Justice ...
17.07.2025 Posted in Disputes
Supreme Court Defines the Scope of Duty and Damages in Professional Negligence: Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68
In a significant judgment with implications for professionals who provide advice or information, the Supreme Court of New Zealand in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68 has clarifie...
15.07.2025 Posted in Disputes
construction meeting e
Referring to Other Documents and When to Bring Proceedings: The High Court Provides Useful Guidance in Issuing and Relying on Payment Schedules
The High Court has provided useful guidance for contractors in issuing and assessing payment schedules under the Construction Contracts Act 2002 (CCA) in its recent decisions in Chillex Services Ltd v...
10.07.2025 Posted in Construction
Rewriting the Risk: Lessons from John Sisk & Son Ltd v Capital & Centric (Rose) Ltd [2025] EWHC 594 (TCC)
A recent decision by the English High Court, John Sisk & Son Ltd v Capital & Centric (Rose) Ltd [2025] EWHC 594 (TCC), considered the interpretation of a risk allocation provision under a besp...
09.07.2025 Posted in Construction & Disputes
Can Contractors Terminate for Repeated Late Payment? Key Lessons from Providence v Hexagon
The decision of the English Court of Appeal in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962 provides important guidance on a contractor’s termination right...
09.07.2025 Posted in Construction & Disputes
Property
Make Your Premises Good Again
With all the time, effort and cost that goes into taking on a new lease of commercial premises, what happens when it comes time to move on can seem unimportant. It is not surprising, then that make-go...
25.06.2025 Posted in Property
Flooded car
Flooding due to overland flow paths and damaged drainage
Persistent heavy rainfall across the country often results in damage to property due to flooding caused by overland flow paths and defective drainage.  But who is responsible for the cost of the dama...
17.06.2025 Posted in Climate Change & Property
SEND AN ENQUIRY
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.