The Government’s announcement earlier this week that it will not appeal the Court of Appeal decision in Southern Response Earthquake Services Ltd[i] v Dodds means that the Dodds will finally receive a sum of money which should have been included in the cash settlement paid to them in December 2013 to settle their claim for earthquake damage to their home.
The decision is also of great significance for the approximately 3,000 other Southern Response policyholders involved in a class action against Southern Response who allege they were treated in the same way. These cases concern rebuild costing information which Southern Response provided to policyholders which excluded demolition, professional fees and a contingency allowance.
In 2012 Southern Response provided the Dodds with information about the amount they were entitled to receive under the Buy Another House option in their policy. That policy entitlement was limited to the amount it would cost Southern Response to rebuild the Dodds’ house at the insured address. The rebuild costing given to the Dodds excluded demolition, professional fees and contingency allowance (“the abridged costing”). In late 2013 the Dodds chose to settle their claim under the Buy Another House Option.
In July 2013 the High Court delivered its decision in Avonside Holdings Ltd v Southern Response and held that demolition costs, certain professional fees and a contingency allowance should not be paid under the Buy Another House Option. While the Court of Appeal overturned that decision in October 2014 and in 2015 the Supreme Court upheld the Court of Appeal decision, at the point the Dodds settled their policy claim with Southern Response, Southern Response had High Court authority supporting the general understanding it took of its liability under the Buy Another House option.
In 2015 the Dodds made a Privacy Act request to Southern Response and received a complete copy of a rebuild costing including professional fees and a project contingency. In February 2018 the Dodds commenced proceedings against Southern Response claiming misrepresentation, misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986 (“FTA”), and breach of the insurer’s implied duty of good faith.
The High Court decision
Southern Response argued the costing information provided to the Dodds was not false or misleading as it was consistent with the then applicable High Court decision in Avonside. Justice Gendall found, however, that Southern Response had falsely represented the figure given to the Dodds was the full amount it would cost to rebuild the Dodds’ house and that the abridged costing was the final and only full rebuild costing Southern Response had received. His Honour also found the Dodds had relied upon the misrepresentation to enter into the settlement agreement. Further, Justice Gendall held a reasonable person in the Dodds’ situation would likely have been misled or deceived about the actual cost of rebuilding their house and this meant Southern Response had engaged in misleading and deceptive conduct which had caused the Dodds to suffer a loss.
Given the above, the Judge found it unnecessary to express a definitive view on whether Southern response had breached any duty of good faith, which was an alternative cause of action, but he indicated he would have so found if required.
The Court refused an award of general damages on the basis that the reasonably high threshold or general damages claims had not been reached.
The Court of Appeal decision
Apart from reducing the damages award due to a calculation error, the Court of Appeal dismissed Southern Response’s appeal and the Dodds’ cross appeal.
The Court found there were 3 relevant representations made to the Dodds and all three were misrepresentations:
- Southern Response’s estimate of the cost of rebuilding the costs on its present site was $895,937.
- The only relevant rebuild estimate Southern Response had received was the abridged costing.
- The Dodds’ maximum entitlement under the policy if they chose the Buy Another House option was the amount calculated on the basis of the abridged costing.
The first two representations were given as statements of fact and the third representation was not presented as a statement of opinion. The Court made it clear that if an insurer makes statements about matters which are open to challenge, and it is reasonable for the insured to rely on the insurer’s statements, a subsequent finding that the insurer was wrong can expose the insurer to liability.
By making the 3 misrepresentations Southern Response engaged in misleading and deceptive conduct under s.9 of the FTA.
Award of damages
The Court was satisfied that the approach to damages adopted by the High Court was available under the FTA and Contract and Commercial Law Act 2017. The loss actually and reasonably suffered by the Dodds was the difference between the true value of their rights under the policy and the sum they were persuaded to take in exchange for a surrender of those rights.
The Court agreed with the High Court Judge that the evidence did not establish a causal link between the breach complained of and any inconvenience or stress suffered by them. The lack of evidence of any material incremental stress meant the Court did not need to consider the circumstances in which general damages for stress and inconvenience can be awarded in contract.
Duty of good faith
While the Court of Appeal did not need to consider the alternative cause of action, the Court’s remarks are notable. The Court stated “it does not follow from the fact that a contract of insurance can be described as a contract of good faith that there is an implied term of good faith in every insurance contract, that applies across the board to all aspects of the parties’ dealings in connection with the contract.” Instead, the Court observed the need to consider the specific context of the parties’ dealings with each other and emphasized it is likely to be “more productive to consider what obligations are implied by law, or can be implied as a matter of fact, in relation to particular aspects of the dealings between the parties.”
The Court noted that this was the approach it had recently taken in Taylor v Asteron Life Ltd.
In light of this, when an allegation that either an insurer or insured has breached the duty of good faith owed to the other, a very detailed analysis of the factual events will be necessary. The Court’s recent judgments demonstrate the care required in undertaking this analysis.
If you have any questions about the issues raised by this judgment or an insurance issue, please get in touch with our Insurance disputes team , or your usual contact at Hesketh Henry.
[i] Southern Response is the government-owned company with responsibility for settling claims by AMI Insurance policy holders for Canterbury earthquake damage that occurred prior to 5 April 2012.