18.04.2017

Insurance Case Law Update April 2017

Our Insurance Law team has written a new publication for LexisNexis, known as Insurance Practical Guidance.  This is the first on-line insurance law product of its kind in New Zealand.

This update provides a summary of judgments released over the past six months.  A more extensive discussion of particular judgments is linked to 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
Christchurch Residential Rentals Ltd v Stanton [2016] NZHC 2936 Authority to settle earthquake claims CRRL purchased 18 earthquake-damaged properties from Stanton.  Declaration that CRRL is entitled to settle EQC and insurance claims on behalf of the vendor, provided consent is obtained from Westpac as mortgagee.
Kristinsson v Southern Response [2017] NZHC 456 Joint review of experts Discussion of general approach to expert conferences in the earthquake list.  A layered approach may be applied in more complex cases: surveyor excluded from conference of engineers.
Miah v National Mutual [2016] NZCA 590, [2017] 2 NZLR 241 (CA) Life insurance

Joint policy holders

Successful appeal against summary judgment.  A husband and wife owned a life policy for $2m, payable on the death of the wife.  The Court held it was arguable that the policy was owned by the husband and wife as joint tenants, that the tenancy was severed by the husband’s bankruptcy, and a half share of the proceeds belonged to the wife’s estate.  Interpretation of the policy was left for trial, but the judgment shows that the benefit of a life policy may not always pass to the survivor.
Myall v Tower Insurance [2017] NZHC 251 Rebuild to “as when new” standard The insurer’s primary obligation was to meet the cost of rebuilding the house “to the same condition and extent as when new”.  The Court held these words allow some tolerance from a requirement to build the house (in this case, a substantial historic homestead) to the exact specifications as when new.  The rebuild must be equal, but not necessarily identical, to the original building.
Prattley v Vero [2016] NZSC 158, [2016] 19 ANZ Insurance Cases 62-121, [2017] NZCCLR 1 Multiple earthquake events

Contractual Mistakes Act

The Supreme Court dismissed an appeal by Prattley challenging a “full and final” settlement agreement.  The parties had correctly approached the calculation of the indemnity sum payable under the policy.  Accordingly, there was no common mistake as to the correct measure of indemnity and no entitlement to relief.  Restatement of the “indemnity principle” for damage caused by successive earthquakes.
Quake Outcasts v Minister for CER [2016] NZSC 166 Crown offer to purchase uninsured and uninsurable properties Application to appeal directly from High Court to Supreme Court dismissed.  No basis to depart from usual hierarchy for appeals.
Robinson v IAG [2016] NZHC 3149 Claim by a bankrupt to sue on a policy Application by bankrupt under s 119(2) of the Insolvency Act 2006 to vest a right to sue on an insurance policy, after that right had been disclaimed by the Official Assignee.  Dismissed – unfair for right to vest in view of complex factual history, the insolvency of the prospective plaintiffs and the likelihood that the claim would fail.
Southern Response Unresolved Claims Group v Southern Response [2016] NZHC 3105 Representative action Successful reformulated application for leave to bring a representative action on behalf of 41 insureds with residential earthquake claims (for original decision, click here).  There was a defining common and central allegation that Southern Response had adopted a co-ordinated strategy to avoid its proper obligations to claimants.  The judgment is being appealed.

Group members may have been partially misled by statements on the website promoting the proceeding.  An explanatory statement (to be approved by the Court) is to be provided, giving members a further “cooling off” period.

Tekoa Trust v Stewart [2016] NZDC 25578 Intentional damage by tenant to residential property. District Court declined to follow Holler v Osaki and held that damage caused to carpets from dog urine was intentional.  The tenant (who was not allowed dogs) continued to have dogs in the house after initial incidents, when further damage was virtually certain.  Insured damage cannot be recovered from a tenant unless it is intentional, an imprisonable offence, or unless insurance money is not recoverable due to the tenant’s act or omission.
Trustees Executors Ltd v Fund Managers Canterbury Ltd [2016] NZHC 2194 Application of an exclusion for professional services in a D&O policy A fund manager provided monthly certificates from its directors to the trustee of the fund.  The certificates formed part of the fund manager’s professional services to the trustee, and the D&O policy did not respond.  The directors were entitled to cover under the fund manager’s PI policy.
Witty v Rout [2016] NZHC 3016 Trustee’s duty to insure The insurance over a deceased’s property was allowed to lapse, due to the oversight of the estate’s solicitor and trustee, and the property was uninsured during the 2011 Canterbury earthquake sequence. The house was damaged and was sold for a reduced value.  The solicitor, as trustee of the estate, had a duty to preserve trust property and secure it from risk. While this will not always translate into a duty to insure, there was sufficient cash in the estate to pay premium and it was reasonable to insure in light of the September 2010 earthquake. The Court awarded damages of $205,000, being the loss suffered on the sale of the property, plus indemnity costs.
Young v Tower Insurance [2016] NZHC 2956 Novel repair methodology

Economics of repair

Contractual duty of good faith

Policy required any repair to use construction methods commonly in use at the date of loss.  Tower’s proposed repair methodology was novel and untried, and a rebuild was accordingly required.  It was unclear whether repair was an economically viable option for a reasonable insurer.  Tower breached its contractual duty of good faith by withholding an early report recommending a rebuild; nominal award of $5,000 in general damages.
Zurich v Withers [2016] NZCA 618 Professional Indemnity – accountants

Dishonesty exclusion

 Zurich was entitled to rely on a dishonesty exclusion to decline cover for liability under the Fair Trading Act 1986.  The court was prepared to assess dishonesty on appeal because the material facts were not in dispute and there were no questions of credibility.  Significant weight was placed on the insured’s breach of professional accounting standards (which prohibited misleading and deceptive statements) when determining that he had been dishonest when breaching undertakings.
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