Mr and Mrs Jarden lived on a lifestyle property north of Rolleston. Their house, built in 1998, suffered damage in the Canterbury earthquakes.
The Jardens had a residential insurance policy with Lumley, which required Lumley to cover any loss occurring “as the direct result” of the earthquakes. However, this obligation did not commence until EQC paid (or agreed to pay) its statutory cap for each earthquake. In broad terms, Lumley’s liability was to cover the difference between the actual cost of repair to the house and earthquake cover provided by EQC ($100,000 plus GST per earthquake). This is also known as ‘top-up’ cover.
The Jardens lodged claims with EQC and Lumley for damage to their house for two earthquakes (4 September 2010 and 22 February 2011), and subsequently brought proceedings after the claims were not resolved. Shortly before trial, the Jardens reached a settlement with EQC ($123,850 according to the Court of Appeal). EQC’s payment was apportioned 90 per cent to the September 2010 earthquake, and 10 per cent to the February 2011 earthquake. As a result, EQC only paid its statutory cap for the September 2010 earthquake.
The Jardens’ position was that Lumley’s liability under the policy was triggered as soon as the repair costs to their house exceeded the amount of the EQC settlement. Lumley disagreed, and argued that it should not be automatically bound by the settlement that Jardens had agreed with EQC.
The Court of Appeal accepted Lumley’s argument that a private insurer is not bound to accept an agreement reached between an owner and EQC regarding EQC’s statutory obligations. Lumley was entitled to be satisfied that the amount paid (or agreed to be paid) by EQC equates with EQC’s obligations under s18 of the Earthquake Commission Act 1993. Until the final repair costs to the Jardens’ house had been determined and the monetary effect of the apportionment of the repair costs between the September 2010 and February 2011 earthquakes had been quantified, Lumley’s liability to pay top-up cover could not be determined.
Those matters may be resolved by agreement between EQC and Lumley, but failing such agreement they will need to be determined by the High Court.