The homeowever has prevailed in the Court of Appeal, with the Court finding an aggregation clause does not operate to limit IAG’s liability for losses arising from the February 2011 and June 2011 earthquakes to the sum insured of $2.5 million plus GST.
Mr Moore’s house had not been damaged in the September 2010 earthquake, but it was severely damaged by the later earthquakes. The reinstatement costs were estimated to be approximately $2.08 million for the damage caused by the February earthquake and $2.77 million for the damaged caused by the June earthquake.
The policy wording contained a clause which read:
The most that we pay for any loss (or any series of losses caused by one event) is the sum insured shown in the schedule.
The words in bold were defined terms and “one event” was defined in the policy as “a single event or a series of events which have the same cause”.
High Court decision
In the High Court Dunningham J had found in favour of IAG and reasoned that the losses caused by February and June 2011 earthquakes were a “series of losses” caused by “a series of events” which had the same cause, being the September 2010 earthquake.
Court of Appeal’s reasoning
The Court of Appeal disagreed, observing that the interpretation adopted by Dunningham J did not give any effect to the words “series of”. The Court concluded that two separate and distinct occurrences of sudden accidental physical damage occurring four months apart could not properly be regarded as a series of such losses in terms of the aggregation clause.
The Court found that both the series of losses and series of events causing those losses must occur in a proximate temporal sequence before they can be grouped for the purposes of applying the policy limit. They must also have a common cause which is the proximate cause of any given loss. The test of proximate cause is same test as tort law. It is a question of fact to be determined in accordance with common sense principles.
The Court determined that the February 2011 and June 2011 earthquakes were caused by separate events and did not form a series of losses. Accordingly, IAG was liable to pay up to the sum insured for the damage caused by each earthquake.
It was therefore unnecessary for the Court to consider whether the February and June earthquakes had the same cause, namely the September 2010 earthquake. However the Court determined this issue for completeness. Based on the expert evidence, the Court held that the proximate cause was not the September 2010 earthquake, which had involved spatially distinct faults. Further, the accumulation of stresses over thousands of years resulting from the relative movement of the Pacific and Australian plates – which provided a broad sense in which the three earthquakes could be considered as part of a series of events with the same cause – did not meet the proximate cause test posited by the aggregation clause.
The Court of Appeal’s decision is yet another important judgment which the Canterbury earthquake sequence has produced. It demonstrates the critical importance of correctly approaching the issue of policy interpretation and then applying the relevant facts – which in this case required sound analysis of scientific evidence – to the particular policy wording.
It is noteworthy that the Court of Appeal reached a different view on the effect of the September 2010 earthquake on the February and June earthquakes. The expert evidence from the parties’ seismological experts had been taken as read in the High Court. Whereas Dunningham J had reached the view that the September 2010 earthquake was the proximate cause of the subsequent earthquakes, the Court of Appeal agreed with the evidence of the homeowner’s expert that this view ignored more proximate causes. In particular, the loadings on the faults involved with the February and June earthquakes which already existed before the September 2010 earthquake caused additional loading on those faults.
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