12.08.2020

Losses caused by 2011 earthquakes not a “series of losses”

Moore v IAG New Zealand Limited [2020] NZCA 319

Appeal allowed

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. 

Aggregation clause

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.

Our comment

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.

Our insurance and construction teams are quick to understand technical matters.  If you have any questions about the issues raised by this judgment or an insurance issue, please get in touch with our Insurance team , or your usual contact at Hesketh Henry.

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

Privacy Commissioner to consult on Privacy Rules for Biometric Information
With the increasing use of facial recognition technology (FRT), retinal scans, and voice recognition by an array of different agencies, privacy concerns about its collection and use are set to be form...
24.11.2023 Posted in Business Advice
Fern forest NZ
Bioenergy in New Zealand: Fuels for the Future?
The energy transition from combustion fuels to low carbon alternatives is viewed as critical in the race to cut global CO2 emissions and reach climate targets.  We look at some of the opportunities p...
14.11.2023 Posted in Business Advice & Climate Change & Forestry
Will Wide BW
A well drafted will is a craft
The New Zealand do-it-yourself “DIY” attitude and way of life is not limited to home improvements, but sometimes also extends to wills.  Recently we had a DIY $5.99 fill in the blanks will acros...
07.11.2023 Posted in Private Wealth
rsz large pillars
Health and Safety: The Consequences of Dishonesty
Siddhartha Gautama said that lies are like huge, gaudy vessels, the rafters of which are rotten and worm-eaten, and that those who embark in them are fated to be shipwrecked.  Two remarkable health a...
03.11.2023 Posted in Employment & Health & Safety
Properly sequencing your Construction Adjudications: Henry Construction Projects Ltd v Alu-Fix (UK) Ltd
According to the UK’s Technology and Construction Court (TCC) (in Henry Construction Projects Ltd v Alu-Fix (UK) Ltd [2023] EWHC 2010) valid payment claims must be paid before the underlying merits ...
30.10.2023 Posted in Construction & Disputes
Key change to rules on distribution of surplus assets under the new Incorporated Societies Act 2022
On 5 October 2023, the new Incorporated Societies Act 2022 (2022 Act) came fully into force, replacing the Incorporated Societies Act 1908 (1908 Act). One of the key requirements under the 2022 Act is...
18.10.2023 Posted in Business Advice
Construction Framework Wide BW
Major milestone passed – NZS3910:2023 expected in time to fill Christmas stockings
As the most widely adopted standard form construction contract in NZ, NZS 3910 was more than ready for updated conditions given the changes in the industry since its last review in 2013.  After almos...
09.10.2023 Posted in Construction
SEND AN ENQUIRY
Send us an enquiry

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