17.12.2015

Parkin v Vero Insurance New Zealand Ltd [2015] NZHC 1675

This decision will be welcomed by insurers.  It provides judicial confirmation that “jacking and packing” can be an acceptable method of re-levelling and repairing floors that have suffered differential settlement.

Background

Mr Parkin’s townhouse, which had been constructed in early 2009, was damaged by the September 2010 and February 2011 earthquakes.  The property was initially in the “white zone”, but this was eventually replaced with a green zone classification.

Mr Parkin’s insurer, Vero, concluded it was economic to repair his house, and proposed doing so by jacking and packing the piles to remedy floor dislevelment.

Mr Parkin was unhappy with Vero’s proposal and considered the house should be re-built.  He contended that Vero was obliged to return the house to essentially an identical condition to what it was prior to the earthquakes, bearing in mind the house was less than two years old at the time of the first earthquake.  He also sought payment of the estimated reinstatement costs before these costs were actually incurred, and alleged that Vero was in breach of implied terms of good faith and the Fair Insurance Code (Code) in relation to its claims handling process.  These claims were rejected by the High Court.

Standard of repair

This was a “when new” type policy.  Vero had the option to pay either (1) the cost incurred in “repairing the damaged portion … to a standard or specification no more extensive, nor better than its condition when new” or (2) the indemnity value if the house was not repaired or rebuilt by Mr Parkin within 12 months, unless Vero agreed to extend this period.

Mander J observed that “when new” suggests a narrower or stricter basis for comparison than “as new”, which conveys a broader sense of comparison.  Notwithstanding this, His Honour rejected Mr Parkin’s “identical replica” argument (ie that all damage must be replaced like-for-like).   If that argument was correct, it would render superfluous the concept of repair, which the policy expressly included and clearly contemplated.

Mander J drew a distinction between structural or functional components and those which have aesthetic purpose.  Where an item has only a functional purpose, so long as the remedial strategy restores that functional purpose to a “when new” condition, the policy obligation will be met.  That condition may be achieved by repair rather than replacement.

In this case, the fact that the house was reasonably new and did not previously have packers between the piles and bearers was of no consequence.  The purpose of a pile and the foundation system as a whole is substantially, if not entirely, structural.  Packers would not affect the structural integrity of the floor and they would not be visible except during a sub-floor inspection, meaning there was little or no aesthetic value attached to their use.

Payment obligation

Following the Court of Appeal in Medical Assurance Society v East [2015] NZCA 250, Mander J confirmed that Mr Parkin must actually incur the costs of remediating his property before Vero’s obligation to pay the reinstatement sum is triggered.  Absent Vero opting to pay the indemnity value, Mr Parkin had no entitlement to an advance cash payment based on the estimated cost of repair.

Breach of good faith/Fair Insurance Code

Mr Parkin also made what might be considered novel arguments regarding good faith and the Code.  He claimed Vero was in breach of these alleged implied obligations by failing to explain his policy entitlements or how the policy was intended to operate, and that Vero did not manage the claim in accordance with his policy entitlements, but applied its own internal management procedure, which did not follow the policy terms.  Much of this was based around an alleged misapprehension by Mr Parkin that Vero would undertake the reinstatement.

Mander J did not directly address the question of whether these terms were implied into the insurance contract.  Instead, His Honour was not satisfied there had been a breach of any such term, whether implied or otherwise.  In particular, Vero had introduced a claims management process to handle the large wave of earthquake claims, and there was no evidence that Vero had acted unfairly or had been unresponsive.  It appears that Mr Parkin’s real frustration lay with Vero’s assessment that his house could be repaired and the resulting impact on the claims settlement process when he disagreed with that assessment.  However, as note above, Vero’s repair strategy was upheld by the Court.

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