This is one of a series of cases dealing with the issue of incremental damage in successive earthquake events, which includes Ridgecrest and Wild South. It has however an important twist: the plaintiff had already settled its insurance claim based on the market value of the building. The plaintiff alleged it had misunderstood its rights under the policy, and sought to the have the settlement set aside.
The plaintiff’s claim, based on the Supreme Court decision in Ridgecrest, was that it was entitled under its policy to claim reinstatement for damage caused in each earthquake, plus the depreciated replacement cost of the building following its destruction in the final earthquake.
Dunningham J disagreed. While the plaintiff had an event-based policy, it was an indemnity policy with a different measure of loss to the full replacement policy at issue in Ridgecrest. Under the policy terms, the insurer could elect to indemnify the insured either by making a payment, or by repairs or reinstatement. The measure of loss was not fixed by the policy, and could vary depending on the insured’s intention for the property and its reasons for ownership.
The judge found the plaintiff, in fact, had no intention of rebuilding the property once it was destroyed in the final earthquake. The measure of its loss was accordingly the market value of the building it had lost, not the cost of its replacement. Although the building had suffered damage in earlier earthquakes, the plaintiff had not repaired the building, and so had suffered no additional loss.
As a result, the payment under the settlement agreement was more than adequate to cover the plaintiff’s loss (the insurer had agreed a generous market value). The judge nonetheless proceeded to consider the merits of the plaintiff’s claim to set aside the settlement agreement.
The plaintiff alleged that Vero’s representative had misrepresented its entitlements under the policy, thereby breaching the Fair Trading Act 1986, the insurance contract and the Fair Insurance Code. The judge held that in fact the plaintiff had been given a helpful and transparent explanation of its options. Vero’s opinion of the correct basis for settlement and the approach to be taken to multi-event claims was commonly held (and reflected the views of the plaintiff’s own lawyers). Such an opinion could not give rise to liability on any of the bases claimed. Furthermore, the plaintiff did not rely upon Vero, having obtained its own independent valuation and legal advice.
Of more general interest is the plaintiff’s claim for relief under the Contractual Mistakes Act 1977. The judge held that if the plaintiff was now correct as to its entitlements, then the parties entered into the settlement agreement based on a mutual mistake. That mistake resulted in a substantially unequal exchange of values, which, in the absence of a contractual provision addressing the risk of mistake, would have given the Court discretion to set the settlement agreement aside.
However, the judge found the plaintiff agreed, under the terms of the settlement agreement, to accept the risk that it might have mistaken its rights. The agreement included a broad full and final settlement of claims “arising directly or indirectly out of … the policy and/or the Insured Property Damage … [including] claims [which] … are in existence now … [whether] known or unknown [or] in the contemplation of the parties or otherwise”. This clause, together with a recommendation that the plaintiff seek legal advice (which it did), meant that the plaintiff assumed the risk of a mistake.
The plaintiff also argued that there was no consideration for the settlement, as Vero was simply fulfilling its contractual requirement under the insurance policy. On the facts this did not hold up: there was a dispute as to the quantum of loss and the compromise of competing claims had real value. It is an interesting argument however, and worth bearing in mind in cases where sums due are liquidated or are readily assessed.
 Relying on Wild South