9.05.2018

Ridgecrest New Zealand Ltd v IAG New Zealand Ltd [2014] NZSC 129, (2014) 18 ANZ Insurance Cases 62-032

Ridgecrest is the first of a series of proceedings which addresses the vexed issue of incremental damage arising from multiple earthquake events.

Ridgecrest owned a commercial building damaged by earthquakes on 4 September 2010 and 26 December 2010.  Limited repairs were undertaken after each earthquake, but all work ceased on 22 February 2011 when a further earthquake struck.  There is an ongoing dispute as to whether the building was destroyed on 22 February, or by a later earthquake on 13 June 2011.

The building was insured under a full replacement policy, with a maximum liability for any one “happening” of $1,984,000.  That sum was considerably less than the building’s replacement value.

The parties asked the High Court to determine a preliminary question – is the plaintiff entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case?  The High Court’s response was that the insurer’s liability was limited to the cost of repairs actually undertaken and the maximum sum of $1,984,000 for the final destruction of the building.  The Court of Appeal reached the same conclusion, but on different grounds.[1]

By contrast, the Supreme Court held that, on the specific wording of the policy, Ridgecrest was entitled to be paid for damage up to the limit of the sum insured for each of the earthquakes.  The total claim could not exceed the actual replacement value of the building and there could be no “double counting” (multiple claims for the same damage).

Much of the argument focused on the doctrine of merger, which had been rejected by Dobson J in the High Court, but accepted by Cooper J in the Crystal Imports proceeding.  IAG argued that Ridgecrest’s claims for partial losses from the earlier earthquakes merged into the total loss suffered in the final earthquake.  The Court reviewed the marine insurance cases in which the doctrine of merger arose.  It identified material differences between IAG’s policy and the marine insurance policies which meant that merger was inconsistent with the policy terms.  They were:

  1. The policy provided for both indemnity and replacement cover and therefore it was possible the insured could make a profit, in the sense it could recover on a replacement basis more than the actual (indemnity) value of the building.
  2. The policy did not operate on the basis of a loss assessed at the end of the risk period, but on each happening.
  3. IAG was liable to make a payment regardless of whether repairs were done.
  4. A cause of action in respect of the losses caused by each earthquake accrued immediately.
  5. The liability limit was reset after each happening.

The Court went on to consider the effect of the indemnity principle on Ridgecrest’s claim.  The principle states that an insured cannot recover more than its loss.  Noting that “indemnity principle” is an awkward phrase in the context of a replacement policy, the Court accepted that it precluded recovery of more than the actual replacement value of the property (as distinct from the sum insured).  It also prevented claims for incremental damage to the same elements of a building.  While the Court noted that it is possible for parties to deem the sum insured to be the replacement value in their policy, it declined to take that approach in Ridgecrest, due to the policy wording and the presentation of the argument before the Court.

Ridgecrest may be the end of the road for the merger doctrine in the context of event-based liability policies.  The scope and application of the indemnity principle will no doubt be the subject of further argument, depending on the facts of particular claims.  The principle was reviewed by the Court of Appeal in Wild South/Marriott/Crystal Imports and by the High Court in Morrison, which are discussed elsewhere in this update.

Back to Summary Table

[1] Read our commentary on the Court of Appeal decision here

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
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

Updated Subcontract Agreement: SA-2017
The SA-2009 form of Subcontract Agreement is commonly used in the construction industry. It has undergone a review and a new SA-2017 form has been produced.
3.07.2018 Posted in Construction Law & Health & Safety Law
Distribution Agreements – 6 Key Considerations
While the exact nature and terms of a distribution agreement will vary between industries and jurisdictions, these 6 issues will always be important.
28.06.2018 Posted in Corporate & Commercial law
Continued Importance of IP Protection for Manufacturers
The Ministry of Business, Innovation and Employment (MBIE) has recently released a report which identified key trends and challenges for the manufacturing sector (that report can be accessed here). Th...
28.06.2018 Posted in Corporate & Commercial law
CONSTRUCTION LAW UPDATE – JUNE 2018
Recent Construction Law Decisions and Developments in New Zealand
18.06.2018 Posted in Construction Law
Updated Standard Consultancy Agreements
Two of the most commonly used standard agreements to engage consultants are the ACENZ / Engineering New Zealand (formerly IPENZ) Short Form Agreement (“SFA”) and the Conditions of Contract for Consultancy Services (“CCCS”).
5.06.2018 Posted in Construction Law
Managing Employees’ Mental Health Issues
Ministry of Health statistics confirm that during 2016, 169,454 people accessed mental health services in New Zealand. The law of averages suggests that most workplaces will – to a lesser or greater degree – be affected at some time by an employee’s mental health issue.
31.05.2018 Posted in Employment Law & Health & Safety Law
Managing Medical Incapacity: Enough To Make You Feel Sick?
Managers and HR practitioners often tell us that dealing with employees who are genuinely too sick or injured to work is one of their least favourite tasks. Frankly, we can see why.
31.05.2018 Posted in Employment Law
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.