9.05.2018

Vero Insurance New Zealand Ltd v Morrison [2015] NZCA 246

Morrison v Vero grappled with the issue of how to apportion damage between multiple insured earthquake events.  This appeal largely concerned Vero’s challenge to the admissibility of, and weight given by the High Court to, computer modelling used by the respondents’ expert.[1]

Vero’s appeal required the Court to consider whether the judge was right to:

  1. prefer the respondents’ expert modelling evidence concerning the additional damage caused by the June 2011 earthquake and the respondents’ scope of repairs for the June 2011 earthquake over that of Vero’s experts;
  2. conclude the building was not “destroyed” as a result of the February 2011 earthquake.

The modelling evidence and the June 2011 earthquake

Vero challenged Whata J’s decision that modelling evidence could be used as an input to determine the extent of relative damage between the earthquakes.  However, the Court of Appeal considered the evidence was “plainly relevant”, that it met the reliability threshold and had some probative value.  The Court instead focused on the weight given to the model by the judge, having regard to the paucity of other available information, the limitations inherent in the model itself, and the support given by one of Vero’s experts to the model (at least at a conceptual level).

The Court of Appeal accepted Vero’s submission that the failure of the model to take account of the effects of liquefaction in February 2011 cast doubt on the weight to be given to it.  Upholding Vero’s criticism of the relative assessment of damage between the earthquakes, it concluded that there was no explanation for how the percentage figure adopted by the respondents’ expert for the June 2011 earthquake translated into his list of repairs (noting that some items on the list of repairs were already being replaced after the February 2011 earthquake).  These factors led the Court to conclude that the model was given substantially more weight than it should have been.

The Court then considered whether the model, when viewed in conjunction with a photographic essay prepared by the respondents’ expert, supported the judge’s conclusion on the scope of additional repairs required after the June 2011 earthquake.  Vero’s evidence was that the June earthquake did not cause any significant new damage and, most critically, any further damage did not alter the scope of repairs to any degree of materiality.  The Court found that the judge was right to acknowledge that there were limitations in the photographic essay, but that he was also right to have regard to it in light of all the other evidence and conclude there was some discernible additional damage to the building.

Accordingly, the Court found some addition to the scope of repairs was needed after the June 2011 event, although costs were likely to be relatively minor.  Rather than set a nominal figure, it referred the issue back to the High Court.  The Court expressed optimism that the parties might be able to reach agreement on this issue.

Was the building destroyed?

The Court considered the effect of the relevant policy provisions and the principles set out in Wild South[2].  It noted Vero relied upon economic and practical considerations to support its claim that the building was destroyed after the February 2011 earthquake.  However, the Court noted that the building was still functional and placed weight on evidence that as at December 2012 the estimated rebuild cost was approximately $9m and the repair cost about $7.1m.  The policy wording did not support an interpretation of destruction based on economic considerations and the Court accordingly upheld the Judge’s finding that the building was not destroyed.

Cross-Appeal: calculation in relation to the September 2010 earthquake and cost of new piling

The Court of Appeal dismissed the respondents’ cross-appeal concerning the calculation of damage caused by the September 2010 earthquake and whether the cost of new piling should be excluded.  It noted that there was considerable expert evidence against liquefaction-induced damage having occurred in the September earthquake.  Further, it agreed with Whata J’s analysis on the relevant principles of indemnity and policy wording and accepted Vero’s submission that the indemnity payment is founded on a depreciated estimated cost to put the building back to its “pre-earthquake, no piles” condition.

Concluding comments

This decision confirms that modelling evidence will be admissible where it is relevant and has some probative value.  What weight it will be given may depend on the other available evidence, and consideration of the limitations inherent in the model.

A similar model was considered by the High Court in the recent decision of Prattley v Vero (click here for our summary).  In that case, there was considerable eyewitness and photographic evidence of the building’s condition from inspections which followed each earthquake event.  Dunningham J noted that “the allocation of damage which the model arrives at as between the three earthquake events is so at odds with the observed damage that I do not think it is a reliable tool to calculate what in fact needed repair after each event.”

Back to Summary Table

[1] For our summary of the High Court judgment, click here.

[2] QBE Insurance (International) Ltd v Wild South Holdings Ltd [2014] NZCA 447, click here for our review of the decision

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