9.05.2018

Young v Tower Insurance Ltd [2016] NZHC 2956

This judgment of Gendall J introduced a new principle of insurance law: the proposition that a mutual contractual duty of good faith is implied in every insurance contract and that damages may be awarded for a breach of that duty.

The plaintiffs (the trustees of the Young trust) owned a residential property in the Christchurch hills insured by Tower Insurance Ltd (“Tower”).  The property suffered significant damage as result of the Canterbury earthquake sequence in 2010 and 2011 and claims were lodged accordingly.

The central issue for the Court to consider was whether the property could be repaired to the standard required under the insurance policy, or whether it needed to be rebuilt. However, the plaintiffs also alleged that Tower had failed to act in good faith, and sought general and exemplary damages.

Having noted that insurance is a contract of utmost good faith, and Tower’s agreement to be bound by the Fair Insurance Code 2016, Gendall J held that a contractual duty of good faith is implied into every insurance contract, and is a duty that flows both ways.

While he declined to define the full scope and limits of the duty, the judge found that, as a bare minimum, the duty requires an insurer to:

  1. Disclose all material information that the insurer knows or ought to have known. This duty includes, but is not limited to, the initial formation of the contract and arises during and after the lodgement of a claim.
  2. Act reasonably, fairly and transparently. Again, the duty includes, but is not limited to, the initial formation of the contract, and arises during and after lodgement of a claim.
  3. Process a claim in reasonable time. This obligation must take into account the time required properly to investigate and assess all aspects of the claim.  What is “reasonable” will depend on the circumstances, which may include the type of insurance policy, the size and complexity of a claim, compliance with any relevant regulatory parameters, and factors outside the insurer’s control.

Importantly, an insurer will not breach the implied term by failing to pay a claim during a dispute (provided there are reasonable grounds for that dispute).  However, Gendall J noted that the conduct of the insurer in handling the claim will be relevant when deciding whether the duty of good faith has been breached.

The Judge held that Tower breached its duty by failing to provide an early report that recommended a rebuild of the house (despite that report being superseded by later assessments).  The report had been provided to Tower’s claims processing agent early in the claims process and was not passed on to Tower until later. The failure to provide the report made little difference to the outcome of events, and the plaintiff was awarded nominal (general) damages of $5,000.  Exemplary damages were not available for a contractual breach, and, in any event, were not justified by the insurer’s behaviour.

The Judge’s ruling that a general contractual duty of good faith is implied in every insurance contract is a new development in New Zealand insurance law, and the parameters of that duty have yet to be defined.  It is important to note that the duty is mutual.  The plaintiffs’ own conduct attracted criticism from the Judge and adversely affected some of their claims.

Return to Summary Table

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

UAE COMPANIES LAW UPDATE
New Zealand businesses looking to establish a foothold in the UAE have many options
10.09.2018 Posted in Trade and Commodities
When You Can’t Have it Your Way
Antares Restaurant Group Limited (which owns and operates Burger King in New Zealand) has received a whopper of a sanction – a ban on the company supporting visa applications until July next year.
4.09.2018 Posted in Employment Law
Getting the Deal Through: Shipping 2019
The Marine team at Hesketh Henry have again contributed to Getting the Deal Through: Shipping 2019.
30.08.2018 Posted in Maritime Law
A Guide to Concurrent Delay
Hesketh Henry was pleased to host the New Zealand Institute of Quantity Surveyors on 14 August 2018, where one of our construction partners, Nick Gillies, presented on concurrent delay.  The same pre...
22.08.2018 Posted in Construction Law
Update – New Zealand’s New Biofouling Standards
New Zealand has introduced a new standard requiring all vessels to have a “clean hull” on arrival in the country after 15  May 2018.[1]  The objective is to minimise the introduction of ...
21.08.2018 Posted in Maritime Law
No Longer Stumped: The Health and Safety at Work Act 2015 Sentencing Guidelines
The High Court at Auckland has released its first and much-awaited decision under the Health and Safety at Work Act 2015 (HSWA).
21.08.2018 Posted in Health & Safety Law
Sanctions Update: Iran
In May the United States announced the re-imposition of sanctions in relation to trade with Iran
16.08.2018 Posted in Trade and Commodities
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.