Indemnity

Re Earthquake Commission 2011

A whole region of dwelling owners lodged claims against it. In an attempt to limit its exposure, EQC adopted the stance that it was only responsible for one single big event, not a series of earthquakes. This was challenged successfully by the insurance industry in extensive litigation proceedings: Re Earthquake Commission. The Court, after a careful analysis of the relevant legislation, concluded that EQC was responsible for every significant earthquake or aftershock. This led to significant delays in property settlements.

QBE Insurance v Wild South

All the earthquakes happened. QBE contended that reinstatement only occurs when the amount of insurance arising out of the loss or damage is paid. The plaintiffs' position was that the policies automatically reinstated on the date of loss and that this could only be set aside by notice prior to the next event that causes loss. There was an issue with automatice reinstatement here, as no date was specified as to when the policy would automatically reinstate. QBE argued it was once the original event is settled and paid. The Court held that QBE had a reasonable time after the original loss to give notice that the policy would not automatically reinstate. It is likely that insurance policy's will now state a specific time or trigger when dealing with automatice reinstatement.

Post Office v Norwich Fire Insurance

Contractors went into liquidation before liability was attributed. The Post Office claimed against the contractor's insurance company. There had been no admission of negligence and it was unsure what the insurance company was going to be liable for. CA held that you cannot sue the insurer for indemnity until his liability to the third party had been established as, before that point, he would not have suffered any loss.

University of Canterbury v Insurance Council 2013

Council wanted higher standards for uni. CA said no, you can't have council policy overriding laws. It was not fair for. Standard in the Building Act is that the building must have 34% strength. Christhchurch City Council wanted that to be 67%. Insurance Council said that the costs to insurers and building owners of repairing or reinstating damaged buildings, the level of cover available under material damage insurance policies, and the willingness of reinsurers to invest in the New Zealand market would all be compromised. Had to stick to statutory regulations.

Southern Insurance v Avonside Holding

Court said foundations were functional and there is no reason to put in new foundations if they can be repaired to a stronger condition. The courts differentiate between what's functional and what is aesthetic. Cost of new house couldn't be more than that to rebuild. Looked at whether the value of the house the insured bought include those notional costs. The court said professional fees and contingencies were allowed to be included in the cost of the new house. These were notional costs but the court allowed it. Unusual Pre earthquake condition was relevant here - insurance policy usually reinstates to a house "as were new" includes all the costs of complying with what the council wants

Harris v NZ Insurance

Insurance for tractor, left it outside where destroyed, insurer alleged arson. During that time, where refusing to pay, the insured was still paying money to finance company which had financed the tractor. Insurer taken to have contemplated that, damage included this amount of keeping to pay out, because of insurer's delay.

Greig v Tasman Car Rentals

Insurance only covers the legal liability. If an item earns income the loss of profits can be recovered from a third party through suing in tort the other party for the loss of profits

Falcon Investments

Insured's loss. Court looked at what the insured going to do. They intended to demolish the old house, however the insured had got tenants in. The courts took into account loss of rent and then the fact that the building was going to be demolished. The courts took into account the fact that the insured wouldn't have to pay demolition costs

Burnand

Parties to a contract are free to agree before a loss that a specified value represents the value of the property. It is said to be a valued policy and the amount specified is the amount payable by the insurer unless it is grossly exaggerated to the extent it could be said to be fraudulent

Ridgecrest NZ Ltd v IAG 2014

Policy contained a maximum liability limit of $1,984,000 for each event. What was in issue was whether Ridgecrest was entitled to be paid for the damage resulting from each earthquake up to the $1,984,000 policy limit in each case or whether the losses resulting from earlier earthquakes should be treated as having been subsumed in the loss caused by the final earthquake under a legal principle known as "merger". The Supreme Court has now held that the doctrine of merger did not apply here and that the policy wording provided Ridgecrest with an independent right to recover both its partial unrepaired losses and its subsequent total loss. The Court found that the merger principle was inconsistent with the terms of the insurance policy and in particular its term that provided for the resetting of the liability limit after each event that caused loss. NOTE: The Court also held that an insured could never recover more than what it had lost which would preclude an insured from ever recovering more than the replacement cost of its building.

Partial Loss

Prime facie the cost of repair

Ewer v National Employers

It is the real and actual value that is insured for. Not sentimental value

Falcon Investments v State Insurance

The indemnity is not for the value of the property but what the insured has actually lost.

Elcock v Thomson

When there is an agreed value and a partial loss, then it is applied proportionately. Mansion insured for loss, and partially damaged, then partial amount given.

Indemnity

An insured is entitled to be indemnified (compensated) for what he has lost, no more no less. Many policies today are replacing old with new policies, in those circumstances rebuilding a house usually costs more than replacing a house, so not very apt to talk about indemnity in a new for old policy. In the case of property insurance, the insurer's liability, in the absence of contractual modification, is determined by reference to the principle of indemnity which provides that the insured is entitled to be indemnified but never more than fully indemnified. Consequently, the insurer must compensate the insured for the actual loss suffered

Castellian v Preston

An insurer cannot claim with both hands. Sold house and in the interim purchase the house was damaged by fire. There was nothing in the contract about this. The buyer bought the property for the agreed sum and the vendor claimed insurance. After the purchaser paid the vendor the insurance said to the vendor they want their money back as anything that diminishes the loss has to be accounted for and the vendor had lost nothing. He had got purchase price and insurance, so if he was able to keep the insurance money he would have had a windfall.

Medical Assurance Soc of NZ Ltd v East

East's wanted to restore their house and wanted upfront payment. MAS is only obliged to meet the actual restoration costs as they are incurred. This was consistent with the phrase "will cover", which is shorthand for "indemnify the insured against." Court held that with reinstatement the costs of reinstatement are to be paid incrementally up until completion. An up front payment is no different than a cash settlement which is already an option under the policy which the East's denied. If the East's went under budget then there was no way for MAS to get it back.

Personal effects and other chattels

General rule is that they are valued at market value at the time of the loss

Lucas v New Zealand Co Ltd

Group of buildings with four shops. Two damaged. Insured intended and wanted to continue using the building so the actual loss was the cost of the repairs to continue using the building again. The court said it would have been different if they had been planning to sell as the amount indemnified was the market value before the fire vs after the fire. Because he wanted to continue running the business the value was the cost of repairs

Kerr v State Insurance

House destroyed by fire, insurers refused to pay, they sued. Property insured for $120k, and that's the sum would have had, had they elected to repair. Indemnity value was $65k. Insured while having argument sold the land and then sued the insurer the courts said that the insurer had repudiated by refusing to pay, and deprived the insured of the opportunity to elect repair, or to reclaim the value of the property, gave damages of $10k, since it wasn't clear what the insured would have done.

Kypris

If reinstatement or rebuilding is impossible, for example because of planning laws, then the insured's loss will be assessed on the basis of market value of the property as at the date of the loss

Haighi's Persian Trading Co Ltd

If there is no ready market, then market value is assessed as the price of replacement at the place of manufacture plus the cost of carriage to the insured plus, if the insured is neither the manufacturer nor the importer, the profit those persons would have charged

Prattley Enterprises Ltd v Vero Insurance

In considering indemnity value you must consider factors specific to the insured. In policy could elect to rebuild or sell land. The insured's own intentions have to be taken into account. If the insured wants the building to be rebuilt then that should be taken into account. If the insured wanted to sell the land rather than any wish to rebuild that should be taken into account when considering to indemnify as it makes a difference to what they get under the policy

Richard Aubrey Film Productions v Graham

Indemnity does not include sentimental value. A film producer (Richard Aubrey) insured against the loss of film negatives. The film was stolen near the completion of the film so the insurer paid the market value of the film (£20K) - the cost of completing it (£5K). The producer claimed that it was 'the child of his artistic creation' however was not covered for any loss of effort or feelings as a result of the theft.

Dawson v Monarch Insurance (chattels)

Inflatable rabbit damaged by fire. There is not a huge market for this. Court looked at how much it might cost to make another as there was not a market for it

Kerr v State Insurance (reinstatement)

Insurer alleged arson and so didn't want to pay when building was damaged by fire. Time passed and while insured and insurer was arguing about it Kerr simply sold the property. The Court looked at all the facts and end the end wasn't convinced that the insured wouldn't have rebuilt the property. Kerr was awarded modest damages to compensate for loss of chance

Turvey Trustee Ltd

Involved an Edwardian style villa, and insured elected to build on another site. Policy - rebuild house to as new condition. The villa had a lot of early 20th century features. As new didn't mean a replica house, but equivalent house. Would assess size, functionality and quality of house as well as character. Insurer not required to pay for rare materials, anything that had been superseded should not be used. That would be a reasonable substitute.

Islington Park Ltd

It is the insurer's option to either reinstate or replace the property damaged or destroyed, or any part, or insure any expense insured, instead of paying the amount of the loss or damage provided

Bryant v Primary Industries

Property insured for $14k for indemnity, and excess of indemnity if the insured elected to rebuild. House put up for sale, offered in auction, and on the morning of the auction there was a fire in the house, assigned a value of $8k, purchasers then wanted the sum insured from the insurer and a higher amount to rebuild. Court said that the insurance contract was personal to insured, they had not elected to rebuild. There had been a fire, the purchasers could not acquire any more rights then the vendor had, simply the right to the value of the building which was $8k.

Tower v Skyward Aviation

Skyward chose to buy a new house. The policy stated that the cost of the new house must not be greater than rebuilding on the old site. Did the insurer have to pay the equivalent of what it would cost to rebuild or did the insurer have to pay the cost of the new house up until the cost was reached to replace the old house? SC said this was entirely on construction of the policy. Policy said the cost mustn't be greater than rebuilding the house, so Skyward was entitled to what the cost would be to rebuild. The reality of the position is that if the insurer was paying for a rebuild the insurer had to pay that amount anyway to the new house

Dawson v Monarch Insurance

Sum insured was greater than the amount that the court determined was the actual value. Inflatable rabbit case, if damaged item earns income, then it might be recoverable.

Kraal v Earthquake Commission

The Christchurch earthquakes caused widespread rock falls in the Port Hills. The Council issued notices under s124 of the Building Act 2004 that prevented some people from using or occupying their homes. These notices may remain in place for many years. Tried to claim under policy. The term natural disaster damage included "any physical loss or damage to the property occurring as the direct result of a natural disaster". Kraal argued that her property had suffered physical loss because the house could not be physically used or occupied for the foreseeable future. HELD: Kraal suffered an econmic loss not physical loss so was not covered under the policy. NOTE: Cavell Leitch in their evaluation of this case noted that Kraal did not argue that there was a threat of imminent physical loss or damage. There are suggestions in the judgment of Justice Mallon that she may have been receptive to an argument along those lines.

O'Loughlin v Tower Insurance 2013

The O'Loughlins argued that the designation of their property within the Christchurch residential red zone constituted a loss which triggered a full replacement obligation by Tower under their policy. The Court held that the primary insurance clause did not apply because the red zone designation did not cause any damage to the physical integrity of the O'Loughlins' house. The Court drew a distinction between economic loss and physical loss, the former not being covered by the policy.

O'Loughlin v Tower Insurance (reinstatement)

The creation of the red zone did not count as loss. Decision was for the insurer to decide what to do. Insurer paid for the physical damage to the house, and then declined to pay the notional cost of rebuilding a new house on the same site as the insured's had been on. The decision having been made not to rebuild on the red zone site much more expensive. Court held that having elected to go elsewhere, the insurer did not have to pay the cost of rebuilding on the original site. The general conventional position: if you actually rebuild we'll pay and if not you will get the value of the house

Leppard v Excess Insurance Co

The insured bought cottage with intention to sell for a profit, for $4.5k, insured it for $10k cost of reinstatement if had been allowed would have been $8k if chosen to rebuild. Court said that he had been willing to sell for $4.5k, So not entitled to cost of reinstatement. Value of land deducted from that.

Prattley

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. Plaintiff 'wanted to maximise the valuation' = wanted more money

Young v Commercial Union

The measure of loss is valued at what it would cost to buy a similar one. The value is what a second hand dealer would pay for it. The value or product (if not possible to get extact replacement) does not need to be identical

Domenico Trustee Ltd v Tower Insurance Ltd

The proceeding considered: (1) whether Tower had the right to reinstate instead of paying cash; and (2) whether Tower had made a binding election to pay the rebuild costs in cash without requiring the insured actually to incur replacement costs. The reasonable time for making an election had passed. By April 2013, 3½ years after the first earthquake, Tower had all of the material facts to settle the claim and the only impediment was the deadlock between the parties. Gendall J gave judgment that Tower was liable to pay the indemnity value of the property but, if Domenico chose to rebuild or buy another house, Tower would be obliged to meet any increase in cost in accordance with the policy terms. In reaching this finding, which had not been specifically sought by either party, Gendall J said: "I ... consider, by a reasonably fine margin, as a result of effluxion of time, Tower has made an election to settle [the claim on this basis]". Payment of the indemnity value does not appear to have been a default choice under the policy. Therefore, it seems that the Court effectively substituted its own election, which could be considered a novel approach to the doctrine of election

Prattley Enterprises v Vero

There was disagreement between Prattley and Vero as to whether the building was destroyed in the Boxing Day earthquake, or the February 2011 earthquake. Justice Dunningham approved the decision of QBE Insurance (International) Ltd v Wild South Holdings Ltd, which said that "the question of whether the insured property has been destroyed is a question of fact to be answered in all the circumstances". In this case, the policy defines "destroyed" as being "so damaged that the property, by reason only of that damage, cannot be repaired". Justice Dunningham decided that: "This definition clearly focuses on the feasibility of repair rather than incorporating any measure of economic practicality into that definition. Justice Dunningham also found that based on the evidence before her, the market value of the building was less than the amount paid to Prattley by Vero pursuant to the settlement agreement. Justice Dunningham noted that the "situation would have been different for Prattley if I had accepted that a rebuild of Worcester Towers was going to take place"

TJK v Mitsui

Under the policy TJK could elect reinstatement, which it did, but insurer Mitsui refused to pay the indemnity of the building ($30m) before rebuilding work starts. The market value of the building was set at $30m, much less than the estimated $90m that could be needed to reinstate the tower. TJK went to the High Court in Christchurch arguing that Mitsui should pay the $30m value up front while it waited for the reinstatement. Mitsui believed it should hold the money until TJK has incurred the rebuilding costs. But in a summary judgment released Justice Forrest Miller ruled Mitsui should pay TJK the $30m, as that was the agreement.

Michalik v Earthquake Commission 2014

Wall damaged in earthquake. The issue was how EQC was to value and indemnify the insured. When the old wall collapses the general principle is that the insured can only be restored to the position they were in immediately before the loss occurs. EQC first estimated the present day cost of building the same wall. It estimated the cost of building a retaining wall that was as close as possible to the damaged wall and materials and design even though it would not comply with modern day regulatory requirements. The next step was to address depreciation by adopting the estimated life of the retaining wall and applying a straight-line depreciation calculation to the number of years it had been in use. With partial destruction the depreciated replacement cost could be apportioned having regard to the area of the retaining wall that was damaged or at imminent risk. The result is that the amount payable by EQC for damage to retaining walls in most cases is likely to be considerably less than the actual cost of repair or replacement due to the need to comply with modern regulatory requirements.

Dawson (partial loss)

Where there has been a partial loss only to a building, chattel, stock or plant the prima facie measure of indemnity is the cost of repair, less an allowance for betterment

Lucas v NZ Insurance

Where there is a ready trade for the merchandise it is easy to get a market value

Young v Commercial Union General Insurance

Whether the policy is one for an agreed value is a matter of construction and the fact that the policy specifies the value of an item of property does not necessarily mean that the policy is a valued policy. Involved a claim for silver tea set, put a value of $22k, and when stolen, he thought that he would get 22k for it. Difficulty with some items is knowing the market value of it. Here it was not an agreed value policy, this is the maximum the insured will have to pay out, but the insured will have to prove the loss. Agreed value, you don't have to prove the value. Only guide was what a second hand dealer would have paid, which was $6k.