It’s been a busy week for Christchurch-related cases with two Supreme Court decisions being made, but in both cases it didn’t turn out the way the insurers had hoped.
The latest decision, which came through yesterday, involves certain underwriters at Lloyd’s of London and Sirius International Insurance Group Ltd v Crystal Imports Ltd, with the insurers’ application for leave to appeal in the Supreme Court being dismissed.
The applicants – Lloyd’s and Sirius – were challenging the answers the High Court gave over two issues regarding litigation about five buildings in Christchurch damaged in both the September 2010 and February 2011 earthquakes. One was around the automatic reinstatement of sum insured clause (RSI clause) in the policy and the other related to the average clause in the policy.
The relevant part of the RSI clause provided that after a loss for which a claim is payable, “the amount of insurance cancelled by loss will be automatically reinstated from the date of loss” unless either party gives written notice to the contrary.
The insurers were arguing that the effect of the RSI clause is that cover reinstates only from the date on which payment is made by the insurer for the loss, rather than from the date of the event which caused the loss, as the Court of Appeal found.
They said it conflicted with the Court of Appeal’s decision in the Ridgecrest v IAG
case and felt ‘various undesirable consequences’ could arise if that interpretation was not adopted.
However, the Supreme Court said it appeared to be an orthodox reading of the RSI clause.
“We are not persuaded that any miscarriage of justice will arise if we do not hear the proposed appeal on this ground,” the Court said in its judgment.
“The case involves the interpretation of particular policy wording. The applicants say this wording is relatively common in New Zealand but that is disputed.
“In any event, there is no point of principle arising and we do not see the case as one of general commercial significance. Nor do we accept that there is any conflict with Ridgecrest
, given the substantially different wording of the policy in issue in that case.”
The second point, relating to the average clause in the policy, was only regarding one of the five buildings.
It focused on the basis of valuation of the insured property for the purpose of the application of the average clause to the claim made for loss resulting from earthquake damage to the building.
The High Court found that the value will reflect the basis of recovery elected by the insured (reinstatement or indemnity value), which the Court of Appeal agreed with.
The Supreme Court judgment said there was no apparent error in the High Court or Court of Appeal’s findings.
“There is no appearance of a miscarriage of justice,” it said.
Meanwhile, in the Tower Insurance v Skyward Aviation
case, the insurer has said it is disappointed with the Supreme Court’s decision.
The case revolved around a policy for the full replacement value of a house owned by Skyward with Tower believing it had the option to settle by offering to buy a comparable new home, which had been supported by two previous High Court decisions.
However, the Supreme Court has unanimously dismissed Tower’s argument, concluding that the interpretation put forward by Tower was inconsistent with the policy wording and would compromise the ability of Skyward to obtain replacement value recovery on the new for old basis contemplated by the policy.
The Court also rejected Tower’s argument that it will not be liable to reimburse Skyward for the cost of a replacement house unless such house is comparable to the insured house. The Court held that if the insured chooses to buy another house, there is no comparability requirement and the only cap on Tower’s reimbursement liability is the cost of rebuilding the insured house at its present site.
Tower’s manager – earthquake recovery, David Ashe, said the company was disappointed but welcomed the new clarity.
“While we are disappointed the Court found against us on some points, we are glad to see its clear ruling that as an insurer we have the right to choose whether to settle a claim by managing a repair or rebuild ourselves, or by making a cash payment to our customer,” he said.
Tower said there hadn’t actually been any claims settled by them using this option and didn’t envisage the ruling would have a material impact on Tower’s future settlement payments.
The Court also allowed Skyward’s cross-appeal against the refusal of the Court of Appeal to direct that it recover costs in the High Court. The cross-appeal was not opposed by Tower.
See Friday’s newsletter for reaction to the Crystal Imports