Insurer welcomes Supreme Court decision
A Supreme Court decision that has found in favour of insurer Zurich’s local operation has been welcomed by the company.
A long-running case between broker Firm PI 1 Ltd and Zurich Australian Insurance Ltd (trading as Zurich New Zealand) and Body Corporate 398893 saw New Zealand’s highest court dismiss an appeal by a majority on Wednesday.
A company spokesman told Insurance Business the case highlighted the importance of understanding insurance contracts as a whole and not just taking sections in isolation.
The body corporate of Salisbury Park Apartments in Christchurch had insured the two building, 68 unit complex with Zurich, arranging the contract with insurance broker PI 1 Ltd (known then as ACM), and included cover against natural disaster damage.
The buildings were insured for a total of $12.95m under the insurance contract, that being the reinstatement value estimated by an approved firm of valuers.
However, following the February 22 earthquake one building had to be demolished and the other was deemed a ‘total loss’. The actual reinstatement cost was found to be $25m.
Being residences the apartments were covered by the EQC, and received the maximum statutory cover of $100,000 per unit, a total of $6.8m.
The broker argued that Zurich should have to pay the full $12.95m rather than make up the difference.
An earlier High Court decision had found in favour of the Body Corporate which Zurich then appealed.
This week, in a split three-two decision, the Supreme Court has found in favour of Zurich.
The majority held that the insurance broker sought, and Zurich offered, natural disaster cover for the difference between the EQC cover and the sum insured under the contract (12.95m).
The court held that this point was reflected in the premium calculation, which was for the amount of the difference not the total and was set out in a schedule that was specifically incorporated as part of the insurance contract.
It also said further anomalies which were claimed to arise from this interpretation of the contract resulted from the fact the buildings were underinsured, and not from the Court’s interpretation.
Derek Martin, Chief Claims Officer - Global Corporate Asia Pacific and Chief Technical Officer - GI Claims Asia Pacific for Zurich said it was good news for the company.
“We are pleased the courts have re-affirmed the requirement to look at the context of the placement and the contract as a whole, not certain elements in isolation, which ultimately shows the intention of all parties when entering the contract and the extent of cover that was actually being purchased.
“It affirms the industry position as intended and applied by insurers and brokers alike.”
He added: “We were disappointed with the action (and the original High Court decision), given we always considered the intention (in line with industry practice) was quite clear as to how the insurance cover operated in regard to the compulsory cover with the EQC.
Martin refused to be drawn on whether the broker or valuer should be taken to task for their role in the building being underinsured, saying it was a matter for the body corporate and their legal advisers.
He said the case had formed part of an overhaul of policy wordings prompted by the earthquakes.
“The significant earthquake events from 2010 and 2011 in New Zealand have triggered an overall review within the industry, which extends to policy wordings, and this case will be considered along with others in that review.”