Prattley case to go to Supreme Court

Prattley case to go to Supreme Court | Insurance Business

Prattley case to go to Supreme Court
Insurers who welcomed the Appeal Court’s decision in the Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd case will have to put off their celebrations for the time being as the Supreme Court has now granted the insured leave to appeal that decision.

Barrister Steve Keall said the industry could expect some ‘heart-racing analysis’ of the Contractual Mistakes Act 1977 at the Supreme Court, amongst other topics.

A brief notice was issued by the Court this week outlining the approved grounds as:
  1. The nature and extent of the respondent’s (Vero’s) liability under the insurance policy; and
  2. The effect of the release.
Keall noted that the terms of reference had been crafted ‘fairly wide’ by the Supreme Court and there was some speculation over what exactly would be argued.

The last decision made was when the Court of Appeal found favour with Vero over several issues, the main one being whether or not a settled claim could be reopened, or whether the insured assumed the risk of mistake so that it could not rely on the Contractual Mistakes Act.

It also had to decide on the correct measure of indemnity and rate of depreciation being calculated, which if proven would result in Prattley being entitled to a higher sum.

The other issue was what weight should be given to the evidence of an expert witness in the case.

Prattley’s building sustained damage during each of three Christchurch earthquakes that hit between September 2010 and February 2011.

Its insurance cover with Vero was on an indemnity rather than replacement value basis with the policy capped at $1,605,000.

Prattley had entered into an agreement with Vero accepting $1,050,000 as full and final settlement of its claims but then later said they had been mistaken about the ‘full measure of indemnity’ and the payment should be set aside under the Contractual Mistakes Act.

The key question was whether they were mistaken in their shared belief that market value was a better measure of indemnity than depreciated replacement cost, that being solely a matter of opinion.

“The Court of Appeal found that the risk did indeed sit with Prattley under the terms of the settlement agreement,” said Keall.

The words of the release included full and final settlement and discharge of all present and future claims, whether known or unknown, the Court of Appeal said.

The Court also provided its opinion on Prattley’s entitlements under the policy, and whether the insured was entitled to market value or depreciated cost on destruction.

The Court of Appeal determined it was the latter.

Another industry commentator, McElroys partner Peter Hunt, previously told Insurance Business after the Court of Appeal decision that while the Court indicated its preference for depreciated replacement cost over market value as a measure, it relied on a special note in the schedule.

This referred to reinstatement to ‘reasonably equivalent appearance and capacity using original design and suitably equivalent materials’ to reach that conclusion.

“Absent those words, which represented the special character of the building, the outcome may have been different,” he said.

“The Court agreed that the policy language dictates what the insurer’s indemnity means in any given case.”

While it was hard to know what precisely the Supreme Court was referring to by ‘the nature and extent of the respondent’s liability under the insurance policy’, as stated in the approved grounds for appeal, the proper measure of indemnity value had clearly been an important issue before the Court of Appeal, one legal commentator said.

It also appeared that the Supreme Court saw some room to argue whether the release clause in the agreement covered the kind of mistake Prattley was alleging, they said.

Related stories:
Prattley appeal court decision welcomed
Why I hold State Insurance responsible
Five Minutes With… Steve Keall, Auckland barrister