Ridgecrest: no game-changer

Ridgecrest: no game-changer | Insurance Business

Ridgecrest: no game-changer
Suggestions that brokers and insurance lawyers may be inundated with earthquake cases needing to be reopened following a Supreme Court judgement decision this week may be exaggerated, industry experts say.

The pivotal judgement was announced by the Supreme Court on Wednesday as part of the Ridgecrest New Zealand Ltd v IAG New Zealand Ltd case, which triggered mainstream media reports that insurance companies may have to pay millions more in payouts to clients.

Numerous cases have been put on hold pending the outcome of this judgement which may now proceed, but concerns were also raised that insurance lawyers and brokers may be approached by scores of clients wanting their cases reopened.

But, Tim Grafton, CEO of the Insurance Council of New Zealand (ICNZ), put the brakes on that saying: “The wordings in the contract between IAG and Ridgecrest were unusual and certainly not typical of commercial contracts and therefore the Supreme Court’s decision is no game-changer as some commentators have been making out.

“It’s really something that’s particular to the wordings to the Ridgecrest contract.”

He added: “The feedback from insurers we’ve been in touch with is that they don’t have contracts that are structured in the way in which the Ridgecrest one was.”

The three matters being considered by the Supreme Court were:
  • Whether the policy required the insurer to make payments in relation to the earlier earthquakes as well as the final earthquake;
  • Whether the losses resulting from the earlier earthquakes should be treated as merged or subsumed in the losses caused by the final earthquake; and
  • Whether Ridgecrest’s claim is precluded by the indemnity principle.
The Supreme Court decided that IAG would have to make payments on the earlier earthquakes; that the merger principle would be inconsistent with the scheme of the policy; and that because the policy provided for both indemnity and replacement cover, it was possible for an insured to recover more than the indemnity value of the building.

However, to counter this it specified that IAG was not liable to pay for the same damage twice, and that the total of all claims paid could not exceed the replacement cost of the building.

Property developer Ernest Duval, of City Owners Rebuild Entity (CORE) had said it was possible that a large number of claims could come forward as a result of the judgement.

“Certainly the sums involved could be very, very substantial and there’s certainly an incentive for property owners to do that,” he told Radio New Zealand.

However, IAG spokesperson Craig Dowling said he felt this was unlikely as far as IAG was concerned, due to the particular policy wording that was under consideration by the court.

He said: “Therefore it is unlikely on its own to set a precedent for other commercial earthquake cases involving IAG that are before the courts.”

He said IAG was pleased that the clarification would enable the claim to be progressed.

One broker from a major firm, who did not wish to be named, told Insurance Business that following the announcement he had consulted with technical experts and braced himself for a surge of approaches from clients.

But, he said: “Only one has contacted us since yesterday morning and his claim is still open. I expected more people to be approaching us.

“It’s so late in the piece it’s only a very small number of people that this decision will help.

He added: “Most people have signed full and final discharges which makes it very difficult to revisit.”

President of the New Zealand Insurance Law Association and partner with Jones Fee, Craig Langstone, who has been following the case closely, said it was possible that settlement agreements could be undone due to legal technicalities.

“There’s bound to be some who come back and give it a go, it’s human nature.

“I would say to people to check their policies and check what they actually say, seek legal advice and talk to their brokers about what it actually means to them if they haven’t already settled their claim.”

Referring to what he described was the ‘crucial point’ about the total of all claims not exceeding the replacement cost of the building, he said: “I think that is probably what the insurers would say is the upside of the decision, that and the fact that the NZI wording is a little unusual, and so is perhaps different than most of the commercial policies on the market.”

Langstone said it was important to remember that this was just a directive in a larger case and the facts of that were yet to be heard.