The Court of Appeal has now addressed the interpretation of an
insurance policy in response to multiple event claims, confirming
that an insured is entitled to be indemnified for each loss
resulting from insured events: Ridgecrest New Zealand Limited v
IAG New Zealand  NZCA 291, on appeal from Dobson J's
decision in the High Court in November 2012.
Ridgecrest was insured for replacement cover under a State
"Businesspack" policy. As a result of the Canterbury
earthquake sequence, Ridgecrest lodged four claims for earthquake
damage, following earthquakes on 4 September 2010, 26 December
2010, 22 February 2011 and 13 June 2011. Each of those claims had
been accepted by IAG.
The Court focussed on each claim individually, rather than
treating them as a composite, and held that each claim should be
dealt with under the replacement cover clause, clause C2. That
clause stated that IAG would pay either the cost of restoration (ie
repair) to the same condition when new, or replacement, where
"... following loss or damage you restore or replace the
lost or damaged Business Assets".
The policy did not contain a "reinstatement of cover"
clause, but did allow for the insurer to cancel the policy if there
was a change in circumstances material to the extent of risk. Here,
IAG did not cancel the policy after any of the claims were
Ridgecrest argued that IAG were obliged to pay the estimated
cost of repairs (whether carried out or not) required to restore
the building after each event, up to the limit of the sum insured
in each case.
The Court rejected that argument.
Instead, the Court held that where the building was damaged but
repairable, IAG was liable under clause C2 for the cost of
restoring the building to the same condition as when it was new.
Quantification of that liability, however, depended on the repairs
actually being carried out, and the amount of liability would be
the actual cost of those repairs. That follows from the
wording of clause C2 "... following loss or damageyou restore or replacethe lost or damaged
Business Assets" (emphasis added).
Ridgecrest was therefore entitled to receive the cost of the
repairs actually carried out after the first two earthquakes, even
though the building had not been fully repaired before the next
earthquake struck. Ridgecrest was also entitled to the cost to
replace the building following the third earthquake, up to the sum
insured, less any deductions. Whether the building was damaged
beyond repair after the third or fourth earthquake was not material
to the ultimate outcome, as no repairs had been costed or carried
out after the third earthquake.
The Court of Appeal rejected the High Court's view, based on
the doctrine of frustration, that IAG was relieved of its
obligation to pay the cost of the remaining repairs to Ridgecrest
as it was impossible for IAG to complete the September and December
repairs. It reached the same conclusion applying the policy
wording; as the remaining repairs had not been and would not be
carried out, Ridgecrest could not recover those costs in addition
to the replacement value of the building.
The Court of Appeal did not express a view on the doctrine of
merger of liabilities, leaving that issue to be determined by the
full hearing of TJK NZ Ltd v Mitsui Sumitomo Insurance
This case did not deal with a policy renewal between events,
with or without limitations or additional conditions imposed. Our
view remains that an insured in that situation would be entitled to
seek their loss, up to the sum insured, for each policy period.
The overarching principle that an insured can never recover more
than the value of the loss, but may in some circumstances recover
more than the sum insured, remains intact.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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