Hot on the tail of the recent decision in Wild South
Holdings1 the High Court has had another post-quake
opportunity to analyse a commercial material damage insurance
policy, this time one of Vero's. In Marriott v
Vero2 Justice Dobson was asked to answer a number
When is an insured building "destroyed" for
the purposes of the policy?
Does the sum insured reinstate after each earthquake
Are the policyholders entitled to repair costs up to the sum
insured for the damage caused by each earthquake event?
Is the excess/deductible deducted from the amount of the loss
or from the payment due under the policy?
The Marriotts' two small commercial buildings, which shared
a common wall, were damaged in the 4 September 2010 and 22 February
2011 earthquakes. Vero says the buildings were destroyed for the
purposes of the policy in the February 2011 earthquake. The
Marriotts maintain that the building suffered further damage in the
13 June 2011 earthquake (post-renewal).
When is an insured building destroyed for the purposes of the
The Marriotts argued that the buildings were not to be destroyed
until the extent of the damage was such that they were not able to
be repaired. This depends on the physical state of the building and
the practicalities of repair. Vero argued that when a building
becomes uneconomic to repair, it is deemed "destroyed".
The relevance of the question is, if Vero is right, after the first
event the building is uneconomic to repair, the subject matter of
the policy is destroyed so there is nothing left to insure for the
second event. There can be just one claim. Justice Dobson accepted
that the assessment is a physical one and found that an insured
building is destroyed for the purposes of this policy when the
extent of damage makes it physically unpractical to repair the
building to its pre-damage condition.
Does the sum insured reinstate after each earthquake
Similar to most reinstatement of sum insured clauses,
Marriotts' policy provided that, in the absence of written
notice by Vero or the insured to the contrary, the amount of
insurance cancelled by loss is to be fully reinstated as from the
date of the occurrence. Justice Dobson considered the contractual
context and purpose of the clause, whether the words contemplate
retrospectivity and the risk of notice inherent in the original
bargain. He found that the event of loss operates as a trigger for
a claim, leading to a reduction in the insurance available to the
insured . The sum insured reinstates after every event and does not
need to await finite qualification of the extent of
loss4. The practical constraint on giving notice is
simply that it must be given prospectively and the notice must
occur before the insured's reasonable reliance on reinstatement
of the sum insured estops the insurer from denying it had occurred
Justice Dobson did note that, while the notice must be given
prospectively, there is no period of warning before reinstatement
does not apply. This may catch some insureds by surprise, given
that notice will take effect immediately. The insured then bears
the risk of having reduced cover from the date of that notice until
it can find alternate cover. This may put them in breach of their
lease or mortgage conditions. His Honour suggests that an insured
would prudently move promptly to arrange alternative insurance from
that point on. One wonders whether such cover would ever be
Are the Marriotts entitled to repair costs up to the sum
insured for the damage caused by each earthquake
Vero's primary obligation is to indemnify after each
occurrence (it is not required to meet repair costs until those
costs are incurred). Therefore, the Marriotts are entitled to be
indemnified (in that case quantified on the basis of depreciated
replacement cost) for the earlier event and the reinstatement up to
the policy limit for the February event.
Is the excess as deductible deducted from the amount of
the loss or from the payment due under the policy?
Justice Dobson confirmed Justice Fogarty's finding in Wild
South, that the excess is to be deducted from the payment otherwise
due under the policy, not from the gross value of the loss, which
may exceed the sum insured and mean no deductible is payable.
It will be interesting to see whether an appeal will be
1Wild South Holdings Ltd and Maxims
Fashions Ltd v QBE Insurance (International) Ltd  NZHC
2781 (Wild South). 2Marriott v Vero Insurance New Zealand Limited
 NZHC 3120 [26 November 2013] 3Marriott v Vero at . 4Marriott v Vero at 
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