Crystal Imports v Certain Underwriters at Lloyds &
Sirius International Insurance (Ak Hc, Cooper J, 19/12/13)
A further decision was released by the Auckland High Court late
last year (Cooper J) regarding the effect of automatic
reinstatement of the sum insured clauses in material damage (MD)
policy wordings in the context of Christchurch earthquake claims.
The decision addressed similar issues to those previously
considered by the High Court in Wild South Holdings v QBE
Insurance and the Court of Appeal in Ridgecrest v
Cooper J's decision in Crystal Imports v Lloyds &
Sirius International Group Ltd was a determination of two
preliminary points prior to trial. These were firstly, the
defendants' (underwriters') liability under MD covers for
the separate damage caused to the plaintiff's (Crystal Imports)
five commercial properties caused by the September 2010 and
February 2011 Christchurch earthquakes. This involved substantive
consideration by Cooper J of the automatic reinstatement memoranda
in the MD wording. The second point concerned the application of
the average clause in the MD wording as far as the damage caused by
the February earthquake to one of Crystal Imports' properties
in New Brighton.
Crystal Imports owned five Christchurch properties that were
damaged initially in the September 2010 earthquake, and then
experienced more damage in the February 2011 earthquake. Three
properties were subsequently demolished as a consequence of
earthquake damage. Crystal argued that the September 2010 and
February 2011 earthquakes gave rise to two separate claims in
respect to of each insured property. Further, that the effect of
the reinstatement of the sum insured clause meant that separate
sums were available for each event that caused earthquake
The underwriters' position was that the full sum insured was
recoverable with respect to the three buildings demolished as a
result of the February earthquake. But there was no liability with
respect to the unspent cost of repairing the September 2010
earthquake damage. Further, that the proper construction of the
automatic reinstatement clause required both a covered loss and
secondly, that there must not be notice to the effect that there
should not be reinstatement. The underwriters also argued that the
doctrine of merger was applicable.
Cooper J found that the effect of the automatic reinstatement of
the sum insured clause was to reinstate the sum insured in respect
of the amounts paid. Cooper J did not agree with the reservations
expressed by the Court of Appeal in Ridgecrest with
respect to the application of the doctrine of merger outside the
field of marine insurance. The Court found that the
underwriters' liability to indemnify Crystal for the separate
damage caused by the September earthquake was limited to sums paid
at the time of the February earthquake. Thereafter, liability was
limited to the maximum amount set out as the sum insured for each
building (the full sum insured without deduction for the September
On the second question, if the average clause limited the
underwriters' obligation to pay the full sum insured for damage
caused by the February earthquake to Crystal Import's retain
property in New Brighton, Cooper J held that the value of the
insured property for the purposes of the average clause will
reflect the basis of recovery elected by the plaintiff in respect
of covered damage to that property (if Crystal elects not to
reinstate the property then the answer would be no).
The postcript is that the debate about the application of
reinstatement memoranda remains ongoing. We understand that this
issue is to be re-considered by the Court of Appeal in a combined
appeal concerning Crystal Imports (along with Wild
South and Marriott) scheduled for hearing later this year.
Further, it is reasonably likely that at some point the Supreme
Court will also be asked to consider the effect of reinstatement
memoranda in MD policies where multiple claim events have occurred.
So, watch this space!
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guide to the subject matter. Specialist advice should be sought
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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