You should read this ifyou are handling an
insurance or reinsurance claim arising from the New Zealand
The New Zealand courts are now handing down judgments on a
number of unique insurance issues that arise out of the Canterbury
earthquakes in 2010/2011.
Due to the enormous volume of cases, the High Court in
Christchurch has established a dedicated list. The list is
intended to streamline the dispute resolution process.
On 23 October 2013 Fogarty J. handed down an important judgment
in Wild South Holdings & Maxims Fashion Limited v
The issues heard included the effect of an Automatic
Reinstatement of Amount ("ROA") clause and whether the
insurer could still give notice of cancellation of the ROAs.
ROAs were a common feature in commercial property policies in
Christchurch. Prior to the earthquakes, it was assumed that
commercial buildings in Christchurch were unlikely to suffer
significant loss more than once in a year. Christchurch,
unlike Wellington, was also not appreciated to be an area at
immediate earthquake risk.
The Wild South ROA provided:
"In the absence of written
notice by the Insurers or the Insured to the contrary, the amount
of insurance cancelled by loss or damage is automatically
reinstated from the date of loss. The Insured undertakes to pay
such pro-rata premium at the rate applicable to the item or items
concerned as may be required for the reinstatement."
The ROAs have now assumed significance because of the extent to
which many owners of commercial buildings in Christchurch were
under-insured. Policyholders are seeking to rely upon the
ROAs to reinstate their limit for the second and subsequent
In Wild South the Court determined the insurer may
still be able to give notice of cancellation if a reasonable period
of time had not elapsed.
Two further decisions, however, Marriott v Vero
Insurance and Crystal Imports v Lloyd's, have,
for the time being, removed any prospect that notice of
cancellation can be given retrospectively by the insurer.
These decisions have both been appealed to the New Zealand Court
of Appeal, with a hearing date on 4 and 5 March 2014.
It seems unlikely that the Court of Appeal will be willing to
allow the insurers more latitude than they have been given by the
High Court with respect to the cancellation of ROAs. This is,
particularly, the case where a number of insurers are still trying
to resolve significant numbers of claims arising from the first
earthquake in September 2010.
Reinsurers and reinsureds with exposure to claims from the New
Zealand earthquakes should carefully consider policyholder rights
of reinstatement of limit. Where such rights exist within the
policies reinsured and could have been cancelled, issues could
arise about reinsurer's liability for claims arising from the
second and subsequent earthquakes.
This blog post is based upon articles that David wrote for
Insurance Day which can be viewed here and here.
As first published in Insurance Day on 21 November
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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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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