The concerns we raised in our article "Does Tower really
hold all of the cards?" have been confirmed in the Court of
Appeal's decision, with Tower clearly not holding all of the
cards when it comes to choosing the basis for, and measure of,
settlement under their Provider House (Maxi Protection) Policy
Skyward, who was unsuccessful before Gendall J in the High Court
2, appealed to the Court of Appeal asking it to decide
the basis for, and measure of, Tower's liability under its
policy. The Court of Appeal, in its decision released on 20 March
2014, found in favour of Skyward. It held that:
Once it is established that the house is not economically
repairable, it is the policyholder who ultimately determines what
to do with the insured property; and
If Skyward elects to buy another house, Tower is to pay the
cost of that house up to the amount that Skyward would notionally
incur, if it rebuilt the house on the existing site.
What is the basis of Tower's
The "basis of settlement provision" in Tower's
In all cases:
we have the option whether to make payment,
rebuild, replace or repair your house;
The Court of Appeal held that, as a whole, the policy ultimately
pointed towards the election of whether or not to repair, rebuild
or purchase another property belonging to the policyholder. Where
it is established that the house is not economically repairable,
Tower has no right to choose the basis of settlement. They further
Only to the extent that the policy restricts its options should
the policyholder be deprived of its control over the repair,
rebuilding or sale of its property.
Once it is established that the insurer must fully indemnify
the insured, the insurer should be indifferent to the insured's
Up until that point, the insurer has a direct interest in any
claim decision, as that will establish how much it will pay.
The Court of Appeal confirmed that Tower was not to pay anything
more than the present day value of the property until the costs of
reinstating, rebuilding or replacing were actually incurred by the
What is the measure of Tower's
The Court of Appeal held that where the house is not economical to
repair, the maximum amount payable by Tower to Skyward is
materially the same, ie full replacement value of the house at the
existing site, full replacement value of the house at another site,
and the cost of buying another house.
The Court of Appeal held that if Skyward chooses the 'buy
another house' option, then there is no other control or limit
on the size, style or quality of the other house. Should Skyward
purchase another house at a greater cost than the notional rebuild
cost, then it would have to pay the difference.
The Court of Appeal also dismissed Tower's submission that
the principle of indemnity would be offended if Skyward elected to
replace the property, as it would receive the equivalent of the
notional costs of rebuilding on the existing site because Skyward
would receive something different and better than the original
house. The Court discussed the fact that the parties had agreed
that Tower's obligation to pay under the policy would be
measured in one of two ways (ie a payment for present day value or
full replacement value). The policy provided for full replacement,
which necessarily means that Tower's liability is greater than
1The New Zealand Court of Appeal overturned
Gendall J's decision in the New Zealand High Court, as
discussed in our article "Does Tower really hold all of the
cards?", dated 22 August 2013. 2Skyward Aviation 2008 Ltd v Tower Insurance
Limited [NZHC] NZHC 1856.
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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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