New Zealand: A victory for common sense - Ridgecrest v IAG

Last Updated: 21 October 2014
Article by Susan Dwight

At the time of the Christchurch earthquakes it was common for commercial buildings to have replacement insurance for loss or damage up to a maximum liability limit or 'fixed sum'. Often these policies provided that the fixed sum would apply to each loss causing event during the period of insurance. Whilst fixed sum policies were also in place for residential properties this was much less common, most of them had full replacement insurance.

During the period September 2010 to June 2011 Christchurch suffered hundreds of earthquakes and at least four caused significant damage to buildings. Many policyholders with fixed sum policies made claims for successive earthquakes. It was possible for such claims in aggregate to exceed the fixed sum and even the full replacement cost of the building. Such claims were often resisted by insurers and one such case was recently considered in the Supreme Court in Ridgecrest NZ Limited v IAG New Zealand Limited.

Ridgecrest was the owner of a commercial building that suffered damage in four earthquakes. The building was damaged beyond repair in either the third or the fourth of the earthquakes. Its policy contained a maximum liability limit of $1,984,000 for each event. What was in issue was whether Ridgecrest was entitled to be paid for the damage resulting from each earthquake up to the $1,984,000 policy limit in each case or whether the losses resulting from earlier earthquakes should be treated as having been subsumed in the loss caused by the final earthquake under a legal principle known as "merger".

In some insurance contexts, notably marine insurance, where a series of partial losses are followed by a total loss the principle of merger limits the insured's right of recovery to the final total loss only. When applied the principle can significantly reduce the amount an insured can recover under their policy. In Ridgecrest the insurer argued that merger should be applied to fire and general policies of insurance.


To demonstrate how merger might work let us assume that a building owner, ABC Limited, has earthquake insurance with a fixed sum limit of $2,000,000 per event and the building would cost $4,000,000 to replace if totally destroyed. The building suffers damage in three earthquakes which to repair would cost $200,000, $300,000 and $500,000 respectively. It then suffers damage in a fourth earthquake and is totally destroyed and cannot be repaired. If merger does not apply ABC Limited can recover for losses suffered in each earthquake. For the first three earthquakes it will recover the sum of the repair costs of $1,000,000 and for the fourth earthquake the fixed sum limit of $2,000,000, a total of $3,000,000. If merger applies however it will make no recovery for the first three earthquakes as the losses suffered in those earthquakes will be regarded as having been subsumed in the final loss. It will only recover one payment of the fixed sum limit being $2,000,000.

The Ridgecrest case had reached the Supreme Court as a result of controversial decisions of the High Court and Court of Appeal which had both held against Ridgecrest but for different reasons. The High Court had arrived at its conclusion by the plainly incorrect view that Ridgecrest's policy could not be enforced against the insurer as it had been frustrated by the earthquakes; a conclusion the Supreme Court noted was not plausible. The Court of Appeal held the policy was not frustrated but took a technical approach to the way the case had been presented by Ridgecrest's lawyers to deprive Ridgecrest of recovery for more than one payment of the liability cap.

The Supreme Court has now held that the doctrine of merger did not apply here and that the policy wording provided Ridgecrest with an independent right to recover both its partial unrepaired losses and its subsequent total loss. The Court found that the merger principle was inconsistent with the terms of the insurance policy and in particular its term that provided for the resetting of the liability limit after each event that caused loss.

However, in a very important qualification to its judgment the Court also held that an insured could never recover more than what it had lost which would preclude an insured from ever recovering more than the replacement cost of its building.


To demonstrate how that qualification might work, if in the example earlier ABC Limited's building suffers damage in three earthquakes that will cost $3,000,000 to repair and is then totally destroyed in a fourth earthquake ABC Limited will never be able to recover more than the cost to replace the building of $4,000,000. This is so even though the aggregate of its claims for the four earthquakes might well exceed that figure.

The decision is a victory for common sense and should be welcomed by insurers and insureds alike. For insureds the certainty that had been taken away by the early decisions in the High Court and Court of Appeal as to the ability to make successive claims in appropriate cases has been removed. For insurers it is now clear that whilst it is possible in some cases for an insured to make more than one claim for successive losses which exceed the fixed sum, the insured can never recover more than its actual loss.

As with most insurance cases the result in Ridgecrest was determined by the terms of the policy. The Supreme Court noted that the merger principle was not a free standing legal rule operating independently of the agreed contractual relationship between the parties. In this case the application of the merger principle would be inconsistent with the terms of the policy.

The lesson for policy holders is to carefully read and understand the terms of your policy before loss occurs.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Susan Dwight
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions