New Zealand: Judgment Summary - insurance policy - Michael Charles East, Jane Louise East and Ingrid Robyn Taylor v Medical Assurance Society New Zealand Ltd

[2014] NZHC 3399

The plaintiffs own a home in Merivale, Christchurch, which was damaged in the earthquakes. The Easts have advised MAS that they wish to restore their home. This judgment considered the timing of when MAS needed to make payment to the Easts, and the extent of work required to restore their home.

The policy

There was some confusion over the applicable version of the policy, but Whata J proceeded on the basis that the 2008 policy (MGLD003 11/08) was the relevant policy. Its relevant clauses are as follows:

"Our Undertaking
The Society undertakes that if, during any period for which the premium has been paid, any unintended and unforeseen physical loss or damage occurs or costs or losses arise which have been provided for by the Policy, its Schedule or any Renewal Advice, then the Society will compensate you in the manner and to the extent described.

A Dwelling

  1. Dwelling – Replacement Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the society will cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws. There is no maximum sum insured but the liability of the Society shall not be greater than the reasonable cost to rebuild or restore the dwelling based on a floor area no greater than that declared in the proposal and specified in the Schedule.
  2. Dwelling – Agreed Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the Society will cover the cost of rebuilding or restoring the dwelling as in 1 above but subject to the maximum sum insured stated in the schedule. This sum will be increased each year in accordance with building cost changes.
  3. Holiday Home – when selected is subject to Agreed Value conditions as in 2 above.

In any case, if you elect not to rebuild or restore the building we will make a cash settlement not exceeding the indemnity value as assessed by a qualified valuer."

The Easts' policy schedule did not record a maximum sum insured, but specified a floor area of 351m2.

The timing of the payment

MAS's position was that under the policy, if the Easts elected to replace or restore the building, that it was only obliged to make payment to the insured when the costs are actually incurred.

Justice Whata stated that:

"I do not accept that the Easts could reasonably have expected to be burdened with an invoice by invoice approval procedure not provided for in the policy. The more obvious meaning of "cover the cost" in context is that MAS will pay the reasonable cost of the rebuild or restoration. This may present problems where there is disagreement (as here) about what is required to restore the building to an as new condition... But that does not mean the parties default to a invoice by invoice approval system. Indeed such a system could lead to the situation where MAS refuses to approve a cost item leaving the Easts to either pay and or sue mid construction. As I say, express words were needed to alert the Easts to this potential outcome. Conversely, the Easts must reasonably have expected that they will in a position to pay for the cost of a rebuild before it takes place."

He therefore decided that:

"if the Easts elect replacement value cover, MAS is obliged to pay compensation provided the amount claimed is necessary to cover the reasonable cost to rebuild or restore the dwelling based on a floor area no greater than that declared in the proposal and specified in the Schedule. Liability to make payment is not conditional on the costs actually having been incurred."

The work required for the house to be "as new"

The main dispute between the Easts and MAS in respect of the work required on the house is the extent of ground repair required, and whether low mobility grout is a suitable method of ground repair for this property, or whether underpinning or a similar engineering response is necessary.

MAS's contention was that its obligation was "to return or restore the house to its as new condition as at 2007 – that is in accordance with the standards that existed as at 2007", 2007 being when the house was built.

Justice Whata rejected this submission, and said that:

"the policy contemplates a restoration to a condition as new at the time of the rebuild or restoration, not "when new" in 2007. Moreover, "as new" naturally implies rebuild or restoration of the home in accordance with contemporary standards...
I accept that "a condition substantially the same as new" does not mean completely new. It is an approximate standard. Nevertheless the policy plainly envisages and the parties could reasonably expect, that contemporary standards for building works, applying modern materials and meeting minimum building requirements, will be adopted."

Justice Whata considered expert evidence from a number of geotechnical experts and structural engineers. He decided that although the land did not perform poorly in terms of the MBIE guidelines, there were differences in the ground across the property, and the appropriate repair strategy needs to carefully assess the load bearing capacity of the soils.

He stated that:

"I am therefore satisfied on the balance of probabilities that a specific engineering response, for example underpinning, is necessary in order to restore the house to a "substantially the same as new" condition".

Building consent

Justice Whata noted that the resolution of the foundation repair issue by him is not the final word on the matter, as the Christchurch City Council is free to grant whatever building consent it thinks appropriate.

A decision on the quantum of the claim was reserved, both because of one witness accepting that there were problems with his calculations, and because Whata J decided that:

"in order to properly finalise the reasonable costs of the restoration, the Council must first consider whether it is prepared to grant consent to an LMG relevelling notwithstanding my judgment."

A copy of the decision is available here:

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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Stephanie Grieve
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