New Zealand: Judgment summary - Tower Insurance Limited v Skyward Aviation 2008 Limited

[2014] NZSC 185

Skyward Aviation 2008 Limited owned a property in Burwood, Christchurch (the property) with a 207m2 early 1900s villa home (the house) and a 64m2 free-standing sleep-out built in 2009 (the sleep-out). Both the house and the sleep-out were damaged in the earthquakes, and the property is within the residential red zone.

Skyward and Tower were unable to reach agreement on how to calculate the amount to be paid to Skyward for the house.

The policy provided for four alternative options for settlement. There are:

  1. the full replacement value of the house at the situation; or
  2. the full replacement value of the house on another site chosen by Skyward. This cost must not be greater than rebuilding the house at the situation; or
  3. the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding the house on its present site; or
  4. the present day value.

High Court decision

In the High Court, David Gendall J decided that it was Tower's choice whether to make payment, rebuild, replace or repair the house. He also decided that where the choice is to buy another house, the maximum amount payable is calculated on the cost of purchasing a house which is comparable in size, construction, style, and condition.

Skyward appealed this decision.

Court of Appeal decision

The Court of Appeal reversed the High Court's judgment, making three observations:

"First, only to the extent that the policy restricts its options should the policyholder be deprived of its control over repair, rebuilding or sale of its property. Second, once it is established that the insurer must pay the full measure of loss, it should be indifferent to the policyholder's decision about how to reinstate the property. Third, until that point the insurer has a direct interest in how the claim is settled, since that decision will determine how much it will pay."

The Court of Appeal therefore decided that the homeowner has the ultimate right to decide what to do with the property, and that if the house is not economically repairable it is not up to Tower to choose the basis of settlement. The insured is the one who can chose whether to rebuild on that site, rebuild on another site, or buy another house.

The Court of Appeal then considered the correct way to calculate the amount payable for the purchase of another house. The High Court had said that if the insured was going to purchase a new house, then it should be comparable to the one being replaced. The Court of Appeal disagreed, and said that:

"The amount payable by Tower if Skyward buys another house is not subject to any other limitation. In essence, the policyholder is not obliged to choose a house of comparable size, construction, condition and style as its existing house once it is agreed that its existing house is damaged beyond economic repair."

The only limitation in the policy was that the cost of buying another house must not be greater than the cost of rebuilding the house on its present site.

Tower then appealed this decision.

Supreme Court decision

The Supreme Court noted that Tower had, pursuant to the policy, the option to make payment, rebuild, replace or repair the house, and in this case it was common ground that Tower has elected to make payment. They also recorded that:

"We note in passing that the assumption of the parties is that under option (c), 'the cost of buying another house' refers not to the price paid by the insured for the land and house but rather only that portion of the price which is referable to the house. We have not been asked to determine whether this assumption is correct."

The Supreme Court then went on to consider the main issue before it, how the amount payable by Tower is to be calculated. They noted that the insurance policy is for full replacement, on a new for old basis. They remarked that:

"The availability of such policies reflects a recognition that a traditional indemnity value policy may not provide sufficient funds to enable a damaged building to be repaired or rebuilt given that such exercises will require new materials and compliance with current building standards which may be more stringent than those in place when the building was constructed."

The Supreme Court then stated that these full replacement policies create a "heightened moral hazard", because an insured may obtain more than indemnity value for the damaged property and may therefore profit from the loss, and that as a result the "incentive for carelessness and fraudulent claims is thus greater than in the case of an indemnity value policy". They went on to say that the insurance policy generally mitigates the risk of the moral hazard, through mechanisms such as allowing the insurer the option of reinstating the house.

In this case, the Supreme Court decided that Tower had used its policy to manage the moral hazard using the mechanisms available, and:

"These come down to its entitlement to reinstate the house or, where it is not prepared to do so, to pay no more than indemnity value except by way of reimbursement for expenditure actually incurred. Once Tower has opted to make payment, its obligations are solely monetary in character and, providing the insured actually incurs the expenditure for which it is entitled to reimbursement, Tower should be indifferent to the mechanism by which Skyward triggers its right to replacement value recovery."

The Supreme Court therefore confirmed the decision of the Court of Appeal, saying that:

"we are satisfied that in a case where a house is damaged beyond economic repair and where Tower has decided not to rebuild or replace the house, Tower's payment obligations... are determined by the choice which the insured makes as to whether to rebuild the house or replace it on another site or buy another house."

The Supreme Court also rejected any suggestion that any house purchased as a replacement must be comparable to the existing house. They noted that if that was a requirement, Skyward would need to find a comparable villa build in 1900, and:

"The practical implications for Skyward (and indeed any insured) of such an approach are obvious. It may be that a house which is comparable to the insured house may not exist. If this is so, Skyward can be denied replacement value recovery during a vain search for such a comparable house. As well, given the impressionistic nature of the envisaged exercise, there would be scope for much debate as to whether a house identified by Skyward did in fact satisfy the test. Such debate could no doubt ultimately be resolved by the courts but this would be a time consuming process which might not be able to be concluded before the house in question was sold to someone else."

They therefore said that:

"we are of the view that if the insured chooses to buy another house, the only cap on the cost that Tower must meet is that it will not exceed the cost of rebuilding the insured house at its present site and there is no requirement that the house which is bought be "comparable" to the insured house."


In the Court of Appeal it was noted, in discussions regarding the cost of constructing special foundations for a house in the red zone, that:

"Mr Campbell QC accepts, following the judgment of Asher J in O'Loughlin v Tower, that Skyward is not entitled to claim that cost in circumstances where it will not in fact rebuild in the red zone."

The Court of Appeal therefore decided that Skyward is entitled to purchase a new house, up to the value of the cost of rebuilding the existing house, but excluding the cost of the special foundations that would have been required for a red zoned property.

There was no similar proviso included in the Supreme Court's decision. Instead, they have specified that "if Skyward buys another house, Tower must pay the lesser of the cost of the house or the cost of rebuilding the insured house on its present site", with no reference to foundations.

Counsel in the Supreme Court raised the fact that the O'Loughlin decision referred to above does not sit well with the Court of Appeal's more recent judgment in Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2014] NZCA 483, which decided that it is irrelevant whether the rebuilding will take place, and that what is required is an assessment of the costs that would be incurred if the rebuild were to occur.

The issue was raised in passing before the Supreme Court, but was not a specific issue that was open for them to determine, or on which they heard detailed argument. Whether the cost of special foundations is claimable, even where repairs will not actually take place, therefore appears to be a live issue.

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.

Stephanie Grieve
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