NZHC 981
This recent earthquake judgment looks at whether the insurer or the insured has the right to elect how settlement is reached under the policy, and also whether the insurer has made an election. It also indicates that the courts are concerned at the length of time being taken to settle the earthquake claims.
Domenico Trustees Ltd (Domenico) owned a house which was left a total loss by the Christchurch earthquakes. The house was insured for replacement value by Tower Insurance Limited (Tower) under a "Provider House Policy Maxi Protection" policy. Tower admitted liability for the damage, but Domenico and Tower have been unable to agree on an amount payable under the policy.
Initially, Tower offered Domenico an amount estimated by its assessors as being the cost of rebuilding the house. This offer recorded that the right in the policy for a cash payout was for indemnity value only, but that Tower was currently offering cash settlement on the basis of the full rebuild cost.
Domenico queried some of the amounts in Tower's offer, and Tower responded with a second offer to pay $254,501, and to also manage the demolition of the house. Domenico responded by issuing court proceedings, seeking a cash payout of $842,392. Justice Gendall recorded that:
Through the course of the proceedings Domenico's claim regularly reduced, down to what became an accepted figure of $370,000.
Who has the right to elect?
Tower's policy provided that they will pay:
- the full replacement value of the house on the current site;
- the full replacement value of the house on another site, providing the cost is no more than rebuilding on the current site;
- the cost of buying another house, providing the cost is no more than rebuilding on the current site; or
- the present day value.
The policy also said that "we have the option whether to make payment, rebuild, replace or repair your house".
Justice Gendall affirmed the decisions in Skyward Aviation 2008 Ltd v Tower Insurance Ltd  NZHC 1856 and Rout v Southern Response Earthquake Services Ltd  NZHC 3262, noting that the "express terms of the policy provide for reinstatement as an option, and vest that option in Tower's discretion".
He said that:
Has there been a formal election?
The primary issue in the judgment is whether Tower has elected to settle by cash payment, and cannot now elect to reinstate the house.
As Gendall J said of election:
A similar claim was raised in Skyward Aviation, where the offer to the insured, as in this case, was not one of the options strictly made under the policy. Justice Gendall reiterated what he said in Skyward Aviation, that:
In this case, discussions between Tower and Domenico always made it clear that a decision had not been made. While it was intimated that Tower had a desire and an interest in settling the claim by making a cash payment, it was also prepared to arrange for reinstatement of the house. In any event, the settlement discussions had always been in respect of a cash payout of more than indemnity value, and therefore not one of the options in the policy. There had therefore been no unequivocal election.
Election and waiver
Justice Gendall noted that election must be of a choice between one of the available options, and not an option not provided for in the relevant policy. However, he said that:
It remains to be seen whether this argument would be successful in another case in which both election and waiver are pleaded, but this statement suggests that there would be merit in such a contention, if the facts support it.
Election through delay
After deciding that there had been no express election made by Tower, Gendall J then went on to consider whether there had been election through delay. He said that:
Justice Gendall said that it was an "unsatisfactory state of affairs" that claims made in 2010 and 2011 have still not been settled, and no election made. He decided that:
Tower is therefore deemed to have elected to settle the policy by making a cash payout. As the election can only be for an option under the policy, this is an election to pay indemnity value, unless and until Domenico rebuilds or purchases another house, and Tower's liability increases to cover that additional cost.
The end result
As Gendall J said, "there has been no true victor in this proceeding". Tower has resisted the claim by Domenico, but has been found to have elected to make a cash payout of the indemnity value of the house. There was no evidence for that amount before the court. Justice Gendall has left this to the parties to see if it can be resolved, given that a cost of rebuilding the house was agreed by all parties at the hearing.
A copy of the decision is available here.
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