New Zealand: New Christchurch earthquake judgment - Jarden v Lumley General Insurance (NZ) Ltd

David John Jarden and Joanne Jarden v Lumley General Insurance (NZ) Ltd

[2015] NZHC 1427

The Jardens own a house on a lifestyle property just north of Rolleston. Their house was damaged in the Christchurch earthquakes.

The Jardens' statement of claim sought a rebuild of their house, on the basis that it is not economic to repair as the estimate cost of repair is more than 80% of the estimated cost of a rebuild. They seek an order for payment from Lumley of the cost of repair, less the amount received from the Earthquake Commission (EQC). The Jardens' insurer, Lumley, says that much of what the Jardens have claimed for is either pre-existing damage, or not damage at all.

The damage to the house

The Jardens complained that the damage to the house included the brick cladding coming loose from the timber framing, cracks in the house's slab foundation, a possible void underneath the slab, the floor not being level, the interior walls not being plumb and experiencing some cracking, and a leak in the roof. They claimed that all of these things were a result of the earthquakes.

Lumley's experts considered that the cracks in the floor slab were the result of natural, non-seismic shrinkage, that it was very unlikely that there were voids beneath the slab as there has been no liquefaction in the area, and that the limited damage to the roof was more indicative of wind damage than earthquake damage.

With such a difference of opinion in respect of both the extent of the damage and the cause of the damage, the main issue in this proceeding became what evidential standard must be met by an insured to prove their loss.

Justice Kós confirmed that "the burden of proof in a claim under a policy of insurance lies in the plaintiff. In this case, the policy holder." He also noted that:

"proof on a balance of probabilities must be applied with common sense. It required the trial judge to be satisfied on the evidence that an event or outcome is more likely to have occurred than not:
'If ... a judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred that not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such burden.'"
[Justice Kós quoting Lord Brandon in Rhesa Shipping SA v Edmunds [1985] 1 WLR 948]

In respect of a number of issues, Kós J found that there was not sufficient evidence to prove the Jardens' claim, either in relation to the pre-earthquake condition (for example whether the walls had ever been perfectly plumb) or in relation to the current condition (there had been no ground-penetrating radar used to see whether there were in fact voids underneath the slab). In relation to the latter, Kós J said:

"The Jardens' evidence on this is inadequate and unpersuasive. The fact that better evidence might perhaps have been obtained with more effort is neither here nor there. This was the occasion for the Jardens to put their best evidence forward, as plaintiffs, and they have not done so. They have not shown that such damage is more likely than not. There is therefore no basis to order further testing as part of an interim judgment only."

Justice Kós also decided that the slight differential in the levels of the floor were likely an original feature of the construction, as were the interior walls which were not perfectly vertical.

Justice Kós therefore declared that certain items of damage were natural disaster damage covered by the policy, but that other items were not covered. The Jardens are entitled to payment from Lumley for the cost of repairing the earthquake-damaged items, where there is a liability in excess of the payment from EQC.

As Lumley's policy provides that they will "pay the costs actually incurred to repair or rebuild it", Lumley is liable to pay the Jardens for the cost of repairs "once costs have been incurred and to the extent that they exceed EQC's $179,163 payment".

A secondary issue – EQC settlement

The EQC was originally a party to these proceedings, but EQC settled with the Jardens shortly before the hearing. The claim against EQC was for amounts for both the September 2010 earthquake and the February 2011 earthquake, and for general damages. The settlement agreement did not specify how the settlement amount was to be apportioned between these claims, although did specify that of the $179,163 paid by EQC, $123,850 was to be paid to the Jardens' mortgagee, and the remaining $55,313 to the Jardens personally.

Justice Kós noted that the witness from EQC was not asked about the apportionment of these amounts. He then said that:

"Counsel for the Jardens later invited me to infer that the second tranche was for costs and disbursements only. The result would be that Lumley's top-up liability begins at the lower $123,850 number. I decline that invitation. The inference cannot be drawn on the evidence. Tea leaves are no substitute for testimony. If the point was important, as it later proved to be, the witness should have been examined on it."

This serves as an important reminder to consider the apportionment of any settlement with EQC as between each different event and any other amounts claimed, and to ensure that this is recorded in the settlement agreement.

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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