The Supreme Court has issued the final word in the litigation
between Southern Response and Avonside Holdings. The issue in
question was whether Southern Response was required to include a
sum for contingencies and an allowance for professional fees in its
settlement offer in a situation where the home owner was not
rebuilding their home, but instead buying another house.
To recap, Avonside's property was damaged in the earthquakes
of 4 September 2010 and 22 February 2011. The house was damaged
beyond economic repair and Avonside elected to purchase another
property as it was entitled to do under the policy. The policy
provided that the costs of the replacement property can be no more
than "rebuilding your rental house on its present
Allowance for contingencies
The High Court held there should be no allowance for
contingencies because as it was a 'notional rebuild', the
unexpected events which the contingency sum was to provide for
would not occur. The Court of Appeal disagreed. It held that
contingencies must be included, and that there should be no
distinction drawn between an actual rebuild and a 'notional
rebuild'. The policy required the insurer to pay an allowance
for contingencies "as if the house is actually being
rebuilt" and it did not matter that the unexpected events,
which the contingency sum was to provide for, would not occur.
The Supreme Court has upheld the Court of Appeal's decision
in relation to contingencies and confirmed that Southern Response
was required to estimate the actual cost of rebuilding the house on
In determining what these actual costs would be, an allowance
for risks that might generally be encountered during an actual
rebuild was required.
Allowance for professional fees
The Supreme Court upheld the Court of Appeal's decision in
relation to professional fees also. It confirmed that professional
fees were to be estimated in the same manner as contingencies, that
is: "to estimate the actual cost of rebuilding on the
What does this decision mean for you?
With insurers' increasing preference to seek a cash
settlement of insurance claims, it is crucial to ensure that
homeowners receive everything that they are entitled to under the
terms of their policy, and that they obtain sound advice on the
terms of any settlement offered. In Avonside's case, it was
entitled to an amount significantly more than what its insurer had
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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”
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).