New Zealand: Judgment summary: Kane Bruce Parkin v Vero Insurance New Zealand Ltd: repair of earthquake damage

Last Updated: 3 August 2015
Article by Helen Smith

Kane Bruce Parkin v Vero Insurance New Zealand Ltd [2015] NZHC 1675

Mr Parkin owns a house in Lyttelton, which was damaged in the Canterbury earthquakes.  At the time of the earthquakes the house was nearly new, having been built in March 2009.

As a result of the earthquakes, the house was briefly red-stickered, prohibiting occupation, and the initial land-zoning was white, requiring further review.  The house remained in the white zone until May 2012, when it was rezoned as green.

Vero arranged an initial assessment of the house in March 2011, after which it determined that the house could be repaired.  EQC's assessment in July 2011 produced a scope of works with a much higher cost of repair, raising the question of whether the house was a rebuild.  However, a further assessment by Vero confirmed that the house was a repair, and in October 2011 EQC settled with Mr Parkin based on Vero's report. 

Vero advised Mr Parkin that they were unable to complete a final scope of works for the repairs until the house was rezoned, as there was a possibility that either the property would be red zoned or that specific foundations would be required.  Mr Parkin was unhappy about the delay in progressing the claim, and appeared to be of the view that the house should be rebuilt, because of EQC's assessment.

After the property was green zoned Mr Parkin suggested obtaining a preliminary report from an engineering expert.  Vero's response was that its next step was for a full reinstatement scope, and that while an engineer's report may be needed later, it was premature at that stage.  Mr Parkin then advised Vero that he would obtain his own report.  He then issued this claim against Vero.

The main issues for the High Court to determine in this case were:

  • who had responsibility for and control of the reinstatement strategy;
  • whether Vero breached the implied term of good faith or the Fair Insurance Code;
  • what is the standard of repair required; and
  • whether Mr Parkin is entitled to an award of general damages.

Responsibility and control of the reinstatement strategy

The insurance policy provides that:

"We will insure you for Accidental loss or damage to your home at the situation shown on the schedule during the period of cover.
What we will pay – at our option
  1. the cost incurred in rebuilding or repairing the damaged portion of the home using currently equivalent building materials and techniques to a standard or specification no more extensive, nor better than its condition when new; or

  2. the indemnity value should you not rebuild or repair within 12 months unless we agree to extend the time period."

Justice Mander said that:

"The policy is clear on its face.  The insured, Mr Parkin, must actually incur the costs of remediating his property before Vero's obligation as the insurer is triggered to pay the replacement sum.  In the absence of Vero opting to pay the indemnity value as provided in the policy as the second of two options available to it after the elapse of 12 months, there is no entitlement on the part of Mr Parkin to a cash payment upon assessment and quantification of the loss alone...

Before Mr Parkin can incur repair costs, he is required to obtain Vero's consent to the method of repair and its cost, which may not be reasonably withheld by the insurance company."

He went on to note that:

"While Mr Parkin must actually incur costs, that does not equate to a requirement that he expend his own money.  Rather, a legal obligation to pay on his part is required to have been created."

Justice Mander therefore decided that Mr Parkin has control over the reinstatement of the property, subject to the requirement to obtain prior consent from Vero for the works.  However, this does not entitle Mr Parkin to payment from Vero until he incurs the cost of reinstatement.

Good faith and the Fair Insurance Code

Mr Parkin claimed that Vero breached both the implied duty of good faith and the Fair Insurance Code by not ensuring that Mr Parkin was aware that he had the right to control the reinstatement of the property.

Justice Mander decided that the evidence showed that Mr Parkin was always aware that he could obtain his own reports, rather than relying on the Vero claims management process.  He said that:

"I am not satisfied that Vero breached any contractual terms of the insurance policy, implied or otherwise.  While Mr Parkin's claim was managed within the purpose designed framework of the centralised process put in place by Vero to administer the large number of claims generated by the Canterbury earthquakes, it did not alter the terms and conditions of the policy which governed the contractual relationship between Mr Parkin and Vero.  I am not satisfied that Mr Parkin did not understand his contractual rights under the insurance policy.  He did not give evidence to that effect.  Nor am I satisfied that any actions on the part of Vero, in particular Mr Youl, led Mr Parkin to misapprehend the rights and obligations of the parties under the policy.

Mr Parkin was represented by an insurance broker who was actively involved in the claim process.  In my view, it is apparent that both parties saw advantages in having Vero directly involved in the management of the claim by utilising resources provided by MWHM to assess, scope, and cost the remedial work.  I do not find there was any breach of the obligation of good faith on the part of Vero in the way it sought to manage Mr Parkin's claim.  Similarly, I am not satisfied there has been any breach of the Fair Insurance Code".

In addition, Mr Parkin claimed that Vero's obligation to settle the claim, and the duty of good faith in relation to that obligation, carried on despite litigation having been commenced.  Justice Mander said that:

"Mr Webb's submission, in my view, is unrealistic.  Once a party has commenced proceedings against the other, that party has agreed to submit resolution of the dispute to the formal judicial process, which will be binding upon both parties.  It is unrealistic to suggest the parties are mandated to nonetheless resolve their differences.  While they are able to do this by way of settlement, there is no obligation to do so."

He therefore found that Vero did not breach the implied terms of the policy, or the Fair Insurance Code.

Standard of repair

Under the Vero policy, the standard of reinstatement is to repair or rebuild a house "to a standard or specification no more extensive, nor better than its condition when new".  Mr Parkin argued that this meant that repairs of the damaged portions of the house should be to a standard where it would be considered to be new, and not patched or second-hand. 

The main issue in this case was in respect of the remediation strategy for the foundations.  Mr Parkin said that he should not have to tolerate a building which had been "jacked and packed", or was in any way outside of new-build tolerances.  Vero's position was that if Mr Parkin's view was correct, "it would be impossible to ever discharge the obligation by repair, because a repaired element will never be identical to the item which was new."

Justice Mander decided that:

"It is unlikely that it was the parties' intention that every single item of damage would have to result in the damaged element being replaced, rather than repaired, which logically follows from Mr Parkin's construction of the standard of repair provided for by the policy."

He went on to say that:

"In my view, the purpose or utility to be achieved by the reinstatement of the individual item which has suffered damage cannot be divorced from the standard of remediation required to be achieved under the policy.  Broadly, the purpose of any particular part of the house can be divided into structural or functional components and those which have an aesthetic purpose; each, of course, is not mutually exclusive.  Where an item has only a functional purpose, so long as the repair or replacement restores that functional purpose to a "when new" condition, the obligations under the policy will be met.
Where there is also an aesthetic purpose there will be a need to ensure the remedial strategy also restores the former aesthetic to a "when new" quality.  That will not necessarily mean there will be an obligation to replace like for like, or to replace in every instance, but that may be the only realistic option in order to meet the standard of the policy."

As the foundations of the house are purely functional and have no aesthetic value, they could be repaired by "jacking and packing", rather than a complete replacement.

General damages

Mr Parkin had claimed $25,000 for general damages.  This claim was based on Vero's alleged failure to adhere to the terms of the policy.

Justice Mander declined to make an award for general damages, saying:

"I do not underestimate the personal stress and frustration Mr Parkin has experienced as a result of the earthquake damage to his house, however, in the circumstances of his case I have not found Vero to be in contractual breach of its obligations, or to have acted unreasonably in the circumstances.  There is therefore no foundation upon which an award of general damages could be made."

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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