Tower Insurance Limited v Domenico Trustee
 NZCA 372
This Court of Appeal judgment is a decision on an appeal and
cross-appeal of the High Court's findings on election under an
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 were unable to agree on an amount payable under the
Tower made offers of settlement to Domenico, recording 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 issued proceeding in the High Court claiming that Tower
had elected to settle the claim by way of cash payment for the
rebuild amount, and seeking $842,392.
The High Court
In the High Court, Gendall J confirmed that Tower had the right
to elect between reinstatement, replacement, repair, and payment.
He noted that "a party purporting to make an election under a
policy can only make a choice between the suite of options
available to it under that contract", and that in this case
Domenico was claiming that an election had been made for an option
that was not provided in the policy.
Justice Gendall pointed out that the election claimed by
Domenico could only be achieved by Tower having waived its right to
insist on the reinstatement costs being incurred before it was
obliged to make payment. Waiver was not pleaded by Domenico, and so
Gendall J could not make a decision on whether or not waiver had
Justice Gendall therefore decided that Tower had not made an
Justice Gendall then went on to consider whether there had been
election through delay. He said that a party entitled to make an
election had a reasonable time to make that election, and if they
did not make it then the law would make it for that party. He
therefore decided that Tower is 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, when Tower's liability will increase to cover that
Tower appealed Gendall J's decision that there had been an
election through delay, and Domenico cross-appealed on the decision
that there had been no election to make a cash payment for the
The Court of Appeal
The Court of Appeal first considered whether there had been an
election to settle on a cash basis for the full rebuild amount.
They looked at the offers that were made, and said that they
"plainly offers made in the course of
negotiations, which were not accepted by Domenico. They could not
by any stretch be treated as an unequivocal and binding election by
TOWER as to the mode of settlement."
They therefore agreed with Gendall J that there had been no
unequivocal election by Tower.
The Court of Appeal then went on to consider whether there had
been an election through delay. Here they disagreed with Gendall
J's decision that if a decision has not been made in a
reasonable time then the law will make it. Instead, they decided
"if an insurer is in breach of its obligation to
make a decision within a reasonable time, the court may order the
insurer to make an election. Breach of any such order would risk
the insurer being in contempt of court with all the consequences
that might flow from that. Damages may also be an available
The Court of Appeal did note that the usual practice in the
Earthquake List was for the parties to be asked during the case
management process whether an election had been made, and if not,
to give directions for the election to be made. They remarked that
"that seems to us to be an eminently practical way of dealing
with the issue."
They also decided that it was not open on the pleadings for
Gendall J to have made a decision that there had been an election
through delay. They noted that:
"If the Judge was contemplating a finding that was
plainly outside the pleadings and argument, he ought to have given
the opportunity to both sides to address the issue and to seek an
amendment to the pleadings. That did not occur."
Tower's appeal on the issue of election through delay was
The end result
This proceeding has now been sent back to the High Court for a
rehearing. If a settlement isn't reached between the parties,
it seems likely that Domenico will try to amend its claim to
resolve some of the pleading deficiencies revealed through these
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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