New Zealand: David John Jarden and Joanne Jarden v Lumley General Insurance (NZ) Ltd [2016] NZCA 193: earthquake damage

This Court of Appeal decision is an appeal of the High Court's judgment in David John Jarden and Joanne Jarden v Lumley General Insurance (NZ) Ltd [2015] NZHC 1427. It considered whether specific items of damage were caused by the Christchurch earthquakes and looks at issues relating to the EQC settlement.


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

In the High Court, the Jardens sought a rebuild of their house on the basis that it was not economic to repair. They sought an order for payment from Lumley of the cost of repair, less the amount received from the Earthquake Commission (EQC). The Jardens' insurer, Lumley, said that much of what the Jardens have claimed for was either pre-existing damage, or not damage at all. 

In respect of a number of issues, Kós J found that there was not sufficient evidence to prove the Jardens' claim. He declared that certain items of damage were natural disaster damage covered by the policy, but that other items were not damage and were not covered.

Justice Kós decided that the Jardens were 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. However, as Lumley's policy provides that they will "pay the costs actually incurred to repair or rebuild it", Lumley was liable to pay the Jardens for the cost of repairs only "once costs have been incurred and to the extent that they exceed EQC's $179,163 payment".

The appeal

The Jardens appealed the High Court decision, saying that Kós J was wrong to have decided that certain items of damage were not earthquake damage, seeking correction of the amount paid by EQC in settlement of the claim, and requesting clarification of under what circumstances Lumley's liability for top-up cover arises.

The Court of Appeal spent some time reviewing the factual decisions relating to damage, but upheld Kós J's decisions regarding the damage to the house.

EQC settlement

EQC had settled with the Jardens shortly before the High Court 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 declined to infer that the $123,850 was for settlement of the claim and the balance was for costs, saying that there was no evidence before him of such an agreement. 

The Court of Appeal granted leave for the Jardens to adduce further evidence in respect of the settlement agreement. This evidence, in the form of affidavits from lawyers representing the parties to the settlement, explained that the sum of $55,313 was for costs.

The Court of Appeal therefore determined that the amount paid by EQC for earthquake cover was $123,850.

Lumley's liability for top-up cover

The parties were in agreement that Lumley's liability was the difference between the actual cost of repair and the cover provided by section 18 of the Earthquake Commission Act 1993 (ECA). However, each party interpreted this differently.

The Jardens' position was that Lumley's liability arose as soon as the repair cost exceeded $123,850, being the amount that they received from EQC. In contrast, Lumley submitted that it should not be bound to the amount that EQC and the Jardens had settled for, because without knowing the cost of repairs the settlement with EQC may be at an under-value.

The Court of Appeal accepted Lumley's argument. They said that:

"The fact that Lumley's liability does not arise until EQC 'has paid or has agreed to pay the EQ Cover' does not mean Lumley is obliged to accept without question that the amount paid or agreed to be paid is the amount of the EQ Cover as defined by the policy. Its obligation is to top-up any excess above the EQ Cover as defined. In many cases, it will be obvious whether the cost of repairs amounts to natural disaster damage as that term is defined by s 2 of the ECA and whether the amount EQC is obliged to pay is under or over the cap provided by s 18. However, Lumley is entitled to be satisfied that the amount paid (or agreed to be paid) by EQC does equate with EQC's obligation under s 18 of the ECA. This may become an issue in cases where EQC's liability is at the cusp of the maximum payable or where it is unclear the damage is natural disaster damage. In practice, EQC and Lumley (or other insurers) work together in order to resolve their respective obligations. It is only if matters are not agreed that the extent of their respective obligations will need to be determined by the court.

Finally, we accept Lumley's argument that its cover and premiums are fixed on the basis of EQC's actual statutory obligation and that it is not open for the policy holder unilaterally to alter the basis upon which Lumley's liability arises under the policy. Nor is it a workable proposition that Lumley's protection against an owner settling with EQC for under-value should depend on common law duties of good faith. The policy is to be applied according to its terms."

The Court of Appeal therefore decided that since final repair costs are still not determined and the monetary effect of the apportionment of repair costs as between the two earthquake events is still unknown, the correct level of earthquake cover cannot be determined.

If agreement is not reached once the repair costs are known, the correct level of earthquake cover will need to be determined by the High Court (under the leave reserved).

A copy of the decision is available here >>

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