New Zealand: Reopening an insurance cash settlement agreement? Supreme Court says no!

In Prattley Enterprises Limited v Vero Insurance NZ Limited [2016] NZSC 158 the Supreme Court unanimously confirmed that a signed settlement agreement was binding on the parties, where the insured party asserts it was operating under a mistake over its entitlement under the policy.

On appeal from the Court of Appeal, Prattley had (again) sought to set aside the settlement agreement it signed with its insurer Vero, on the basis that both it and Vero entered the settlement under a common mistake as to the correct measure of indemnity under the policy.

Background

Prattley owned the three storey building known as Worcester Towers in Central Christchurch, which was insured by Vero on an indemnity basis. The total building sum insured was $1,605,000.

Worcester Towers was damaged in the 4 September and 26 December 2010 earthquakes and "red-stickered". In the major earthquake of 22 February 2011, the building was severely damaged. In August 2011, after limited negotiations, Prattley and Vero agreed that Vero would pay Prattley $1,050,000 plus GST in "full and final settlement" of its insurance claim. The building was "subsequently demolished in September 2011".

Prattley's appeal

Prattley's case was based on section 6 of the Contractual Mistakes Act 1977, which provides relief to any party where all the parties were influenced in their respective decisions to enter into the contract by the same mistake, and the mistake resulted in a substantially unequal exchange of values.

Prattley argued that both parties had assumed the policy was a standard indemnity policy, but on the proper interpretation of the policy, the measure of loss should have been based on the costs to repair the damage for the first two earthquakes in 2010 and the reinstatement for the third (all subject to the $1,605,000 sum insured limit). Prattley says that as a result of the common mistake for all three events, it received sufficiently less than its entitlement under the policy. It quantified its total recoverable loss at $3,388,000 plus GST.

High Court

In the High Court, Dunningham J concluded that, relying on the Court of Appeal's decision in QBE Insurance (International) Ltd v Wild South Holdings Ltd [2014] NZCA 447, if Prattley were to recover for the unrepaired damage (caused by the first two earthquakes) it would be indemnified in respect of economic losses which it had not incurred and thus would breach the "indemnity principle". However, as shown in the evidence, Prattley had no intention of rebuilding. Prattley's total entitlement could only be the market value of the building, which was in the order of $520,000, based on evidence given at trial by a valuer on behalf of Vero. Prattley's claim to set aside the settlement, because of a qualifying mistake had to fail. Her Honour found that Prattley had already recovered more than the market value of the insured property under the settlement agreement.

Court of Appeal

The Court of Appeal adopted a different approach to indemnity. It concluded that the primary measure of indemnity was by way of reinstatement which, in the circumstances of the case, was best assessed by reference to the depreciated replacement value of the building. According to the Court, depreciated replacement cost had been recognised in the negotiations as a possible measure of indemnity. There was therefore no qualifying common mistake under the Contractual Mistakes Act 1977.

The Supreme Court

The Supreme Court was also satisfied that Prattley's arguments failed.

The settlement payment was expressed to be in full and final settlement of any claims, both existing and future, whether known or unknown in the general agreement. Whether Prattley therefore assumed the risk that it may have been mistaken as to its entitlements was ultimately left for another day, as the Supreme Court held that there was no common mistake as alleged and the settlement terms were distinctly favourable to Prattley.

Confirming the High Court's approach to calculating indemnity value, the Supreme Court held that the purpose of indemnity payment is to make good the insured's actual economic loss. If the property has been destroyed, but was not to be reinstated, the most obvious basis for calculating indemnity is market value. The market value will represent its value to the insured, meaning that once paid, the insured will be able to replace the insured property with a similarly performing investment.

The Supreme Court also held that Prattley's reliance on Ridgecrest NZ Ltd v IAG NZ Ltd [2014] NZSC 129 was untenable. The Court commented that the insurance arrangements in Ridgecrest were "unusual", and that Prattley's arguments were based on a "distinctly unorthodox interpretative approach". The Court agreed on appeal that the indemnity value of the building was its reinstatement cost. The Court found that approach would leave the insured in a better position than if it had purchased reinstatement cover, i.e. it could recover the cost of reinstating the building without actually ever reinstating it.

The Court held that it would be a clear breach of the indemnity principle for Prattley to recover more than it had relevantly lost, that is what the building was worth when the sequence of earthquakes started.

In agreement with the High Court, Prattley's loss was held to be in the order of $520,000. On that basis, Prattley had received more than double what it was entitled to under the policy, and it had no legitimate grounds for complaint.

Comment

The Supreme Court's decision confirms that courts in New Zealand will be reluctant to reopen a settlement agreement unless there has been deception, duress, or misleading conduct during negotiations or formation of the agreement.

This decision provides welcome certainty for all parties to insurance contracts contemplating settlement of outstanding claims. There is also some helpful guidance over the correct interpretation approach to insurance policies. Courts will be slow to depart from the orthodox interpretation of clauses, where they are well understood by those who work in the insurance industry, in favour of an interpretation based on a "far from obvious reading of the policy as a whole" (at [32]).

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.

Authors
Bethany Entwistle
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions