New Zealand: Earthquake judgment summary - Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158

This is an appeal from the High Court's judgment in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2015] NZHC 1444 and the Court of Appeal's judgment in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750.

The issues before the Supreme Court were:

  • the nature and extent of Vero's liability under the insurance policy; and
  • whether a settlement entered into by the insured and insurer can be reopened, or whether the insured assumed the risk of mistake so that it could not rely on the Contractual Mistakes Act 1977

Background

Prattley Enterprises Ltd (Prattley) owned a building on Worcester Street, just east of Cathedral Square. The building sustained damage in the earthquake on September 2010, further extensive damage on the Boxing Day earthquake (after which the Council red-stickered the building, and Prattley's engineering report confirmed that it was "clearly not safe for occupation"), and additional damage in February 2011, when sections of the roof and upper floor collapsed. The building was demolished in September 2011.

Prattley insured the building with Vero, with cover on an indemnity rather than replacement value basis. The policy recorded an indemnity limit of $1,605,000, but valuations obtained by both Prattley and Vero after the earthquakes did not support that figure. Prattley's first (and undisclosed to Vero) valuation was for $700,000, while a later joint valuation based on different assumptions was $1,050,000. The evidence in the High Court showed that there was a conscious decision not to insure for full replacement value.

Prattley entered into a settlement agreement with Vero, accepting $1,050,000 in full and final settlement of its claims.

Revisiting the settlement

Prattley challenged the settlement on the basis that they were mistaken about how indemnity should be calculated.

The Contractual Mistakes Act 1977 allows relief to be granted if:

  • a contract is entered into under the influence of a qualifying mistake of law or fact;
  • the mistake resulted, at the time that the contract was entered into, in a substantially unequal exchange of values; and
  • the contract had not provided for the risk of mistake, and recorded that one of the parties would bear that risk.

The Supreme Court decided that "Prattley's first two arguments fail: there was no common mistake as alleged and the settlement was distinctly favourable to Prattley." Unfortunately, the Supreme Court then decided that it therefore did not need to consider whether the contract required Prattley to bear the risk of a mistake. They noted that:

"By settling its claims against Vero in the terms that it did, Prattley abandoned any entitlement to go back to Vero for more money. The other side of the coin to this abandonment might be thought to be an acceptance by Prattley of the risk that it may have been mistaken as to its entitlements, particularly in light of the fact that the settlement was said to be in full and final settlement of any claims, both existing and future and known or unknown. At first sight, such acceptance might appear to engage s 6(1)(c) and thus to disqualify Prattley from relief. But despite the attractive simplicity of this analysis, we have some reservations whether it is necessarily correct. The reality is that a party to a contract is unlikely to seek relief under the Contractual Mistakes Act unless required by the contract to "assume the risk" of the mistake. If not so required, such a party would have no need to seek relief but would instead simply rely on the contract. It follows that if s 6(1)(c) is construed broadly, there would be little, and perhaps no, scope for relief under the Contractual Mistakes Act, which would thus be at risk of becoming a dead letter. This may suggest that some specificity as to, and not merely a general, assumption of risk may be necessary to engage s 6(1)(c). Working out how to resolve all of this may not be easy and we see it as a task best deferred until a case arises where such resolution is critical to the result."

There is therefore no final decision from the Supreme Court on whether the "full and final settlement" clause in the settlement agreement was sufficient to say that Prattley was required to bear the risk of any mistake.

Appropriate measure of indemnity value

In deciding that there was no mistake, and that Prattley had received a favourable settlement, the Supreme Court considered the way in which indemnity was calculated.

Prattley had argued that the policy, which said "You will be indemnified by payment or, at our option, by repair or by replacement of the lost or damaged property", meant that the indemnity value should be calculated by reference to the cost of repair or reinstatement. The Supreme Court said that "we consider that the argument advanced by Prattley is based on a distinctly unorthodox interpretative approach."

The Supreme Court went on to say:

"The obligation of Vero is to 'indemnify' Prattley for damage suffered. Prattley's primary entitlement was to indemnity by payment, but Vero, at its option, was entitled to provide indemnity 'by repair or replacement'. Insurers reserve this option to themselves to limit moral hazard. It does not signify that indemnity payment is necessarily to be calculated by reference to the cost of repair or replacement. We do not accept that Mr Cooke's re-ordering of this obligation accurately captures its essence.

The calculation of what is required by way of indemnity will vary depending on the circumstances, but this is always calculated against the background that the purpose of an indemnity payment is to make good the insured's actual economic loss.

If the property has been destroyed and is not to be reinstated, the most obvious basis for calculating indemnity is its market value. This is particularly likely to be so in the case of a property held for investment purposes."

In this case, the Supreme Court decided that:

"what was insured was the indemnity value of the building, that is, what it was worth. 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."

Since the settlement resulted in Prattley receiving far more than its true entitlement, the Supreme Court decided that "it has no legitimate grounds for complaint."

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.

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
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