Domenico Trustee Limited v Tower Insurance Limited

[2015] NZHC 981

This recent earthquake judgment looks at whether the insurer or the insured has the right to elect how settlement is reached under the policy, and also whether the insurer has made an election. It also indicates that the courts are concerned at the length of time being taken to settle the earthquake claims.


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 have been unable to agree on an amount payable under the policy.

Initially, Tower offered Domenico an amount estimated by its assessors as being the cost of rebuilding the house. This offer recorded 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 queried some of the amounts in Tower's offer, and Tower responded with a second offer to pay $254,501, and to also manage the demolition of the house. Domenico responded by issuing court proceedings, seeking a cash payout of $842,392. Justice Gendall recorded that:

"Tower it seems then took the position that it was likely to carry out a rebuild itself, if Domenico did not accept, as appeared to be quite apparent, that its claim was 'seriously overstated'."

Through the course of the proceedings Domenico's claim regularly reduced, down to what became an accepted figure of $370,000.

Who has the right to elect?

Tower's policy provided that they will pay:

  • the full replacement value of the house on the current site;
  • the full replacement value of the house on another site, providing the cost is no more than rebuilding on the current site;
  • the cost of buying another house, providing the cost is no more than rebuilding on the current site; or
  • the present day value.

The policy also said that "we have the option whether to make payment, rebuild, replace or repair your house".

Justice Gendall affirmed the decisions in Skyward Aviation 2008 Ltd v Tower Insurance Ltd [2013] NZHC 1856 and Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262, noting that the "express terms of the policy provide for reinstatement as an option, and vest that option in Tower's discretion".

He said that:

"I therefore accept as beyond contention that, under the policy, Tower has, amongst other things, the right to reinstate or make a cash payment, and the choice between those options rests in its hands."

Has there been a formal election?

The primary issue in the judgment is whether Tower has elected to settle by cash payment, and cannot now elect to reinstate the house.

As Gendall J said of election:

"Its fundamental premise is that where a party has an option as between two or more inconsistent rights, when he or she selects one of them, that decision is irrevocable and there can be no resiling, as the other options irretrievably disappear from the moment the election is made... Before the Court will infer the existence of an election however, there must be clear evidence, which permits of little equivocation on behalf of the party in whose favour the power is vested."

A similar claim was raised in Skyward Aviation, where the offer to the insured, as in this case, was not one of the options strictly made under the policy. Justice Gendall reiterated what he said in Skyward Aviation, 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. The offer made by Tower here, as I see it, was not the choice of a direct option under the policy and, as such, simply could not have constituted an election."

In this case, discussions between Tower and Domenico always made it clear that a decision had not been made. While it was intimated that Tower had a desire and an interest in settling the claim by making a cash payment, it was also prepared to arrange for reinstatement of the house. In any event, the settlement discussions had always been in respect of a cash payout of more than indemnity value, and therefore not one of the options in the policy. There had therefore been no unequivocal election.

Election and waiver

Justice Gendall noted that election must be of a choice between one of the available options, and not an option not provided for in the relevant policy. However, he said that:

"There seems to be, however, nothing objectionable in principle for the doctrine of waiver to run alongside election to achieve, in combination, what each alone cannot. For example, there could be an election to reinstate, coupled with a waiver of the requirement that actual rebuild or repair costs are incurred. This method would permit of full recovery of the rebuild sum in a money payment. But, in the present case, waiver is not pleaded by Domenico."

It remains to be seen whether this argument would be successful in another case in which both election and waiver are pleaded, but this statement suggests that there would be merit in such a contention, if the facts support it.

Election through delay

After deciding that there had been no express election made by Tower, Gendall J then went on to consider whether there had been election through delay. He said that:

"To me it is trite that insurers should proceed with all due expedition to effect settlement or ultimate resolution upon acceptance of a claim. It is also obvious that settlement cannot occur in a case such as the present until the insurer elects the method of settlement."

Justice Gendall said that it was an "unsatisfactory state of affairs" that claims made in 2010 and 2011 have still not been settled, and no election made. He decided that:

"I do not consider it competent for Tower to make no final decision under the policy for such a substantial period of time while simultaneously pleading it has made no election – a ball it not only recognises, but actively asserts, is solely in its court. I therefore consider, by a reasonably fine margin that, as a result of effluxion of time, Tower has made an election to settle this claim by cash payment of indemnity value (present day value under the policy) as a base position."

Tower is therefore 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, and Tower's liability increases to cover that additional cost.

The end result

As Gendall J said, "there has been no true victor in this proceeding". Tower has resisted the claim by Domenico, but has been found to have elected to make a cash payout of the indemnity value of the house. There was no evidence for that amount before the court. Justice Gendall has left this to the parties to see if it can be resolved, given that a cost of rebuilding the house was agreed by all parties at the hearing.

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.