This recent earthquake judgment considers three important issues:
- what are the implications of a policy including the requirement to use construction methods commonly used at the time of the loss or damage;
- whether exemplary damages could be claimed; and
- is there an implied duty of good faith in insurance contracts.
The plaintiffs' own a home on Christchurch's Port Hills, which was significantly damaged in the Christchurch earthquakes. For a long time there was disagreement about the extent of the damage to the property, however by the time of the hearing there was substantial agreement between the parties. Justice Gendall noted that:
"It is agreed that the foundations have settled, most significantly in the south-eastern part of the house, and generally walls are leaning down the slope in a manner consistent with the dis-levelment of the floor levels. There is close agreement between the parties and their surveyors now on the relevant measurements."
However, the parties continued to disagree about whether the extent of the damage meant that the house was a rebuild, or whether it could be repaired.
Repair with "construction methods commonly used"
Tower's expert, Mr Sinclair of Eliot Sinclair, was confident that the proposed repair methodology could fix the house. Justice Gendall recorded that:
"Mr Sinclair in his evidence suggested that these techniques are well developed and common engineering practice, and they should not be considered as 'radical' or 'pioneering'. The plaintiffs' experts, however, take a different view on this."
Justice Gendall noted that:
"while it is the defendant's election to choose to repair a damaged house if satisfied it is not a rebuild, the policy obligation on the defendant is to ensure the repair strategy adopted and the construction methods involved are ones commonly used at the time of the earthquake.
... the contractual requirement to use construction methods 'commonly used at the time of loss or damage' not only saves money for the insurer but must also be designed to minimise the risk of uncertainties in adopting a novel or revolutionary construction method never or rarely tried or tested before."
In this case, the evidence suggested that the winching strategy proposed to move the house back into position was not a method or strategy that was in common use. Justice Gendall decided that:
"The real purpose of that 'commonly used' requirement, in the defendant's standard form insurance policy, must be not only to limit costs to the insurer of being required in a repair to use expensive historic materials (or outdated construction methods) (such as was addressed in the Turvey decision) but also to provide a measure of protection for insureds that their residential home, often their most valuable and distinctive asset, is not to be put at risk by an unusual or untried construction repair method which might not work at the time or later, with all that entails."
Justice Gendall therefore decided that the repair methodology did not meet the requirements of the policy, and on that basis the house was a rebuild rather than a repair.
Based on Tower's evidence about the quantum for a rebuild, which was largely unchallenged (unlike the plaintiffs' evidence regarding quantum), Gendall J decided that the plaintiffs are entitled to a figure of up to $1,620,887 for the cost of a rebuild.
The plaintiffs sought both general and exemplary damages against Tower. Justice Gendall dealt with exemplary damages swiftly, pointing out that the law in relatively settled on the fact that exemplary damages for breach of contract are not permitted in New Zealand. He also noted that:
"Exemplary damages in tort are awarded to punish a defendant who is guilty of outrageous wrong, to deter that person and others from similar misconduct in the future, and to register the Court's condemnation of that behaviour".
Justice Gendall confirmed that there was no evidence to suggest that the behaviour of Tower was sufficient for an award of exemplary damages in tort.
Duty of good faith
Justice Gendall noted that "the question over whether an insurer owes a duty of utmost good faith beyond its initial duty of disclosure has never been settled in New Zealand." He reviewed some previous cases which left the point open, looked at the Fair Insurance Code, and decided that there was such an implied duty, which on these facts Tower had breached by failing to disclose a report to the plaintiffs. He awarded general damages of $5,000 for this breach, noting that it was not a major matter as the report was extremely short and was contradicted by another report obtained at the time.
The plaintiffs also complained about the delay in settling this claim, however Gendall J decided that:
"The claim must be viewed in the context of 25,000 other earthquake claims the defendant has processed since the Christchurch earthquake sequence began and the strained capacity of the available experts pool to provide assistance and reports."
Justice Gendall decided that the plaintiffs were at least partially responsible for some aspects of the delay, and had not shown that Tower caused unreasonable delay to the extent that general damages should be awarded in respect of it.
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.