Robin v IAG  NZHC 204
Deciding who is responsible for defective earthquake repairs is a common predicament for many homeowners. The difficulty stems from the involvement of several parties in the earthquake repairs. These may include the Earthquake Commission, a private insurer, brokers, a loss adjuster, engineers, contractors and subcontractors.
Where the claim is over-cap1 and repairs arranged and paid for by the private insurer, the obvious party to pursue is the private insurer, which contractually agreed to provide a certain standard of repair (or rebuild) under the contract of insurance (the Policy). Subject to slight variations in wording, the obligation is usually along the lines of:
...we [insurer] will pay the cost of repairing or rebuilding the home to a condition as similar as possible to when it was new, using current building materials and methods...
If the repairs are inadequate or defective, the insured has a potential cause of action against the insurer for breach of contract. He or she may also have causes of action against other parties; the builder for breach of contract, or its subcontractors in tort.
Does this mean that the insured is required to sue those parties, as well as the private insurer? Or, is it reasonable for the insured to sue only the insurer, leaving it to the insurer to pursue other parties should it wish to do so?
Until the recent decision of Robin v IAG, there has been little local judicial guidance on the subject, with some reliance being placed on the New South Wales decision of University of Newcastle v GIO Insurance.2 Now, the High Court has confirmed that there is no obligation on the insured to exercise its rights against the contractor or any other party, before pursuing the insurer.
Ms Robin owned a property in Christchurch that was insured by IAG under a Home Insurance Policy. As a result of damage caused by the Canterbury earthquakes, IAG appointed Hawkins Management Limited (Hawkins) to act on its behalf in assessing the scope of works required to effect repairs and to monitor the repair work undertaken. Hawkins then appointed Canterbury Reconstruction Limited (CRL) to carry out repairs to the house, which were alleged by Ms Robin to be defective. The repair contract was signed by Ms Robin and CRL only.
Ms Robin made a claim against IAG for breach of contract (the Policy), claiming that the work carried out by CRL and paid for by IAG did not meet the policy standard as a result of the inappropriate foundation remediation methodology and substandard workmanship in the foundation repair.
She sought an order that IAG specifically perform its duties pursuant to the policy by paying the cost to remediate the defective repairs, or alternatively damages in the amount required to repair the house to the policy standard with all earthquake damage properly repaired. Ms Robin also sued CRL for negligence in its work.
IAG had joined four other parties to the proceeding as third parties and applied for them to be joined as defendants:
- Hawkins (now known as Orange H Management Limited);
- Houselifters Limited - the company engaged to carry out the foundation repair;
- Max Contracts Limited - a subcontractor to CRL; and
- Christchurch City Council - issued a code compliance certificate certifying that the repair work complied with the building consent granted in respect of those works.
In IAG's view, all four parties owed a duty of care to Ms Robin and if the repair work was not up to the standard required by the policy, responsibility lay with those parties. If the Court accepted that view, Ms Robin would have been required to sue those parties, adding them to the proceeding and incurring costs in doing so.
Ms Robin submitted that it was not for IAG to tell her who to sue and she should not be required to establish claims against parties with whom she did not have any dealings, and for actions of which she had no knowledge. Significantly, suing those parties would expose her to additional adverse costs awards should she not succeed against any one or all of those parties. On that basis, Ms Robin argued that she only needed to establish that IAG, through its agents and contractors, had not carried out repairs to the required standard in the policy and it was for IAG to take the matter up with others as it may see fit.
The Court acknowledged the general legal principle that it is for the plaintiff to decide whom he or she will sue, but that his or her wishes can be overridden by the Court if jurisdiction is established, and the interests of justice direct that outcome.3
In assessing whether it was in the interests of justice to add the parties as defendants, the Court considered that:4
- Ms Robin did not have the information she would require to competently plead and present to the Court a case in tort against the parties concerned. She did not know, for example, the terms of any of the engagements, the instructions given, or who gave those instructions;
- Ms Robin would have the onus of establishing that a duty of care was owed to her, which was not a straightforward exercise; and
- It was not a fair or accurate description by IAG of its role in this case as an intermediary. IAG was a contracting party (with the vendor) with clear written obligations in the policy document which it issued and for which it was paid.
Though not discussed by the Court, it is also relevant that in some instances the homeowner may be unable to pursue the contractor or subcontractors on account of them becoming insolvent, leaving no option but to pursue the private insurer.
Ultimately, the Court held that:5
"It is Ms Robin's right to receive the house in a repaired condition, and IAG's obligation to ensure that appropriate steps were taken to bring this about. Analysed that way, it is for IAG not Ms Robin to take up responsibility for the alleged faulty end result with those who brought it about".
It further held that:6
"It could not possibly be suggested that as a matter of principle, when repair work is inadequate for one reason or another, insured parties (or those in their shoes) should turn not just to their insurer but also to those who worked on their property".
Accordingly, the interests of justice were served by Ms Robin suing her insurer and her insurer passing on liability through the contractual chain.7 It can be taken from this that even though Ms Robin sued the contractor, she was not required to do so.
Robin v IAG is being appealed. Until the outcome of that appeal, it is authority for the position that an insured homeowner can sue their insurer for defective repairs, even if the insurer was not a party to the build contract and without also having to sue the builder.8
It is the insurer's prerogative to seek recovery from the contractor and other parties (through its right of subrogation), but that need be of no concern to the insured. If you are faced with defective earthquake repairs, our experienced national Dispute Resolution Team is here to help.
1Over-cap claims are claims where the repair
costs exceed the EQC statutory threshold of $100,000 plus GST per
earthquake event; the claim becomes the responsibility of the
2 University of Newcastle v GIO General Limited (1995) 8 ANZ Ins Cas 61 – 281. This case is persuasive authority for the position that until reinstatement is completed by the rectification of the contractor's work to the extent necessary, the insurer will not have satisfied its obligation under the Policy.
3 Fonterra Co-Operative Group Ltd v Waikato Coldstorage Ltd HC Hamilton CIV-2010-419-855 at .
4 Robin v IAG at  – .
6 At .
7 At ; This is dependant on the contractual relationships between the parties; but ultimately the insurer may pursue recovery of sums it was found liable to pay from other parties, through its right of subrogation of the insured's rights and interests.
8 This is positive for the insured, as many builders have gone into liquidation since the earthquakes, leaving no avenue of recovery.
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.