20 August 2019

Southern Response ordered to pay after engaging in misleading and deceptive conduct

SR found to have mislead & deceived customer in relation to the Buy Another House option in their insurance contract.
New Zealand Insurance
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Southern Response has engaged in misleading and deceptive conduct, and misrepresented the insurance entitlements of a Christchurch couple, according to a decision released by the High Court today (Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016).

The case involved an earthquake damaged property, which was not economic to repair. The Dodds were able to elect whether to take a cash payment of the indemnity value of the house, rebuild their house, or buy another house up to the value of rebuilding the house.

The Dodds chose the "buy another house" option. All of the documentation that they received from Southern Response confirmed that the amount that they were entitled to was "the cost of rebuilding your house on its present site".

Southern Response obtained a Detailed Repair/Rebuild Analysis (DRA), which set out the cost of rebuilding the house. The DRA specified the cost of labour and materials for rebuilding the house at $895,937.78, and also identified additional amounts for internal administration, demolition, design fees, and project contingency. When included, these amounts brought the total rebuild cost up to $1,186,920.75.

Southern Response took the view that the additional amounts were only applicable if the Dodds chose to rebuild the house on its existing site. They therefore provided the Dodds with an abridged DRA which removed those amounts. The Dodds were not aware that they had received an abridged DRA, or that a different version existed.

In 2014, another case involving Southern Response (Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2014] NZCA 483) determined that fees such as contingencies and professional fees must be included in the calculation for the amount to be paid for the "buy another house" option. Despite this, Southern Response did not amend the DRA provided to the Dodds, or their settlement offer.

Justice Gendall decided that there was a misrepresentation about the Dodds' entitlement, because:

"Southern Response created a false impression by providing the Abridged DRA in such a way as to indicate that it was the complete and only estimate document received from Arrow and that it disclosed the full cost for rebuilding the house. Southern Response did not, in any meaningful way, explain that it had excluded costs that it would otherwise have had to pay, costs that Southern Response had unilaterally decided the Dodds would not be entitled to if they did later choose the Buy Another House option."

Similarly, Southern Response had engaged in misleading and deceptive conduct pursuant to the Fair Trading Act, because:

"a reasonable person, reading the Abridged DRA along with the various letters, the Information Sheets and the other material provided to the Dodds would have thought that the $894,937 was Southern Response's estimate of the actual cost of rebuilding the Dodds' house."

Justice Gendall ordered Southern Response to pay the Dodds $178,894.30, being the difference between the true value of the Dodds' claim and the settlement sum that they received.

Any homeowner who reached a "buy another house" settlement with Southern Response should check the DRA for their insured house, and ensure that they have received their full entitlement.

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.

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