(Unanimously by Harrison, Keane and Wylie JJ)
Nature of case: Insurance/ Canterbury earthquakes/ Appeal from the High Court, which made certain declarations sought by the insured based on construction of an insurance policy.
Facts: The Easts’ dwelling, insured by the Society, was damaged in the 2011 Christchurch earthquake. The insured elected to rebuild/restore the property, instead of opting for indemnity value. The parties agreed that the insurer was liable for the cost of rebuilding/restoring the property, but disagreed as to the nature and scope of the insurer’s liability.
The relevant provision in the insurance policy stated:
…the Society will cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws…
Issues: (1) Whether the insurer’s liability is to cover cost actually or about to be incurred by the insured in rebuilding the property (which must be reasonable), or to pay a reasonable estimate of the cost of such rebuilding work before such cost is incurred by the insured. (2) Whether such cost is the cost of rebuilding the dwelling to the standard it was at when first built (in this case 2007), or to current Building Code standards (2015).
Decision: (1) Insurer’s liability is to cover cost actually or about to be incurred, not an estimate of such (-). (2) Restoring the dwelling to “a condition substantially the same as new” means to a standard which satisfies current Building Code requirements .
Reasons: in respect of holding (1) above: (i) the pragmatic difficulty in arriving at a satisfactory estimate. The insured’s own estimate of $3.096m here was seriously flawed (-); (ii) Contrary to the reasoning of the High Court, the interpretation of the clause given by the Court of Appeal does not impose a fetter on the insured’s entitlement under the policy (); (iii) if any estimate proved to be in excess of the amount actually needed to rebuild/restore the property, there is no mechanism in the contract through which the insurer could claim back the surplus (); (iv) the insurer is powerless in preventing any money, paid as an estimate of the cost, from being applied for other purposes (). In respect of holding (2) above: (i) the phrase “as new” does not mean new at any particular time other than at the present (); (ii) Council may not consent to restoration work based on an outdated Building Code. In that event the insurer cannot perform its obligation “to comply with any statutory requirements or Territorial Authority by-laws” .
Orders: The High Court’s declaration to the contrary on issue 1 is set aside. The High Court’s declaration on issue 2 is affirmed. Dismissed: cross-appeal by the insured against High Court’s reservation of leave to settle quantum (if the insured’s claim ultimately fell for measure on a different basis from that proposed) (-). Dismissed: insured’s application for leave to adduce further evidence (-).
Prepared with assistance from Ken Ng.
12 July 2015