Supreme Court grants leave to appeal: Prattley v Vero

The Supreme Court has granted leave to appeal the Court of Appeal’s decision in Prattley  Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67. See: Prattley  Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 70.

The Court of Appeal dismissed an appeal by an insured who negotiated a settlement with its insurer, Vero, following damage to the insured’s building during the Canterbury earthquakes. The parties agreed to a final settlement and discharge of all claims present and future arising out of the policy or the earthquake damage. The insured sought to reopen its claim, contending that when they settled, both parties were mistaken about the measure of its entitlement. The primary question on the appeal is whether the insured assumed the risk of mistake so as to preclude relief under the Contractual Mistakes Act 1977 (the “Act“).

The Court of Appeal decision has been of general interest to the New Zealand insurance community. Amongst other topics, the Court considered section 6(1)(c) of the Act, a provision which had not received a great deal of earlier judicial scrutiny. It provides that a Court may grant relief under the Act for a mistake where:

the contract expressly or by implication makes provision for the risk of mistakes, the party seeking relief or the party through or under whom relief is sought, as the case may require, is not obliged by a term of the contract to assume the risk that his belief about the matter in question might be mistaken.

The Court of Appeal found that the risk did indeed sit with Prattley under the terms of the settlement agreement (refer [78]).

The Court of Appeal also provided its opinion on Prattley’s entitlements under the policy although, as a result of the finding on the mistake issue this was not strictly necessary. The specific issue was whether the insured was entitled to market value or depreciated cost on destruction. The Court of Appeal determined it was the latter.

The Supreme Court has crafted fairly wide terms of reference for the appeal. The leave decision records that the approved grounds of the appeal are (i) the nature and extent of the respondent’s liability under the insurance policy and (ii) the effect of the release (i.e., the settlement referred to earlier).

Steve Keall
21 June 2016


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