Avondale Golf Club Inc. v Lumley General Insurance (Nz) Ltd
| Jurisdiction | New Zealand |
| Judge | Nation J |
| Judgment Date | 13 July 2015 |
| Neutral Citation | [2015] NZHC 1627 |
| Docket Number | CIV-2013-409-000896 |
| Court | High Court |
| Date | 13 July 2015 |
[2015] NZHC 1627
CIV-2013-409-000896
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
Application by the defendant for orders ruling inadmissible evidence as inadmissible on the grounds of irrelevance, lack of expertise and lack of independence — substantive issue related to indemnification under an insurance policy for damage to a golf club following earthquakes — dispute centred on whether the defendant was obligated to provide repair or replacement and allowances for depreciation — witness was to give expert evidence as to the method for calculating liability — a previous High Court decision had criticized the witnesses evidence on these issues — witness had a relationship with a consultant engaged by the plaintiff to assist in presenting and settling its claims-whether rulings as to admissibility on the basis of relevance and independence were best dealt with at trial — whether a ruling as to the admissibility of evidence might be justified to remove the burden and costs Lumley face in dealing with that evidence.
J E Bayley for the Plaintiff
C R Langstone for the Defendant
JUDGMENT OF Nation J
These proceedings have been set down for hearing over two weeks beginning 3 August 2015. The parties have begun exchanging briefs. The defendant (Lumley) has filed an application for orders ruling inadmissible all the evidence of Mr Keys for the plaintiff (Avondale) and part of the evidence of Mr Turnbull. In the alternative, they seek orders with regard to further discovery.
From the pleadings, from information contained in briefs provided to the Court with Lumley's application and from submissions, it is apparent that certain aspects of the background to this application are not in dispute.
Avondale has, for many years, owned and run a golf club in the north eastern area of Christchurch.
Avondale's facilities, including the buildings which are its most valuable assets, were significantly damaged in the earthquakes of 4 September 2010 and 11 February 2011. They also suffered damage in other significant earthquakes including those of 13 June 2011 and 23 December 2011.
Despite that damage and subsequent periods of disruption associated with particular earthquake events, Avondale continued to use the course and its associated facilities including most of the buildings. It is committed to remaining on that site.
Pursuant to cl 2.2 of the insurance policy (the Policy), Lumley agreed to indemnify Avondale for any loss that happened to the insured property, subject to the terms of the Policy.
Lumley also agreed to provide replacement cover in respect of certain property which Avondale had chosen to insure for replacement or reinstatement value. Avondale's buildings were insured for replacement/reinstatement value in that way.
Pursuant to cl 2.2.1, Lumley's liability in respect of each event and loss was limited to certain maximums in relation to property damage. In respect of buildings, that maximum was approximately $2,012,000. There is disagreement between the parties as to the extent of damage sustained to Avondale's buildings in each event.
Clause 2.2.2 of the Policy states:
We will indemnify You by payment, repair or replacement of your Property at Our option.
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1 For the following Property We will indemnify You on the following basis.
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[ There is then a reference to certain categories of property which are not at issue]
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2 For all other Property, we will indemnify You on the following basis:
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(a) the reasonable cost of repairing the Property to the condition it was in immediately preceding the Loss; or
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(b) the cash amount equal to the reasonable cost of repairing it; or
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(c) replacing the Property with similar Property in a similar condition; or
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(d) the cash amount equal to the market value of the Property; or
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(e) the replacement cost, but only for that Property designated in the Schedule as being insured for replacement value, subject to the reinstatement clause in the Policy.
Lumley says they have elected to meet their liability under the Policy by making a payment to Avondale. Lumley says that it has done this to the extent of its current liability by making a payment to Avondale for certain repair costs that Avondale has already incurred and by paying $877,306.25 on 11 July 2013 which it said was the pre-event market value of the buildings, less the excess and payments made by EQC. Lumley acknowledges that it has a liability to pay further repair costs for the building up to the maximum available under the Policy when those costs are incurred.
Clause 2.4.2 of the Policy sets out Lumley's obligations in respect of property which has been insured for replacement or reinstatement value. In that section, reinstatement means:
Where Property is damaged but not Destroyed, the restoration of the damaged portion of the Property to a condition substantially the same as, but not better or more extensive than, its condition when new.
The obligation to provide such reinstatement cover does not apply:
If You elect not to reinstate the Property;
If the work of Reinstatement is not commenced and carried out with reasonable despatch;
Until the cost of Reinstatement has been actually incurred.
Although there was a suggestion in the pleadings that Lumley might be contending Avondale would not be entitled to reinstatement cover because it had not already undertaken the appropriate repairs with reasonable dispatch, Mr Langstone confirmed this was not Lumley's position. Rather, Lumley has referred to this limitation because it says its obligation to pay for the cost of repairs will not arise until the cost of reinstatement has been actually incurred.
Avondale has pleaded that Lumley has elected to indemnify by payment and accordingly now owes either:
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(a) the cost of repair for each event limited by the sum insured per event; or alternatively
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(b) the depreciated cost of repair for each event, again limited by the sum per event (with depreciation being determined after consideration of the age and condition of the elements comprising the buildings).
On that basis, its claim is presently for $5,202,114.41.
Risk Worldwide New Zealand Limited (Risk Worldwide) entered into a consulting agreement with Avondale dated 10 April 2012. Risk Worldwide have been employed as Avondale's consultant to assist in presenting and settling Avondale's claims for loss suffered in the Canterbury earthquakes. Avondale has agreed to pay “for such services in the amount of 35 percent of the total payments of any amounts recovered by settlement, or award or judgment plus expenses advanced, exclusive of GST, over and above the likely offer of $2,012,000” by Lumley. That fee is to be calculated on the proceeds received before expenses are deducted and reimbursed. If there is no recovery from Lumley, Avondale will not be responsible for paying the consultancy fee or expenses to Risk Worldwide. If the sums recovered do not cover all expenses advanced, Avondale will not be responsible for any shortfall. Avondale will be responsible for all expenses if it elects to settle the insurance claim or if it instructs Risk Worldwide to stop the presentation of the claim against the advice of Risk Worldwide.
In his evidence, Mr Keys advances the proposition that Lumley's liability is to pay the repair or replacement cost of the buildings, less depreciation. He adopts an elemental approach to assessing that depreciation, putting forward a percentage for depreciation against replacement/repair cost. Rather than consider an allowance for depreciation for the buildings as a whole, he calculates it item by item. This has involved looking at different parts of different buildings, referring to alterations or improvements made to the buildings at certain times, estimating the age of the particular parts, estimating the future period over which those parts could still be used and then arriving at a percentage by which the cost of replacement for those particular parts should be depreciated.
Mr Turnbull is the President of Avondale. Lumley objects to those parts of the evidence in which Mr Turnbull refers to various parts of the buildings and summarises work or improvements made to them at certain times in the past and says when those changes occurred. The evidence is to be presented in support of Mr Keys' evidence as to the allowance which he says should be made for depreciation. Those parts of Mr Turnbull's evidence will be relevant and admissible if Mr Keys' evidence is relevant and admissible.
Lumley objects to all Mr Keys' evidence and part of Mr Turnbull's evidence, firstly, on the basis that such evidence is irrelevant to the issues which have to be determined and is thus inadmissible. 1 Further submissions were as follows:
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(i) The evidence from Mr Keys is irrelevant because, pursuant to cl 2.2.2 of the Policy, Lumley can choose how it meets its obligation to indemnify.
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(ii) The situation involving these parties and this policy can be distinguished from that dealt with by the Supreme Court in Tower Insurance Ltd v Skyward Aviation 2008 Ltd. 2 Given the wording of this Policy, only Lumley has the choice as to how it will indemnify Avondale.
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Lumley has chosen how it will indemnify Avondale: by paying the cash amount equal to the pre-event market value of the property in accordance with cl 2.2.2(2)(e) of the Policy. Lumley also agrees it will pay the repair costs for the buildings when those costs have been incurred, subject to limitations under the Policy for each event or each policy period. Mr Keys' evidence is not relevant to any assessment of market value...
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