C & S Kelly Properties Ltd v Earthquake Commission and Southern Response Earthquake Services Ltd

JurisdictionNew Zealand
JudgeMander J
Judgment Date22 July 2015
Neutral Citation[2015] NZHC 1690
Docket NumberCIV-2013-409-1273
CourtHigh Court
Date22 July 2015
BETWEEN
C & S Kelly Properties Limited
Plaintiff
and
The Earthquake Commission
First Defendant
Southern Response Earthquake Services Limited
Second Defendant

[2015] NZHC 1690

CIV-2013-409-1273

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

Claim for loss or damage incurred on a property owned by the plaintiff — policy applied to reinstatement costs in excess of the statutory maximum provided by the Earthquake Commission Act 1993 (the EQC Act) – plaintiffs alleged that the cost to reinstate the property was well above the statutory cap and that the Earthquake Commission (EQC) had failed to settle its claim as soon as reasonably practicable as required by s29(4) EQC Act – EQC said that it hadelected to repair the property and the plaintiffs had failed to challenge this election in their pleadings and could not now succeed on their monetary claim – consideration of whether EQC's decisions were subject to challenge by a public or private law cause of action – insurer's position was that as the EQC had elected to repair the property, and assume direct responsibility for those repairs, no claim had been triggered under the earthquake “top-up cover in the insurance policy — whether the failure to challenge the EQC's election to repair meant that the plaintiff's monetary claim could not succeed what was the scope of the EQC's discretion to elect under s29(1) EQC Act to make good or make payment — whether EQC was in breach of its obligation unders29(4) EQC Act to settle the claim within a reasonable time and if so, whether the election was therefore ineffective.

JUDGMENT OF Mander J

TABLE OF CONTENTS
PART I – INTRODUCTORY MATTERS

An overview of this case

[1]

The EQC Act and the insurance policy

[6]

Background

[14]

The house

[14]

The history of the claim

[15]

The joint experts’ process

[27]

The claim and the positions of the parties

[32]

The Kellys

[32]

EQC's response

[37]

Southern Response's position

[39]

The issues

[41]

PART II-RESOLUTION OF LEGAL ISSUES

Can the Kellys make a monetary claim in the absence of any pleaded challenge to EQC's election to repair?

[42]

Overview

[42]

The absence of challenge to EQC's election

[47]

Earthquake Commission v Insurance Council of New Zealand Inc (Full Bench Decision)

[54]

Challenging contractual discretion

[66]

Application to the current proceeding

[75]

The timing of EQC's election

[91]

Introduction

[91]

The competing arguments

[94]

When was an election made?

[98]

Is this issue able to be fairly addressed in this proceeding?

[109]

Legal principles germane to delay

[112]

Has there in fact been delay in this proceeding?

[114]

The consequences of unreasonable delay

[122]

The reasonableness of the decision to reinstate

[138]

PART III&– RESOLUTION OF FACTUAL ISSUES

Overview and recap

[140]

Issues raised with the evidence

[142]

Introduction

[142]

Principles to be applied

[143]

Challenge to defendants’ experts

[150]

EQC and Southern Response admissibility issues

[163]

Summary on the evidential challenges

[148]

Whether the floor dislevelment is earthquake damage

[169]

Natural disaster damage

[173]

Years of inspections and assessments

[178]

EQC assessment — 21 July 2011

[180]

Joint assessment by EQC and Southern Response&– October 2012

[182]

Southern Response's assessment of the property&– August 2011 to May 2014

[184]

Mr Lamont's review&– August 2013

[198]

Engineering assessments

[203]

Revised approach

[212]

Settlement of the land

[214]

Neighbouring properties

[220]

The land under the footprint of the house

[227]

Geotechnical engineering evidence

[237]

Other damage to the house

[253]

Soffit at northwest junction

[262]

Conclusion on whether the floor dislevelment is earthquake damage

[297]

Have the Kellys proved that a Type 2A foundation is required?

[308]

Introduction

[308]

The nature of the dispute

[310]

The Kellys’ engineering advice

[313]

Mr James Bundy's evidence

[351]

Conclusions on the Kellys’ engineering advice

[355]

PART IV&– OUTCOMES

Remedy

[360]

Content of relief

[360]

Mechanism of relief

[371]

Summary of findings

[377]

Costs

[379]

PART I&– INTRODUCTORY MATTERS
An overview of this case
1

C & S Kelly Properties Limited owns a property situated at 2B Vivienne Street, Burwood, Christchurch (the house). The house was the family home of the company's shareholders and directors, Suzie and Cameron Kelly (the Kellys), and is where they lived prior to the earthquake of 22 February 2011. Southern Response Earthquake Services Limited (Southern Response) insured the Kellys’ house. In the event of damage by an earthquake, it would provide earthquake insurance cover for loss or damage not covered by the Earthquake Commission (EQC).

2

The Kellys claim that EQC failed, or refused, to make payment under the Earthquake Commission Act 1993 (the EQC Act). They further claim that Southern Response has refused to meet its policy obligations by failing to pay them anything to settle their insurance claims. Their essential allegation is that the earthquakes inflicted substantial damage to their house (particularly the foundations), which will cost a significant amount to remediate. This, it is said, will exceed EQC's statutory liability. They seek judgment in the form of money from both EQC and Southern Respone.

3

While acknowledging some earthquake damage, EQC and Southern Response maintain such damage is relatively discrete and capable of repair. Both submit the Kellys are not entitled to recover a sum of money because EQC has unequivocally elected to settle the Kellys’ claim by undertaking reinstatement of the earthquake damage, rather than settling by way of payment. The Kellys have not challenged EQC's election to repair the house and, for this reason, their claim is unable to succeed.

4

Both defendants contest the extent of earthquake damage caused to the Kellys’ house. In particular, they question whether any material alteration to the floor levels of the house was caused as a result of the earthquakes.

5

Before providing greater detail of the Kellys’ house and the background to their claim, it is necessary to set out the statutory framework and the provisions of the insurance policy.

The EQC Act and the insurance policy
6

EQC is a Crown entity which administers insurance against natural disaster damage, provided under the EQC Act. 1 The insurance against natural disaster damage provided by the EQC Act is described in these terms:

18 Residential buildings

  • (1) Subject to any regulations made under this Act and to Schedule 3, where a person enters into a contract of fire insurance with an insurance company in respect of any residential building situated in New Zealand, the residential building shall, while that contract is in force, be deemed to be insured under this Act against natural disaster damage for its replacement value to the amount (exclusive of goods and services tax) which is the least of-

    • (a) if the contract of fire insurance specifies a replacement sum insured for which the building is insured against fire under that contract, the amount of that sum insured:

    • (b) if the contract of fire insurance does not specify such a replacement sum insured but does specify an amount to which the building is to be insured under this Act, that amount:

    • (c) the amount arrived at by multiplying the number of dwellings in the building (being the number determined in accordance with subsection (3)) by $100,000 or such higher amount as may be fixed from time to time for the purposes of this paragraph by regulations made under this Act.

7

EQC's liability is limited to $100,000 (excluding GST) in respect of each earthquake event. A precondition to insurance under s 18(1) is a contract of fire insurance in force in respect of the residential building the subject of the claim.

8

Natural disaster damage is defined under the Act as“any physical loss or damage to the property occurring as the direct result of a natural disaster”. 2 Section 29(2) of the EQC Act prescribes EQC's obligation to settle any claim in the following terms:

29 Settlement of claims

  • (2) Subject to any regulations made under this Act and, where a contract has been entered into under section 22, to the provisions of that contract, if, during the period for which any property is insured under this Act, the property suffers natural disaster damage, the Commission shall settle any claim (by payment, replacement, or reinstatement, at the option of the Commission) to the extent to which it is liable under this Act.

9

The insurance policy the Kellys held with Southern Response provided cover for earthquake damage as follows:

cover for earthquake damage

If the Earthquake Commission agrees to pay a claim for loss or damage to your house, we will provide Earthquake top-up cover for loss or damage notcovered by the Earthquake Commission.1 Earthquake a. If your house is damaged by earthquake, natural landslip, tsunami, volcanic eruption or hydrothermalactivity (as defined in the Earthquake Commission Act 1993 and any amendments) we will pay the difference between the maximum amount payable by the Earthquake Commission and your sum insured stated on the Policy Schedule.

1 Earthquake top-up cover

  • a. If your house is damaged by earthquake, natural top-up cover landslip, tsunami, volcanic eruption or hydrothermal activity (as defined in the Earthquake Commission Act 1993 and any amendments) we will pay the difference between the maximum amount payable by the...

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