Crystal Imports Ltd v Certain Underwriters at Lloyds of London

JurisdictionNew Zealand
JudgeCooper J
Judgment Date19 December 2013
Neutral Citation[2013] NZHC 3513
Docket NumberCIV-2012-404-1539
CourtHigh Court
Date19 December 2013
Between
Crystal Imports Limited
Plaintiff
and
Certain Underwriters at Lloyds of London
First Defendants
Sirius International Insurance Group Limited
Second Defendant

[2013] NZHC 3513

CIV-2012-404-1539

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Determination of disputed issue in advance of trial — plaintiff sought under an insurance policy to recover losses suffered as a result of the September 2010 and the February 2011 earthquakes in Christchurch — plaintiff was the owner of five properties in Christchurch, three of which had been demolished as a result of earthquake damage — whether the defendants were liable to indemnify plaintiff for the separate damage caused to plaintiff's insured properties by the September earthquake — interpretation of the reinstatement of sum insured clause — whether the doctrine of merger applied.

Appearances:

Z G Kennedy and I Rosic for Plaintiff

B D Gray QC and K R Pengelley for First and Second Defendants

JUDGMENT OF Cooper J

TABLE OF CONTENTS

Introduction

[1]

The issues to be determined

[7]

The agreed statement of facts

[8]

The policy

[14]

First question – extent of the obligation to indemnify A Interpretation of the policy

Plaintiff's argument

[20]

Defendants' argument

[37]

Discussion

[47]

B Merger

Defendants' argument

[79]

Plaintiff's argument

[89]

Discussion

[99]

C Frustration

[123]

D Conclusion on first question

[129]

Second question – The Average clause

[130]

Summary

[143]

Costs

[146]

Introduction
1

The plaintiff has commenced this proceeding seeking to recover under a policy of insurance losses that it claims to have suffered as a result of the earthquakes that struck Christchurch on 4 September 2010 (“the September earthquake”) and 22 February 2011 (the “February earthquake”). The policy was issued by the defendants.

2

The parties agreed that two of the issues in dispute should be heard and determined separately and in advance of the trial of the other disputed issues. On 22 May 2013 Rodney Hansen J made an appropriate order by consent enabling that to occur.

3

The two issues were the subject of argument on 3 and 4 July, on the basis of an agreed statement of facts. I was advised by the parties that the Court of Appeal had heard argument on 30 May in an appeal that raised similar issues, Ridgecrest New Zealand Ltd v IAG New Zealand. 1 I reserved my decision on the basis that if

the Court of Appeal's decision in that case were to become available before I delivered judgment the parties would have leave to make submissions on the implications of it for this case
4

The Court of Appeal's judgment in Ridgecrest was in fact delivered on 10 July, and the plaintiff filed written submissions in response to it on 24 July. In the course of those submissions counsel sought leave to file a second amended statement of claim, a course that was opposed by the defendants, who asked to be heard on that issue. It was not possible for that hearing to be arranged until 10 October, when I heard argument about whether leave should be granted having regard to the arguments originally run on the agreed statement of facts. Counsel referred in the course of argument to the implications of the Ridgecrest judgment.

5

For reasons that I will explain further below, 2 I am satisfied that the proposed amended statement of claim does not raise any matter of substance that had not already been the subject of argument at the hearing in July, when the defendants took no point about the adequacy of the plaintiff's pleading. In the circumstances I have concluded that there would be no real prejudice to the defendants if leave to file an amended statement of claim is granted. Further, granting leave would ensure that the real issues between the parties can be addressed in this judgment without the risk of the matter foundering on a pleadings point.

6

I accordingly grant leave to file the amended statement of claim.

The issues to be determined
7

The matters that Rodney Hansen J ordered be determined are:

As a matter of construction of the contract of insurance between the parties dated 20 March 2010 (Policy):

  • (i) what is the extent of the defendants' liability to indemnify the plaintiff for the separate damage caused to the plaintiff's insured properties by the September earthquake?

  • (ii) does the Average clause in the Policy limit the defendants' obligation to pay the plaintiff the full sum insured for the damage caused by the February earthquake to the plaintiff's New Brighton Mall property?

The agreed statement of facts
8

As recorded in the agreed statement of facts, the plaintiff was at all material times the owner of five properties in Christchurch (together, the “insured properties”). These were:

  • (a) 705 Colombo Street, Christchurch (705 Colombo);

  • (b) 217 Gloucester Street, Christchurch (217 Gloucester);

  • (c) 15–31 Cathedral Square, Christchurch (15–31 Cathedral Square);

  • (d) 50 Cathedral Square, Christchurch (50 Cathedral Square); and

  • (e) 126 New Brighton Mall, New Brighton, Christchurch (New Brighton Mall).

9

The sums insured for each of the insured properties were as follows:

705 Colombo

$2,260,000

217 Gloucester

$6,190,000

15–31 Cathedral Square

$5,465,000

50 Cathedral Square

$3,670,000

New Brighton Mall

$3,070,000

10

The insured properties were damaged in the September and February earthquakes. Paragraphs 10 to 15 of the agreed statement of facts were as follows:

  • 10. The September Earthquake caused damage to the Insured Properties and is an event of loss which gave rise to a claim under the Policy.

  • 11. The February Earthquake caused further damage to the Insured Properties and is an event of loss which gave rise to a claim under the Policy.

  • 12. In October 2011, 50 Cathedral Square was demolished pursuant to a demolition notice issued by the Canterbury Earthquake Recovery Authority.

  • 13. In November 2011, 705 Colombo Street was demolished pursuant to a demolition notice issued by the Canterbury Earthquake Recovery Authority.

  • 14. In August 2012, 217 Gloucester Street was demolished.

  • 15. The Insured Properties at 50 Cathedral Square, 705 Colombo Street and 217 Gloucester Street have been demolished as a result of earthquake damage.

11

Other matters covered by the agreed statement of facts were that the plaintiff had notified the defendants about the damage giving rise to claims under the policy, and that the defendants had paid a total of $68,421.97 towards the cost of investigation and repair of the insured properties. The sums so paid varied from property to property, in a range from $1,266.69 (50 Cathedral Square) to $55,448.51(217 Gloucester Street). Apart from the matters covered by those payments, no repairs were made to the insured properties between the September and February earthquakes.

12

Another paragraph in the agreed statement of facts stated:

19. For the purposes of the Reinstatement of Sum Insured clause at page 29 of the Policy, at no time following the September Earthquake and prior to the February Earthquake was notice given by any of the parties to the Policy of an election not to automatically reinstate the Cancelled Amount.

13

Paragraph 20 of the agreed statement of facts is relevant to the second question that must be addressed about the “Average clause” in the policy. It stated:

Average Clause

20. The parties cannot agree on the repair or replacement cost of the damage caused to New Brighton Mall by the February Earthquake. However, the following estimates have been obtained:

  • (a) depreciated replacement cost indemnity value of New Brighton Mall, as at 21 February 2011, has been estimated at $4,580,000;

  • (b) the cost of repairing the damage caused to New Brighton Mall by the February Earthquake has been estimated at $5.3m;

  • (c) the replacement cost of New Brighton Mall, as at 21 February 2011, has been estimated at $9,569,320; and

  • (d) the cost of rebuilding New Brighton Mall has been estimated at $11.4m.

The policy
14

The policy was attached to the agreed statement of facts. It consisted of a document headed “Material Damage & Business Interruption Insurance Master Certificate Wording” (“the Certificate”) issued by International Underwriting Agency Limited, and an attached “Material Damage & Business Interruption Insurance Schedule” (“the Schedule”). The Schedule provided that it was to form part of the Certificate, and it was to be read “in the context of” it.

15

Pursuant to the Certificate, the underwriter agreed, at the outset of the certificate, to indemnify the insured as set out in the Certificate, in consideration of the required premium. The following clause stated:

Except where provided to the contrary, the Company's liability will not exceed the Sum Insured and, if more that one Item is included in the Schedule, will not exceed in respect of each Item the Sum Insured applicable to that Item.

16

“Section 1 — Material Damage” (“the Material Damage clause”) provided, subject to various exclusions:

If, during the Period of Insurance, Accidental physical loss or damage happens to Insured Property anywhere in the Territory, the Company will indemnify the Insured for the loss or damage subject to the terms of this Section of the Certificate.

17

Among the provisions of the Schedule was a Schedule of Insured Property. This listed the insured properties, specifying against each the sum insured, as set out in the agreed statement of facts. 3

18

One of the “Section 1—Memoranda” in the Certificate was headed “Natural Disaster” (the “Natural Disaster memorandum”). It provided:

This insurance extends to cover loss...

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