Dodds v Southern Response Earthquake Services Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeGendall J
Judgment Date16 August 2019
Neutral Citation[2019] NZHC 2016
Docket NumberCIV-2018-009-000417
Date16 August 2019

[2019] NZHC 2016

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA

ŌTAUTAHI ROHE

Gendall J

CIV-2018-009-000417

Between
Karl Gregory Dodds and Alison Roma Jacqueline Dodds and St Martins Trustee Services Limited as Trustees of The Mattson Trust
Plaintiffs
and
Southern Response Earthquake Services Limited
Defendant
Appearances:

P J Woods and T D Grimwood for Plaintiffs

D J Friar and NFD Moffat for Defendant

Contract, Insurance — alleged misrepresentation, misleading and deceptive conduct, and breach of the insurer's implied duty of good faith — insurer settled claim based on abridged report which omitted costs the defendant thought exceeded the insured's entitlement — effect of full and final settlement clause — s35 Contract and Commercial Law Act 2017 — s9 Fair Trading Act 1986

The Court held thatSouthern Response had represented that its estimation of the cost of rebuilding the D's house was the amount set out in the abridged report and had represented it was the complete and by implication the only report received from Arrow. The representations were statements of fact and were capable of being seen as misrepresentations under s35 CCLA. It was no defence assert that D could have discovered the truth with reasonable due diligence or that Southern Response had given D some other document from which he could have detected the truth. Southern Response's representations had not been based on a professional quantity surveyor's estimate. Figures had been deliberately omitted which rendered the document and its meaning false.

D had lost the ability to negotiate his entitlement to the Office Use Section amountsas wellas any ability to consider other options. D had relied on the figure and it had been reasonable for him to have done so. The misrepresentations had induced D into entering the Settlement Agreement. D had suffered a loss by not receiving the full value of the promised benefit under the contractual settlement

Section 2(2) FTA (interpretation) provided that a failure to disclose relevant information may constitute misleading or deceptive conduct. The misleading conduct related to the withholding of the further information in the Office Use Section. A reasonable person, reading the abridged report would have thought that the $894,937 was Southern Response's estimate of the actual cost of rebuilding. D was misled and deceived by Southern Response's conduct which was an operating cause of D entering into the settlement agreement and was therefore an operating cause of D's loss.

There was a duty of good faith on an insurer. Having already found an actionable misrepresentation and misleading and deceptive conduct the Court made no orders as to the breach of the duty of good faith apart from stating it would have found for D under the alternative cause of action.

D's claims arose by virtue of statute not under the policy which the settlement agreement had not addressed. Southern Response could not contract out of the CCLA or FTA. The claims for misrepresentation and for misleading and deceptive conduct were not directly caused by the earthquake sequence. They were not excluded on that basis.

D was entitled to what was the true reasonable estimate at the time of the amount Southern Response would have paid to rebuild ($1,186,920.75 in accordance with the complete report) minus certain adjustments for demolition costs and Arrow's costs. Southern Response was ordered to pay D$178,894.30 and interest. D had not met the reasonably high threshold for general damages claims. D was effectively cash-settled enabling a replacement home to be purchased.

JUDGMENT OF Gendall J

This judgment was delivered by me on 16 August 2019 at 11:00 a.m. pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: 16 August 2019

Table of Contents

Para No

Introduction

[1]

Factual background

[2]

The policy

[3]

Out of policy options

[6]

The DRA

[10]

The election process — the 26 September 2012 letter

[16]

Information Sheets

[26]

January 2013 meeting/s, the MOU and Build Decision documents

[36]

Settlement Election form

[42]

The settlement

[45]

The claim

[51]

The Dodds' entitlement to the AMI Office Use section costs

[54]

The Avonside Holdings decisions

[56]

Theoretically, what would the applicable costs be now?

[64]

Claim 1: Misrepresentation

[77]

Was a representation made by words or conduct and, if so, was it false?

[80]

Did the misrepresentations induce the Dodds to enter into the Settlement Agreement?

[97]

Intention to rely

[102]

Reasonableness of reliance

[107]

Damages

[116]

Claim 2: Misleading and deceptive conduct under the Fair Trading Act 1986

[124]

Application

[136]

Damages

[149]

Claim 3: Common law breach of the duty of good faith

[152]

Does the full and final settlement clause count?

[171]

Application

[179]

Damages calculation

[202]

Interest

[208]

General damages claim

[214]

Orders

[225]

Costs

[226]

Introduction
1

An insurer commissions a report on the cost of rebuilding an earthquake damaged house. That report contains costings the insurer thinks are beyond the entitlement of the insured homeowner. The insured is provided an abridged report which excludes those costings and settles the claim on that basis. Later, the insured discovers the full unredacted report and feels deceived and misled. The insured sues alleging misrepresentation, misleading and deceptive conduct, and breach of the insurer's implied duty of utmost good faith under the policy. The potential liability of that insurer (if any) is at issue in this case.

Factual background
2

The plaintiffs, (“the Dodds”) owned a residential property at 9 Errol Lane, Huntsbury, Christchurch (“the property”) as trustees of the Mattson Trust. The house on that property (“the house”) was insured from the 1990s through AMI Insurance Ltd (AMI). A claim under the AMI insurance policy (the policy) eventuated when the house and the swimming pool on the property suffered major damage in the 2010/2011 Canterbury earthquake sequence. In February 2011, the Dodds filed a claim with the Earthquake Commission (EQC) and with AMI. On 5 April 2012, the defendant, Southern Response Earthquake Services Ltd (Southern Response) assumed AMI's liability under the policy for all earthquake damage resulting from the Canterbury earthquake sequence which occurred before 5 April 2012.

The policy
3

The Dodds' house was insured for full replacement cover under a policy described as an “AMI Premier House Cover” policy. The policy provides “top up cover” for earthquake damage over and above the amounts payable by EQC. It states under a section headed “cover for your house” that if the insured house is damaged beyond economic repair, which both parties accept was the case here, the insured can choose between four insurance options. This section goes on to describe what the insurer will do for each such option:

  • (i) to rebuild on the same site. We will pay the full replacement cost of rebuilding your house.

  • (ii) to rebuild on another site: We will pay the full replacement cost of rebuilding your house on another site you choose. This cost must not be greater than rebuilding your house on its present site.

  • (iii) to buy another house. We will pay the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding your house on its present site.

  • (iv) a cash payment. We will pay the market value of your house at the time of the loss.

4

A separate section in the policy provides “cover for additional costs”. This outlines further costs the insurer will meet as follows:

1. Professional fees

We will pay the reasonable cost of any architects' and surveyors' fees to repair or rebuild your house. These expenses must be approved by us before they are incurred

2. Demolition and debris removal

We will pay the reasonable cost of demolition and debris removal. These expenses must be approved by us before they are incurred.

3. Removal of household contents

We will pay the reasonable cost of removing your household contents from your house when this is necessary to carry out repair or reinstatement of your rental house.

4. Compliance with building legislation and regulations

If additional work is required, we will pay the reasonable costs for compliance with building legislation and rules…

5

The relationship between the “cover for your house” section in the policy and the “cover for additional costs” section has been considered in a number of cases which I will outline later in this judgment.

Out of policy options
6

Southern Response, to its credit, at the time also offered policy-holder customers a number of alternative options which were outside the policy.

7

One of these options was “Flexi-Build”, which was called at that time “Build to Budget”. Southern Response developed this option, it said, because its standard policy only allowed customers to rebuild their insured house, and many customers wanted to use the payment they would receive under their policy to build something different. Southern Response therefore developed this out of policy option in which the customer could take the rebuild cost cap that applied under the Buy Another House Option (noted at [3](iii) above), and use this as a budget that they could then apply towards building a different house within the Southern Response rebuild programme (with certain restrictions). In some circumstances, the customer could also choose to contribute more to the cost of the new house than their budget. This might happen where the customer wanted to build a bigger house or a house with higher...

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3 cases
  • Ross v Southern Response Earthquake Services Ltd
    • New Zealand
    • High Court
    • 20 September 2021
    ...Judgment, above n 3, at [18]. 6 At [15]. 7 At [19]. 8 Reasons Judgment, above n 4. 9 Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016, [2019] 3 NZLR 826 [ Dodds HC]; Southern Response Earthquake Services Ltd v Dodds [2020] NZCA 395, [2020] 3 NZLR 383 [ Dodds 10 Ross v So......
  • Ross v Southern Response Earthquake Services Limited
    • New Zealand
    • High Court
    • 23 February 2021
    ...of unsettled claims where the claimants are represented by lawyers other than GCA 8 9 Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016, [2019] 3 NZLR Southern Response Earthquake Services Ltd v Dodds [2020] NZCA 395, [2020] 3 NZLR 383. Lawyers (Mr and Mrs Ross’s lawyers) o......
  • Ross v Southern Response Earthquake Services Limited
    • New Zealand
    • High Court
    • 16 December 2021
    ...HC, above n 3. Ross HC, above n 3, Ross CA, above n 2, Ross SC, above n 2, at [108]. Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016, [2019] 3 NZLR Southern Response Earthquake Services Ltd v Dodds [2020] NZCA 395, [2020] 3 NZLR 383. [10] In September 2019, the Crown (as ......

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