Ew Zealand Fire Service Commission v Insurance Brokers Association of New Zealand Incorporated

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeWild J
Judgment Date13 May 2014
Neutral Citation[2014] NZCA 179
Date13 May 2014
Docket NumberCA56/2013

[2014] NZCA 179

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Ellen France, Wild and White JJ

CA56/2013

BETWEEN
New Zealand Fire Service Commission
Appellant
and
Insurance Brokers Association of New Zealand Incorporated
First Respondent

And

Vero Insurance Limited
Second Respondent
Counsel:

A R Galbraith QC and C M Stevens for Appellant

R G Simpson and S P Elliott for Respondents

Appeal against a High Court judgment which gave declarations as to the correct method of computing levies under s 48 Fire Service Act 1975 (“FSA”) (levy) in relation to split tier insurance policies and multi-insured composite policies — the appellant was funded largely by the levies computed and payable under s48 FSA — sample policies rather than completed policies were submitted for Court's consideration — composite policy covered eight port companies — whether declaratory relief was inappropriate as the Court was being asked to look at sample policies — whether the exclusion in s48(7) (exemption from calculation — contract limited to cover over the indemnity value of the property) was wide enough to encompass any type of insurance cover for damage by fire that was in excess of the stated “indemnity value” — whether the existence of joint obligations meant that the composite policy constituted a single policy, or whether it was eight separate policies.

The issues were: whether declaratory relief was inappropriate as the Court was being asked to look at sample policies that were not complete as to their content; whether the exclusion in s48(7) (exemption from calculation — contract limited to cover over the indemnity value of the property) was wide enough to encompass any type of insurance cover for damage by fire that was in excess of the stated “indemnity value” and whether the existence of joint obligations meant that the NZCP policy constituted a single policy, or whether it was eight separate policies.

Held:Although this appeal was argued on two sample split tier policies, the Court post-hearing was asked to look at different sample policies. These events underlined the soundness of the principle that a court should not make a declaration if the underlying facts were in dispute, including where the question was one of mixed (but disputed) facts and law. Implicit in the SC's observations in Mandic was that there be no doubt as to which instrument or agreement the court was being asked to rule on.

Bearing in mind the binding precedential effect of a judgment of the Court of Appeal under the Declaratory Judgments Act, it was not satisfactory to be asked to rule on sample policies — policies that had not actually been issued, and were not complete as to their relevant contents. Accordingly the judgment would be based on the two sample split tier policies but if this had been a court of first instance, declarations would have been declined, at least in relation to the split tier policies. That was simply because there was no actual policy or policies to rule on.

Section 48 FSA was drafted before the two types of policy in question became common, and perhaps before the advent of at least the multi-insured composite policy. It had not kept pace with developments in New Zealand in the structuring of fire insurance policies covering commercial properties. The solution was legislative not judicial. A comprehensive look at how levies to fund the Commission were most effectively and fairly fixed was needed.

Section 48 FSA operated as follows:

  • •It applied to both split tier insurance policies and multi-insured composite policies because both were contracts of fire insurance in terms of s48(1) FSA.;

  • •The levy was computed on the amount for which the property was insured and the period of the contract of fire insurance under s48(2)(b) FSA•The amount for which the property was insured for the contract of fire insurance was to be ascertained pursuant to s48(6) FSA. Section 48(6)(c) provided that the levy was computed on the basis of the indemnity value of the property in two situations: where the contract provided for settlement of a claim on a basis more favourable to the insured than the indemnity value of the property or where there was no sum insured. In either of those two situations indemnity value had to be fixed by the owner's declaration or the valuation certificate stipulated. Both means aimed to ensure the indemnity value was accurate.

  • •Where the indemnity value could not be established under s48(6)(c) FSA, but there was a sum insured, then the levy was computed on that sum insured under s48(6)(d)(i) FSA.

  • •Where the indemnity value could not be established and there was no sum insured, then the amount for which the property was insured is determined by the appellant under s48(6)(d)(ii) FSA.

  • •Section 48(7) FSA exempted from levy any contract of fire insurance or any “portion” of such a contract which was limited to cover over the indemnity value of the property.

Neither of the bases of error put forward by the Commission were accepted for two reasons. First, a “portion” of the contract of fire insurance was limited to an excess of the indemnity value. That was the cover in the excess of indemnity policy, which was expressly limited to a loss in excess of the (unidentified) indemnity value of the property. If a claim was made on that policy, the indemnity value of the property would need to be ascertained. But it need not be ascertained earlier, in particular for the computation of levies, because in its absence the levies were computed on the sum insured stipulated in the indemnity policy part of the contract of insurance

Secondly, s48(7) FSA was not only engaged when the property was insured up to its indemnity value, and applied to any insurance in excess of that indemnity value. The exemption provided by s48(7) FSA applied to fire insurance limited “to an excess over the indemnity value of the property”. The Commission's interpretation required the section to be rewritten.

The NZPC policy contained some joint obligations, as well as some several ones. Accordingly, it was a single, composite contract of insurance and not eight separate contracts. The NZPC policy could only be terminated by the eight insured acting together. The inclusion in the NZPC policy of a joint obligation to pay the single premium securing the $250 million indemnity cover was fatal to the Commission's argument that the policy comprised eight separate contracts of insurance, each imposing, on the insured port company, a several obligation to pay its portion of the premium in return for $250 million indemnity cover.

A joint obligation constituted a composite policy a single contract of insurance ( Federation Insurance Ltd v Wasson). Most of the composite policy cases decided in New Zealand, Australia and England involved insured with a joint interest in the same property. There was however English authority that there was no requirement for the insured to have a joint interest in the same property insured under the policy ( New Hampshire Insurance Co v MGN Ltd). For that reason the HC's view of the composite policy was endorsed.

There were no orders for costs as it was a test case.

JUDGMENT OF THE COURT
  • A The appeal is dismissed.

  • B The declarations made by the High Court, as set out in [45], [49] and [76] of this judgment, are affirmed.

REASONS OF THE COURT

(Given by ( Wild J)

Contents

Para No

Introduction

[1]

A legislative solution is needed

[7]

Appropriateness of declarations about the split tier policies

[11]

Split tier policies

[16]

ndemnity policy

[17]

Excess of indemnity policy

[18]

The New Zealand Ports Collective policy

[19]

Placing slip

[20]

Policy document

[21]

Invoices for the premiums

[22]

Section 48 of the Act

[23]

Application of s 48 to the split tier policies

[26]

Analysis of the New Zealand Ports Collective policy

[46]

Costs

[78]

Result

[82]

Introduction
1

In issue on this appeal is the correct method of computing levies under s 48 of the Fire Service Act 1975 (the Act). As most of the funding for New Zealand's Fire Service comes from levies struck under s 48, the issue is important.

2

The appeal is by the New Zealand Fire Service Commission against a judgment given by Heath J in the High Court at Auckland on 17 December 2012. In that judgment, upon the application of the Insurance Brokers Association of New Zealand Inc and Vero Insurance New Zealand Ltd, the Judge made declarations as to the correct method of computing levies under s 48. 1 We will refer to the parties,

respectively, as the Commission, IBANZ and Vero.

3

As we mentioned, the Commission and, through it, the New Zealand Fire Service, is funded largely by the levies computed and payable under s 48. 2 Under s 48(2) the Executive prescribes the rate of the levies which are payable to the

Commission by insurance companies on each contract of fire insurance made in New Zealand. 3
4

The proceeding brought by IBANZ and Vero, and this appeal by the Commission, turn on the correct interpretation of the computation provisions in s 48, and their application to the two types of fire insurance policy which Heath J was asked to rule on. These are split tier insurance policies and multi-insured composite policies.

5

IBANZ and Vero indicated in a notice on 8 February 2013 that they would be seeking to support Heath J's judgment on an additional ground. Their concern was that the meaning of “indemnity value” was implicit rather than explicit in Heath J's judgment. The notice asserted:

The term “indemnity value” means the depreciated replacement cost of insured property, or its current market value, depending on the nature of the property and the purpose for which it is held by the insured.

We understood Mr Galbraith QC for the Commission to accept this meaning, though...

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