Medical Assurance Society of New Zealand Ltd v East Taylor

• Jurisdiction: New Zealand
• Judge: Harrison J
• Judgment Date: 17 June 2015
• Neutral Citation: [2015] NZCA 250
• Docket Number: CA60/2015
• Court: Court of Appeal
• Date: 17 June 2015

Between

Medical Assurance Society of New Zealand Ltd

Appellant

and

Michael Charles East, Jane Louise East and Ingrid Robyn Taylor

Respondents

[2015] NZCA 250

Court:

Harrison, Keane and Wylie JJ

CA60/2015

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against the High Court declarations that an insurance policy obliged the appellant insurer to pay the cost of repairing damage irrespective of whether liability to incur those costs had been or would ever be incurred, and that the obligation to rebuild or restore the building “to a condition substantially the same as new” required rebuilding or restoring to the current building code standards, even if that meant the house was better than when it had been built in 2007 — the respondents said they were entitled to be paid on the basis of an estimate of the costs, rather than wait until liability for costs was incurred — the insurer said that the standard of rebuilding was that at the time the property was built — whether the insurer was required to cover the cost of rebuilding or restoration irrespective of whether liability to incur those costs had been or would ever be incurred — whether the standard of rebuilding was to the current building code standards or those that applied when the house was built — whether the Judge had been correct to reserve leave to determine issues of quantum if the Council later granted consent to use a particular building method.

Counsel:

M G Ring QC and A J Horne for Appellant

N R Campbell QC and A G M Whalan for Respondents

• A The appeal is allowed in part and the declaration made in the High Court that the policy does not require the cost of rebuilding or restoring the dwelling has to be incurred or about to be incurred before the appellant is liable to pay the replacement value is set aside.

• B The appeal is otherwise dismissed.

• C The cross-appeal is dismissed.

• D The application for leave to adduce further evidence is dismissed.

• E There is no order for costs.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Harrison J)

Introduction

1 Two issues arise on this appeal from a judgment given in the High Court at Christchurch on a dispute between parties to a policy of insurance about the insurer's liability to indemnify following damage to a residential property in the February 2011 Christchurch earthquake. 1

2 The first issue is whether Whata J was correct to declare that the words “cover the cost of” rebuilding or restoring a dwelling, where used in the policy, oblige the insurer to pay to the insured party the cost of repairing damage irrespective of whether liability to incur those costs has been or will ever be incurred.

3 The second issue is whether the Judge was correct to declare that the insurer's obligation to rebuild or restore the dwelling “to a condition substantially the same as new, so far as modern materials allow, and including any territorial costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws” requires that the dwelling be rebuilt or restored to the standard of a new dwelling built today.

4 The insurer, Medical Assurance Society of New Zealand Ltd (MAS), appeals against both declarations. The insured parties, Michael and Jane East and Ingrid Taylor (who we will call the Easts), cross-appeal against what is said to be a separate decision by the Judge and also apply for leave to file fresh evidence. 2

Facts

5 The essential facts are not in dispute.

6 The Easts own a 351 square metre dwelling on a property in Christchurch. The house was built in 2007 on a 100 mm concrete slab. It combines wood framing,

masonry, brick veneer and plaster finishes and is of a high quality. The Easts insured the property with MAS under what is called its Goldshield policy

7 The house was damaged in the Christchurch earthquake on 22 February 2011. It has settled by a maximum of 44 mm and exhibits slope differentials of greater than 1:200 in certain places. While the parties agree that this damage must be repaired, they differ on the appropriate methodology and the scope of works reasonably required.

High Court

8 In order to give context to MAS’ appeal it is necessary to narrate briefly the history of this litigation with particular reference to the relief sought.

9 In October 2014 the Easts applied to the High Court for a declaration of undefined breadth about the nature of MAS’ liability and for judgment for the estimated cost of repairing the house of $3.096 million. It appears that the parties were subsequently able to settle issues for determination.

10 Whata J heard the Easts’ claim at a trial which occupied five days of evidence and submissions in November 2014. With commendable expedition he delivered judgment within a month. It must be noted that much of the judgment is a narrative of evidence relating to a dispute about the proper measure of MAS’ liability. It is unnecessary for us to revisit that evidence or the Judge's findings on it because they are not in issue on appeal.

11 In the event the Judge found for the Easts and made these findings or formal declarations, only the first and third of which are in issue:

• (a) The policy does not require that the cost of rebuilding or restoring the dwelling has to be incurred or about to be incurred before MAS is liable to pay the replacement value.

• (b) A specific engineering solution such as underpinning is necessary to restore the house to “substantially the same as new” in accordance with the Building Code requirements.

• (c) The policy standard of rebuilding or restoring the dwelling to a condition substantially the same as new means in accordance with Building Code requirements as they exist at the time of the rebuild or restoration.

12 The Judge reserved leave to the parties to apply for further orders finalising quantum after the local authority had considered whether it was prepared to grant consent to a particular type of re-levelling and notwithstanding the terms of the judgment. Costs were also reserved.

13 It will be apparent from this brief summary that the Easts’ claim for damages failed. As we shall explain more fully, their claim was based on a seriously flawed estimate for rebuilding costs of $3.096 million. 3 Moreover, the Judge allowed for the alternative contingency of a different engineering premise such as underpinning, with the inevitable prospect of another and different estimate being offered at a later date. 4

14 It is thus plain that despite the judgment the Easts’ claim remains some distance away from settlement. Among other things, any rebuilding work will require a consent from the local authority, the Christchurch City Council. 5 Until the terms of its consent are fixed, the scope of restoration works will not be known and the parties will be unable to make progress towards settling rebuilding costs. The Judge appeared towards the end of his judgment to recognise that his construction of the policy reflected in the first declaration could prospectively give rise to problems in quantifying liability. 6

15 In these circumstances it is unclear to us why the first declaration was ever required or made. Mr Ring QC for MAS referred us to evidence suggesting that the Easts were parties to a type of contingency arrangement with an American company which entitles it to 35 per cent of any amount payable in excess of a judgment $1.4 million. While this issue is not directly relevant to our decision, it may explain the reason for the Easts’ pursuit of the unusual course of seeking judgment for payment of restoration costs according to an estimate before they are even incurred.

Policy

16 The relevant provisions of the policy are as follows:

Our Undertaking

The Society undertakes that if, during any period for which the premium has been paid, any unintended and unforeseen physical loss or damage occurs or costs or losses arise which have been provided for by the Policy, its Schedule or any Renewal Advice, then the Society will compensate you in the manner and to the extent described.

…

Types of cover

• A Dwelling

  • 1) Dwelling – Replacement Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the Society will cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws. There is no maximum sum insured but the liability of the Society shall not be greater than the reasonable cost to rebuild or restore the dwelling based on a floor area no greater than that declared in the proposal and specified in the Schedule.

  • 2) Dwelling – Agreed Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the Society will cover the cost of rebuilding or restoring the dwelling as in 1 above but subject to the maximum sum insured stated in the schedule. This sum will be increased each year in accordance with building cost changes.

  • 3) Holiday Home – when selected is subject to Agreed Value conditions as in 2 above.

    In any case, if you elect not to rebuild or restore the building we will make a cash settlement not exceeding the indemnity value as assessed by a qualified Valuer.

    (Emphasis added.)

Decision

First issue

17 On the first or what counsel called the timing issue, the essence of the Judge's reasoning is as follows:

• [24] Nevertheless, the reference to “will cover the cost” does not obviously mean that MAS's obligation to pay is only triggered when the costs are actually incurred or just about to be incurred and subject to an incremental approval basis. Different words are needed to place such a strict and cumbersome fetter on the prima facie right to replacement value...