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

• Jurisdiction: New Zealand
• Judge: O'Regan J
• Judgment Date: 13 May 2015
• Neutral Citation: [2015] NZSC 59
• Docket Number: SC 57/2014
• Court: Supreme Court
• Date: 13 May 2015

BETWEEN

New Zealand Fire Service Commission

Appellant

and

Insurance Brokers Association of New Zealand Incorporated

First Respondent

Vero Insurance New Zealand Limited

Second Respondent

[2015] NZSC 59

judge

McGrath, William Young, Glazebrook Arnold and O'Regan JJ

SC 57/2014

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against a decision relating to the method of calculation of the fire service levy under s48 Fire Service Act 1975 (FSA) (Levy) — respondent insurers issued split tier insurance policies under which the insured had cover for both a nominated indemnity value of the insured property and, in addition, an excess of indemnity cover (providing cover for the difference between the true indemnity value of the property and the replacement value of the property) — the Commission said that the levy should be calculated on the combined level of insurance — respondents said that s48(7) FSA (section shall not apply to any contract of fire insurance that is limited to an excess over the indemnity value of the property or to any portion thereof which is in excess of the indemnity value) applied to limit the calculation — respondents also said that a policy issued to a collective of eight port companies was a single policy on which only one levy should be calculated — whether the levy should be calculated on the combined level of insurance — whether s48(7) overrode the earlier subsections of s48 FSA — whether s48 imposed an obligation to pay the levy on an owner by owner basis — whether the ports policy was a single policy or a series of separate policies that had been included in a single document.

Counsel:

F M R Cooke A L Holloway and N D Chapman for Appellant

R G Simpson and D J Friar for First and Second Respondents

• A The appeal is allowed.

• B The declaration made in the High Court and upheld with amendments by the Court of Appeal in relation to split tier policies is set aside.

• C The declaration made in the High Court and upheld in the Court of Appeal in relation to the New Zealand Ports Collective policy is also set aside.

• D We make no order for costs.

JUDGMENT OF THE COURT

REASONS

(Given by O'Regan J)

Table of Contents

	Para No.
Computation of fire service levy	[1]
Split tier policies	[2]
New Zealand Ports Collective policy	[5]
Leave	[8]
The statutory scheme	[10]
Approach to interpretation	[12]
Legislative history	[14]
Alignment with earthquake insurance premiums	[14]
The AMP case	[16]
1993 changes	[19]
Statutory purpose	[21]
Reform	[25]
Impact of adverse result on insurers	[28]
Split tier policies	[30]
Declaratory relief?	[30]
Policy terms	[32]
Computation of the levy on the facts in the example	[44]
Scope and meaning of s 48(7)	[54]
The respondents' propositions	[60]
Application of s 48(6)	[70]
What if the sums insured do not exceed the indemnity value?	[85]
What if there are separate indemnity and excess of indemnity policies?	[86]
Conclusion: split tier policies	[93]
New Zealand Ports Collective policy	[94]
Policy terms	[94]
Issues	[96]
Levy on a per owner basis?	[102]
Is there more than one insurance contract?	[107]
Approach	[113]
General Accident Fire and Life Assurance Corp Ltd v Midland Bank Ltd	[115]
Federation Insurance Ltd v Wasson	[120]
New Hampshire Insurance Co v MGN Ltd	[125]
Arab Bank plc v Zurich Insurance Co	[128]
American Motorists Insurance Co v Cellstar Corp (AMICO)	[133]
Maulder v National Insurance Co of New Zealand Ltd	[135]
Evaluation of the cases	[137]
Our approach: is there more than one contract?	[141]
Conclusion: NZPC policy	[154]
Result	[155]
Costs	[158]

Computation of fire service levy

1 This appeal raises two issues relating to the method of calculation of the fire service levy under s 48 of the Fire Service Act 1975. 1 Section 48 provides for the imposition of a levy on fire insurance policies as a way of providing funding for the operation of the New Zealand Fire Service Commission. Almost all of the Commission's funding comes from these levies.

Split tier policies

2 The first issue relates to “split tier” policies. In this situation the insured has cover for both a nominated indemnity value of the insured property and, in addition, excess of indemnity cover, which provides cover for the difference between the true indemnity value of the property and the replacement value of the property. As the nominated indemnity cover does not extend to the true indemnity value of the assets the insured party assumes the risk in relation to the uninsured portion, at least in theory. The respondents argue that the levy payable under s 48 should be calculated only on the insured portion of the indemnity value, and that the excess of indemnity cover should be ignored for the purposes of this calculation. They were successful in both the High Court 2 and in the Court of Appeal. 3

3 The High Court made a declaration in their favour and this was upheld, with some amendments, by the Court of Appeal. The declaration made by the Court of Appeal provides: 4

• 1. Levy computed on sum insured: If a contract of fire insurance provides for the settlement of any claim for damage to or the destruction of the property upon a basis no more favourable to the insured person than its indemnity value, and specifies a sum insured for all claims during the period of the contract of fire insurance that is lower than its indemnity value, the fire service levy payable under s 48(1) of the Act is to be computed on the sum insured.

• 2. Levy computed on indemnity value if sum insured higher: For a policy that:

  • (a) provides cover for the indemnity value of the property; and

  • (b) contains a capped sum insured,

• the maximum levy is that computed on the sum insured. However, if the sum insured exceeds the indemnity value of the property, and the insured provides compliant declarations or valuations under s 48(6)(c), the levy is payable on the indemnity value.

• 3. No levy on excess of indemnity value contract: If a contract or any portion of a contract of fire insurance provides for the settlement of any claim for damage to or the destruction of any item of insured property limited to that part of its value in excess of its indemnity value, then pursuant to s 48(7) of the Act, no fire service levy is payable on that contract or portion thereof.

• 4. Application of s 48(7): To be exempt under s 48(7) it is not necessary that the insured hold a policy that insures all or any part of the indemnity value of the property. It is sufficient if the excess of indemnity policy only insures part or all of the difference between the “as new” replacement value and the indemnity value of the property.

4 The Commission argues that the levy should be calculated on the combined level of insurance under the indemnity cover and excess of indemnity cover, up to the actual indemnity value of the insured property. It argues that the declaration should not therefore have been made and should be set aside. 5

New Zealand Ports Collective policy

5 The second issue relates to a material damage and business interruption policy entered into in 2008 by the New Zealand Ports Collective (NZPC) comprising eight port companies under which they obtain cover for losses incurred “by all Insureds collectively” in relation to fire damage. The leading underwriter was the second respondent.

6 The respondents argue that the NZPC policy is a single, composite policy on which a single premium is payable, and that the levy is therefore appropriately calculated under s 48 on the basis of the indemnity sum insured. Again, they

succeeded in both the High Court and Court of Appeal. The declaration issued in the High Court and upheld in the Court of Appeal was as follows: 6

… only one fire service levy is payable in respect of the New Zealand Ports Collective policy, which levy is to be quantified on the Sum Insured in Section 1 of the New Zealand Ports Collective policy.

7 The Commission argues that there are, in fact, separate polices for each of the eight port companies, and that each should be required to pay a levy calculated under s 48(6) reflecting its individual position. 7 It also argues that the Act supports applying the levy on a “per owner” basis. As the NZPC policy was a split tier policy, the decision on the first issue applies to it also.

Leave

8 Leave to appeal was granted on the question: 8

[W]hether the Court of Appeal was correct to affirm the declarations made by the High Court.

9 Both of the issues outlined above require a close analysis of the scheme of the Act and the language and purpose of s 48. We propose to undertake that analysis before turning to the specific issues raised by the appeal.

The statutory scheme

10 The appeal turns on the construction of s 48 of the 1975 Act. The relevant provisions are s 48(1), (2), (6), (6B) and (7). For convenience we set these out in full:

• 48 Levy

• (1) Subject to this Act, every insurance company with which any property is insured against fire under any contract of fire insurance made in New Zealand in respect of any period commencing on or after 1 July 1986 shall pay a levy to the Commission.

• (2) The Governor-General may from time to time, by Order in Council, prescribe—

  • (a) the rate of the levy that shall be computed at a uniform rate per annum on every motor vehicle which is insured in terms of any contract of fire insurance, whether or not the contract specifies the sum insured; and

  • (b) the rate of the levy that shall be computed on all other property on—

    • (i) the amount for which the property is insured for the period of the contract of fire...