Qbe Insurance (International) Ltd v Wild South Holdings Ltd and Maxims Fashions Ltd

• Jurisdiction: New Zealand
• Judge: Miller J
• Judgment Date: 10 September 2014
• Neutral Citation: [2014] NZCA 447
• Docket Number: CA776/2013 CA65/2014
• Court: Court of Appeal
• Date: 10 September 2014

BETWEEN

Qbe Insurance (International) Limited

Appellant

and

Wild South Holdings Limited and Maxims Fashions Limited

Respondents

BETWEEN

Peter Stanley Marriott and Eunice Ann Marriott

Appellants

and

Vero Insurance New Zealand

Respondent

BETWEEN

Crystal Imports Limited

Appellant

and

Certain Underwriters At Lloyds of London

First Respondents

Sirius International Insurance Group Limited

Second Respondent

[2014] NZCA 447

Court:

Wild, French and Miller JJ

CA776/2013

CA881/2013

CA65/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Three appeals heard together concerning interpretation of insurance policies relating to commercial buildings damaged in the Christchurch earthquakes in September 2010, February and June 2011 — policies provided full replacement cover subject to a sum insured, and each provided for annual aggregate with automatic reinstatement of cover upon loss unless notice given to contrary — one policy was renewed between earthquakes — insurer said that notice could still be given as cover was not cancelled and reinstated for any given loss until the insurer had paid, and then only to the extent of payment — policies also provided for a deductible and insureds said that it was to be deducted from their actual loss, which was much larger, meaning that they should receive the sum insured free of deductible — whether under the automatic reinstatement clauses the cover was continuous, or whether it only reinstated when depleted by an insurer's payment — whether notice of cancellation could be given retrospectively — whether the marine insurance doctrine of merger applied to material damage policies — when was a building “destroyed” — whether deductible was to be subtracted from the sum insured or from the actual loss.

Counsel::

M R Ring QC and F W Rose for QBE Insurance (International) Ltd

N R Campbell QC and S P Rennie for Wild South Holdings Ltd, Maxims Fashions Ltd and P S and E A Marriott

D J Goddard QC and PJH Hunt for Vero Insurance New Zealand Ltd

Z G Kennedy and I Rosic for Crystal Imports Ltd

B D Gray QC and K Pengelly for Certain Underwriters at Lloyds of London and Sirius International Insurance Group Ltd

• A The appeals and cross-appeals are allowed to the extent set out at [138]–[149] of the judgment.

• B Costs are reserved.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Miller J)

TABLE OF CONTENTS

Introduction	[1]
Facts and issues	[4]
QBE v Wild South and Maxims Fashions (Fogarty J)	[5]
Marriotts v Vero (Dobson J)	[9]
Crystal Imports v Lloyds (Cooper J).	[12]
Issues	[15]
Interpretation	[18]
Reinstatement	[19]
The issue	[19]
What the policies say	[20]
Submissions	[24]
Is the insured indifferent to reinstatement of cover pending the insurer's payment?	[35]
“Loss” in the reinstatement clauses	[46]
Notice	[49]
Conclusions	[55]
Reinstatement of cover in operation	[56]
The High Court judgments	[59]
Merger	[69]
Why merger?	[72]
The indemnity principle survives Ridgecrest	[77]
The indemnity principle and successive losses	[81]
The insured's loss: the indemnity principle in operation	[87]
Destroyed	[90]
Deductible	[109]
Average	[122]
The Marriotts' entitlement to repair costs	[134]
Results and answers	[138]
Automatic reinstatement	[139]
Deductible	[143]
Other questions in the Marriott appeal	[145]
Remaining question in the Crystal Imports appeal	[148]
Costs	[151]
Appendix

Introduction

1 The Christchurch area experienced serious earthquakes on 4 September 2010, 22 February 2011 and 13 June 2011. Frequently two and sometimes all of these events happened within the annual term of an insurance policy covering a given property. Damage from one earthquake often awaited repair when the next one struck.

2 The policies at issue in these appeals all concerned commercial buildings. Each policy provided full replacement cover subject to a sum insured, and each provided for annual aggregate with automatic reinstatement of cover upon loss. One policy was renewed between earthquakes.

3 The successive losses raise two distinct questions which divide the owners and insurers: what is the limit of an insurer's liability in these circumstances, and for what losses may an insured claim indemnity?

Facts and issues

4 The three judgments under appeal answered preliminary questions which rested upon agreed statements of fact. The full statements of fact and preliminary questions are collected in an appendix to this judgment.

QBE v Wild South and Maxims Fashions (Fogarty J)

5 This appeal concerns two substantial commercial buildings that were damaged in the September, February and June events, all of which happened within the annual terms of the policies.

6 The policies include an automatic reinstatement clause under which cover reinstated on loss unless either party gave notice to the contrary. Notice has never been given but QBE Insurance (International) Ltd says it is still not too late, for cover is not cancelled and reinstated for any given loss until the insurer has paid, and then only to the extent of payment. The insureds, Wild South Holdings Ltd and Maxims Fashions Ltd, say that cover reinstated in full immediately upon each earthquake, so that the full sum insured is available for each event, and notice cannot be given retrospectively.

7 The policies also provide for a deductible. QBE says that the deductible is to be subtracted from the sum insured, which supplies the operative limit of its liability. The insureds say that it must be deducted from their actual loss, which is much larger, meaning that they should receive the sum insured free of deductible.

8 Five questions were asked but only two are now relevant. Those questions and Fogarty J's answers are: 1

• Q2. What is the proper interpretation and application of the automatic reinstatement clause in the policies?

• A.

• (a) The insurer and the insureds have a reasonable period of time to give written notice to the contrary. If they do not given written notice within a reasonable period of time, it will be too late for either the insurer or the insureds to dispute automatic reinstatement.

• (b) Whether or not there was automatic reinstatement of cover, before the February quake and thereafter before the June quake, depends upon the knowledge and conduct of the parties to the policies after each quake. Evidence is required before a Court can judge whether the reasonable time for giving notice to the contrary has passed.

• …

• Q5. What is the proper application of any excess or deductible under the policies?

• A. The answer … in respect of Wild South, is that the deductible applies to the adjusted loss.

Marriotts v Vero (Dobson J)

9 Peter and Eunice Marriott own two commercial buildings (actually a duplex with a common centre wall) which were damaged in the September and February events. The Marriotts say that they were also damaged in June, but Vero Insurance New Zealand Ltd says that any such damage is academic because the buildings were “destroyed” by the February event. The policy renewed on 22 May 2011.

10 The policy contains an automatic reinstatement clause. Vero gave notice on 15 October 2013, purporting to cancel reinstatement of cover with effect from the September 2010 event. It has paid what it says is the indemnity value. The policy also provides for a deductible or excess, which Vero has subtracted from the sum insured.

11 Four questions were asked. The questions and Dobson J's answers are: 2

• Q1. When is the building destroyed under the policy?

• A. An insured building is destroyed for the purposes of the policy when the extent of damage makes it physically impracticable to repair the building to its pre-damage condition.

• Q2. Does the sum insured reinstate after each earthquake event?

• A. The sum insured reinstates after each earthquake event that causes loss, and does not need to await finite quantification of the extent of loss. Notice that reinstatement is not going to occur can only be given prospectively.

• Q3. Are the Marriotts entitled to repair costs up to the sum insured for the damage caused by each earthquake event?

• A. The Marriotts are not entitled to the costs of repairs up to the sum insured for the damage caused by each earthquake event, if such repairs were not effected so that the expenses were not incurred.

• Q4. Is the excess deducted from the amount of the loss or from the payment due under the policy?

• A. The excess is to be deducted from the payment due under the policy.

Crystal Imports v Lloyds (Cooper J)

12 Crystal Imports Ltd owns five commercial buildings in the Christchurch area. They were insured with Lloyds 3 under a single policy with a separate sum insured for each building. Each was damaged in the September and February events. 4 Three of the buildings have since been demolished. It appears that the parties are in dispute about whether one of the two remaining properties, the New Brighton Mall, has been destroyed.

13 The policy includes an automatic reinstatement clause and is subject to average. The average provision is the subject of a dispute affecting the New Brighton Mall.

14 Two questions were asked. The questions and Cooper J's answers are: 5

• Q1. 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?

• A. The defendants' liability to indemnify the plaintiff for the separate damage caused to the insured properties by the September earthquake is limited to the sums that had already been paid at the time of the February earthquake. Thereafter, the liability is limited to the maximum amount set out in the Schedule as...