Ridgecrest New Zealand Ltd v Iag New Zealand
| Jurisdiction | New Zealand |
| Judge | O'Regan P |
| Judgment Date | 10 July 2013 |
| Neutral Citation | [2013] NZCA 291 |
| Docket Number | CA811/2012 |
| Court | Court of Appeal |
| Date | 10 July 2013 |
[2013] NZCA 291
O'Regan P, Arnold and Harrison JJ
CA811/2012
IN THE COURT OF APPEAL OF NEW ZEALAND
Appeal from High Court judgment on preliminary question relating to extent of insurer's liability for damage to a commercial building in central Christchurch — appellant's building which suffered damage of increasing significance in four earthquakes until irreparable after third or fourth earthquake — appellant claimed was entitled to the estimated cost of all repairs that would have been necessary to restore the building to its pre-earthquake condition immediately after each of the four earthquakes — insurer claimed its liability under the insurance policy was limited to costs of uncompleted repairs actually undertaken to remediate the damage caused by the earlier earthquakes, and maximum amount payable under the policy for any one “happening” — whether the policy entitled insured to payment of aggregate value of the damage caused by each of the four earthquakes — whether doctrine of frustration applied.
C R Carruthers QC and P A Cowey for Appellant
B D Gray QC and P M Smith for Respondent
A The appeal is dismissed and the cross-appeal is allowed in part.
B The High Court Judge's answer in the negative to the preliminary question set out at [17] is confirmed.
C The appellant must pay the respondent costs for a standard appeal on a band A basis plus usual disbursements. We certify for two counsel.
REASONS OF THE COURT
(Given by O'Regan P)
In 2010–2011 the Canterbury region experienced a series of earthquakes. Many buildings suffered damage of increasing significance after each earthquake. This appeal raises a question about the extent of an insurer's liability under a policy of insurance providing for replacement cover of a commercial building in circumstances where the building suffered damage of increasing significance in four earthquakes, all of which occurred during the period of insurance. The building in question was located on Gloucester Street in Christchurch, and, as with many others in that city, was damaged by successive earthquakes and eventually damaged beyond repair.
In broad terms the competing positions of the parties are as follows:
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(a) the appellant, Ridgecrest NZ Ltd (Ridgecrest), the owner of the building and the insured under the policy, claims it is entitled to the estimated cost of all repairs that would have been necessary to restore the building to its pre-earthquake condition immediately after each of the four earthquakes.
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(b) the respondent, IAG NZ Ltd (IAG), the insurer, says that its liability under the policy is limited to the cost of uncompleted repairs actually undertaken to remediate the damage caused by the earlier earthquakes and the maximum amount payable under the policy for any one “happening”, being $1,984,000, reflecting that the building had become irreparable as a result of the third or fourth earthquake.
Ridgecrest commenced proceedings against IAG in the High Court, and the parties agreed to seek a ruling from the High Court on a preliminary question. To provide context, they submitted to the Court a statement of agreed facts.
In a judgment delivered on 8 November 2012, Dobson J answered the preliminary question in favour of IAG. 1 Ridgecrest now appeals and IAG cross-appeals against findings made in the judgment against it. The issues now before this Court are essentially the same as those before Dobson J.
We will set out the terms of the policy, the statement of agreed facts and the text of the preliminary question for determination before turning to the issues now before us.
The policy is a State “Businesspack” policy covering “Business Assets”. The building at 215 Gloucester Street, Christchurch (the building was known as Latimer View House) is particularised and is the “Business Asset” for which cover is provided under the policy.
The operative clause of the policy provides:
A. YOU ARE INSURED FOR
Sudden and accidental loss of or damage to your Business Assets.
Another provision of the policy provides:
This Policy covers only those Parts for which a Limit is shown in the Schedule and the maximum amount you can claim under any Part in respect of any one happening (inclusive of fees and costs) is the current Limit for that Part.
In the schedule, the section headed “Limits” prescribes a limit of $1,984,000 for “Buildings (Commercial Use Only)”. Under the heading “Replacement Cover” the word “yes” appears, signalling that IAG has agreed to provide replacement cover under the policy.
There is an exclusion in the policy for loss or damage directly or indirectly caused by earthquake, but this is cancelled out by an endorsement which provides that the insurance extends to such loss. There is no dispute that the earthquakes were each “happenings” in terms of the policy (the term “happening” is not defined in the policy).
Part C of the Policy sets out the amount that can be claimed when there is sudden and accidental loss. The focus of the present case is on cls C1 and C2, which provide as follows:
C. THE AMOUNTS YOU CAN CLAIM
1. This insurance will pay the amount of loss or damage or the estimated cost of restoring your Business Assets as nearly as possible to the same condition they were in immediately before the loss or damage happened using current materials and methods.
2. Where Replacement cover has been agreed by us and specified in the Schedule and following loss or damage you restore or replace the lost or damaged Business Assets this insurance will pay
(a) for Buildings
(i) where repairable, the cost of restoration of damage to the same condition when new,
or
(ii) if unable to be repaired because of such damage, the cost of replacement by an equivalent building which meets your requirements at any site provided we shall not pay more than the cost of replacement at the Site stated in the Schedule.
Such restoration will use current materials and methods and include the cost of changes to meet the lawful requirements of any local authority or statute but not for work you have already been instructed to do prior to the loss or damage.
Clause C1 provides for traditional indemnity cover, compensating for loss or damage so the property is restored (or replaced) to the standard it was in before the insured event. Clause C1 is also awkwardly worded: the cover for “loss or damage” is typical of indemnity provisions, but the addition of “or the estimated cost of restoring …” is less clear. IAG says it does not add to the indemnity cover, but rather is a guide to quantification of loss or damage for which cover is provided under cl C1. Ridgecrest's argument is to the effect that cl C1 provides a separate head of liability for the insurer for the estimated cost of restoration as an alternative to the actual loss or damage suffered in indemnity cover terms. We find Ridgecrest's argument hard to reconcile with the nature of the cover provided under the operative clause set out at [7] above, but on the view we take of the case we do not need to resolve the point.
As noted earlier, replacement cover was provided under the policy so cl C2 applied, provided that the insured reinstated or replaced the damaged property.
The policy did not contain any provisions addressing the terms that would apply after a claim had been made during the period of insurance. There were no terms providing for a procedure for reinstatement of cover after a claim had been met. The insurer did however have the option of cancelling the policy in the event that circumstances material to the extent of risk changed.
The statement of agreed facts submitted to the High Court is as follows:
The following facts are agreed for the sole purpose of determining the preliminary question to be argued on 26 September 2012:
1. At material times, there was a policy of insurance between the parties whereby the Defendant provided replacement cover for the Plaintiff's commercial building situated at 215 Gloucester Street for events including earthquake damage, with a limit of $1.984m for each happening.
2. As a result of an earthquake on 4 September 2010, the Plaintiff's building suffered damage.
3. The cost to repair the building following the 4 September 2010 earthquake was assessed and estimated to be between $110,155.09 (inclusive of GST) and $196,352 (plus GST). The repairs had been commenced, but had not been completed by the time the earthquake described in paragraph 4 below occurred.
4. There was a second earthquake on 26 December 2010 that caused further, distinct damage to the building.
5. The cost to repair the damage to the building following the 26 December 2010 earthquake was assessed and estimated to be between $200,000 (inclusive of GST) and $377,056 (plus GST). The repairs had been commenced, but had not been completed by the time the earthquake described in paragraph 7 below occurred.
6. The Defendant made payments for repairs to the building as a result of the first two earthquakes. The Defendant had paid the sum of not less than $125,609.83 for repairs, consultants and temporary works, by 22 February 2011. However the repair work had not been completed for the damage caused by either of the first two earthquakes prior to the earthquake described in paragraph 7 below.
7. There was a third earthquake on 22 February 2011 that caused further, distinct damage to the building.
8. The Plaintiff's position is that the cost to repair the damage to the building caused by the 22 February 2011 earthquake was assessed and estimated to be $1.924m plus GST. The Defendant's position is that as a result of the 22 February 2011 earthquake, the building was damaged beyond repair, or the...
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