Ridgecrest New Zealand Ltd v Iag New Zealand

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeO'Regan P
Judgment Date10 July 2013
Neutral Citation[2013] NZCA 291
Docket NumberCA811/2012
Date10 July 2013

[2013] NZCA 291



O'Regan P, Arnold and Harrison JJ


Ridgecrest New Zealand Ltd
Iag New Zealand

C R Carruthers QC and P A Cowey for Appellant

B D Gray QC and P M Smith for Respondent

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.

Held: There was a critical distinction between the circumstances surrounding each particular claim. The four claims were apparently treated by counsel in the HC as a composite when in fact Ridgecrest made a separate claim against IAG after each happening or earthquake. It was common ground that IAG accepted each claim and took steps to settle. The only issue was to identify the contractual provision under which each claim was made and accepted.

The HC did not conclude whether Ridgecrest's claims were made and settled under cl C1 or cl C2. However, the Judge's conclusion that the limit of liability was available for the insured to claim in the event of a loss on as many occasions during the period of insurance as a relevant loss was suffered appeared to be based on the claims relating to the first and second earthquakes being made under cl C1.

Ridgecrest's pleadings in relation to the damage caused to the building referred to the damage caused by each earthquake and recited that the cost of repairing the damage was in each case, a specified figure. This figure corresponded with the estimates made by Ridgecrest's advisors, but there was no reference to an “estimated cost” as would be the case where a claim was made under cl C1 nor to the fact that the “estimated cost” would be on an “old for old” basis (that is, any estimate would involve a deduction for betterment).

The pleadings contained in Ridgecrest's prayer for relief were all predicated on the basis of claims made under cl C2 and were inconsistent with a claim under cl C1. The framing of the claims in terms of a breach of clause C2 represented the position taken by Ridgecrest at the time the claims were made and accepted by IAG. It would have defied commercial common sense for Ridgecrest to make a claim against IAG to repair its building on the old for old indemnity measure provided by clause C when replacement or new for old cover was available under clause C2.

While the statement of agreed facts did not provide full information about the making and settling of the claims, the claims must have been made and accepted under clause C2. Ridgecrest's pleadings were consistent with this conclusion and a reference in the statement of agreed facts to the fact that repairs had commenced after the first and second earthquakes and the fact that these repairs were paid for by IAG also supported that conclusion. It was not now open to Ridgecrest to change the basis of its claims to bring them within clause C1.

Once it was determined that the claims were claims under clause C2, the nature of IAG's liability under the policy in respect of the four claims became clear. For claims relating to a damaged but repairable building (after the first and second earthquakes), IAG was liable under clause C2 in respect of each happening for the cost of restoration of damage to the building to the same condition as when it was new. The quantification of the liability depended on the repairs actually being made (with liability equating to the actual cost of those repairs).

The cost of the repairs actually completed after the first earthquake was payable in respect of the claim resulting from the first earthquake. In addition, the cost of the repairs actually completed after the second earthquake was payable in respect of the claim resulting from the second earthquake. This was so even though in neither case was the building fully repaired before the next earthquake struck.

No repairs were made after the third and before the fourth earthquake. Whether the building became irreparable after the third or fourth earthquake, as the replacement cost at that point exceeded the maximum liability provided for under the policy, the amount payable by IAG in relation to the resulting claim was the amount equal to that maximum liability. Ridgeway was not entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case. This was the same answer reached in the HC, albeit by a different route.

This conclusion meant it was not necessary for the possible application of a doctrine of merger of liabilities or the doctrine of frustration to be addressed. However the Court of Appeal would not have been prepared to uphold the High Court's conclusion on the doctrine of frustration, based on a preparedness to imply a term into the contract of insurance that the scope of liability for subsequent happenings during the term of the insurance would not extend to require payment of sums greater than was necessary to effect repairs that were able to be undertaken before the building became irreparable. The proposed implied term would have been a contradiction of the express terms of the contract. There would not be any proper basis for implying a term which negatived the express terms of the contract of insurance. The policy did not require the implication of a term in order to give it business efficacy.

Appeal dismissed. Cross-appeal allowed in part.


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.


(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:

  • (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.

  • (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 terms of the policy

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:


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...

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1 cases
  • Crystal Imports Ltd v Certain Underwriters at Lloyds of London
    • New Zealand
    • High Court
    • 19 December 2013
    ...relevant terms of the policy were clear when read together. There was nothing in the recent Court of Appeal judgment in Ridgecrest New Zealand Ltd v IAG New Zealand Ltd that suggested Crystal's argument about the interpretation of the policy was incorrect. There were no reported cases in wh......

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