Ridgecrest NZ Ltd v Iag New Zealand Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeDobson J
Judgment Date08 November 2012
Neutral Citation[2012] NZHC 2954
Date08 November 2012
Docket NumberCIV-2012-409-000295

[2012] NZHC 2954

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

CIV-2012-409-000295

Between
Ridgecrest NZ Limited
Plaintiff
and
Iag New Zealand Limited
Defendant
Counsel:

C R Carruthers QC and P A Cowey for plaintiff

B D Gray QC and P M Smith for defendant

Preliminary question for determination in proceedings involving a dispute between an insurer and insured in relation to the extent of the insurer's liability for damage to a commercial building in central Christchurch — building damaged on number of occasions by earthquakes before suffering irreparable damage and being demolished — parties agreed: (1) there were four “happenings” within a period of insurance; (2) each caused damage to building; (3) subsequent to the first two happenings, repairs were commenced but not completed by the time of next happening; (4) following third or fourth happening, the building damaged so that the cost of repair exceeded the sum insured; (5) the building damaged beyond repair as a result of either the third or fourth happening — whether insured was entitled to be paid for damage resulting from each happening up to the limit of the sum insured in each case — whether doctrine of merger applied — whether subsequent destruction of building frustrated contractual terms of policy.

Held: The contract was cast in terms of a limit of liability per “happening”, without any requirement for the insured to request reinstatement of the extent of cover available after a claim had been met. 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 the insurance as a relevant loss was suffered. It did not follow that payment of the limit of liability on any one claim would bring the policy to an end.

The doctrine of merger was a well-settled component of the common law and statutory provisions relating to marine insurance. However, the greater variety in the terms of general insurance contracts (as compared to marine insurance contracts), and the absence of any equivalent to s77(2) Marine Insurance Act 1906 (successive losses), counted against the uniform adoption of merger as applying automatically to all general insurance, or material damage insurance policies. Here, the policy was on terms that the insurer could conceptually be liable for later claims in respect of subsequent happenings, even after a constructive total loss.

IAG had accepted liability to make payment for a total constructive loss. Ridgecrest wished to be paid in addition for the costs of repairs that were required after the earlier earthquakes but were not carried out. If those claims had been settled before the final earthquake, the fact that the payments had been made would arguably have affected the quantification of IAG's liability for the total loss.

Assumption of material damage risks for commercial buildings was a stock form of indemnity insurance. In a material damage policy for a defined term (12 months in this case), insurers might assume the risks of multiple happenings throughout the whole period. In this case, Ridgecrest had suffered a loss that was not completely compensated by payment of IAG's limit of liability because the building was under-insured. That could not provide any justification for increasing IAG's liability beyond the amount required to indemnify the owners for damage incurred.

The current test for whether frustration could be invoked to avoid performance of a contract on its original terms eschewed the utility of testing whether circumstances would warrant the implication of a contractual term that would validate a varied form of performance by the party seeking to avoid its original obligation. A relevant implied term was entirely tenable in the particular circumstances that developed in this case.

A reasonable party would consider that the parties would have agreed 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 obligation of IAG to meet the full extent of liability provided for in the contract had been frustrated.

Ridgecrest was not entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in the circumstances.

RESERVED JUDGMENT OF Dobson J

Contents

Background, and the preliminary question

[1]

The policy

[6]

Competing contractual interpretations

[16]

Interpreting the terms of the contract

[25]

Merger

[37]

Frustration

[54]

Conclusion

[77]

Background, and the preliminary question
1

These proceedings involve a dispute between an insurer and insured in relation to the extent of the insurer's liability for damage to a commercial building in Gloucester Street, central Christchurch. The building was damaged on a number of occasions by some of the more severe of the earthquakes suffered by Christchurch in the relevant period. Eventually, the building suffered irreparable damage and has subsequently been demolished.

2

In those circumstances, the defendant (the insurer) has paid the plaintiff (the insured) the amount that represents the limit on liability under the policy for any one happening of $1.984 million. The insurer had earlier incurred some $125,000 as the partial cost of repairs needed on account of damage caused in earlier earthquakes. The insurer treats these payments as fully discharging its liabilities under the policy.

3

In contrast, the insured claims that it is entitled to additional sums comprising the estimated costs of all repairs that would have been necessary to restore the building to its pre-earthquake condition, after each of the earlier earthquakes. The extent of such repairs had been assessed by quantity surveyors on each occasion.

4

For the purposes of determining the preliminary question to which this judgment relates, the parties agreed on a statement of facts which included the following:

  • • At material times, there was a policy of insurance between the parties whereby the insurer provided replacement cover for the insured's commercial building situated at 215 Gloucester Street for events including earthquake damage, with a limit of $1.984m for each happening.

  • • The building sustained damage in an earthquake on 4 September 2010. The cost of repairing that damage was assessed and estimated to be between $110,115.09 (inclusive of GST) and $196,352 (plus GST). Such repairs had been commenced but were not completed by the time the second relevant earthquake occurred.

  • • In a second relevant earthquake on 26 December 2010, the building suffered further, distinct damage. The cost of repairing the building following that earthquake was assessed and estimated to be between $200,000 (inclusive of GST) and $337,056 (plus GST). Such repairs had been commenced but had not been completed by the time of the third relevant earthquake.

  • • The building sustained further distinct damage as a result of a third earthquake on 22 February 2011. The insured contended that the cost to repair the damage caused by the 22 February 2011 earthquake was assessed and estimated to be $1.924 million plus GST. The insurer's position was that the building was damaged beyond repair as a result of the 22 February 2011 earthquake, or that the cost of repairs exceeded the sum insured.

  • • A fourth earthquake on 13 June 2011 caused additional damage to the building. The insured considered this was further and distinct damage, whereas the insurer considered that the June 2011 earthquake only exacerbated existing damage. The insured treated the damage from the 13 June 2011 earthquake as sufficient to render the building irreparable. The insurer considered that having paid the limit of its liability, it had already performed its obligations under the policy and in addition contended that the building had been damaged beyond repair prior to the 13 June 2011 earthquake.

5

The parties formulated a preliminary question for determination in the proceedings in the following terms:

Where –

  • 1. There have been four happenings within a period of insurance;

  • 2. Each happening caused damage to the Plaintiff's building;

  • 3. Subsequent to the first two happenings repairs were commenced but not completed by the time of the next happening;

  • 4. Following the third or fourth happening, the building was damaged so that the cost of repair exceeded the sum insured;

  • 5. The building has been damaged beyond repair as a result of either the third or fourth happening;

    Then:

  • 6. Is [the insured] entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case?

The policy
6

The relevant contract of insurance was for the period from 10 August 2010 to 10 August 2011. 1 The policy provided cover in respect of business assets with the building at 215 Gloucester Street being particularised. In terms of the scope of the insurance, under a heading “The Insurance”, the policy provided:

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.

7

The limit of the insurer's liability was $1,984,000 and an option providing that the cover would be on replacement terms was confirmed as applying.

8

The insurance was for sudden and accidental loss of, or damage to, the business assets of the insured and Part C of the policy began with the following provisions:

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...

To continue reading

Request your trial
8 cases
  • Qbe Insurance (International) Ltd v Wild South Holdings Ltd and Maxims Fashions Ltd
    • New Zealand
    • Court of Appeal
    • 10 September 2014
    ...but delivered some weeks later. 34 Crystal Imports Ltd , above n 5, at [60]. 35 At [144]. 36Ridgecrest NZ Ltd v IAG New Zealand Ltd [2012] NZHC 2954, (2012) 17 ANZ Insurance Cases 61-957 [ Ridgecrest 37Ridgecrest, above n 6, at [48]. 38 Crystal Imports Ltd , above n 5, at [115]–[116]. 39 Ri......
  • Tjk (Nz) Ltd v Mitsui Sumitomo Insurance Company Ltd Hc Chch
    • New Zealand
    • High Court
    • 22 February 2013
    ...(4th) 740 (BCCA ). 14 Vintix Pty Ltdv Lumley General Insurance Ltd (1991) 24 NSWLR 627 . 15 see Ridgecrest NZ Ltd v IAG New Zealand Ltd [2012]NZHC 2954. ...
  • Crystal Imports Ltd v Certain Underwriters at Lloyds of London
    • New Zealand
    • High Court
    • 19 December 2013
    ...At [49]–[50]. 25 At [51]. 26 Upholding the High Court, but for different reasons. 27 At [14]. 28Ridgecrest NZ Ltd v IAG New Zealand Ltd [2012] NZHC 2954, (2013) 17 ANZ Insurance cases 61–957 [ Ridgecrest 29 In the Court of Appeal the issue was expressly left open at [53]. 30Livie v Janson (......
  • Ridgecrest NZ Limited v Iag New Zealand Limited
    • New Zealand
    • Supreme Court
    • 27 August 2014
    ...in immediately before the loss or damage happened using current materials and methods. Ridgecrest New Zealand Ltd v IAG New Zealand Ltd [2012] NZHC 2954, [2013] Lloyd’s Rep IR 67 [Ridgecrest (HC)]. Ridgecrest New Zealand Ltd v IAG New Zealand Ltd [2013] NZCA 291, [2013] 3 NZLR 618 (O’Regan ......
  • Request a trial to view additional results
1 firm's commentaries

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT