Ross v Southern Response Earthquake Services Ltd

• Jurisdiction: New Zealand
• Judge: Matthews
• Judgment Date: 13 December 2018
• Neutral Citation: [2018] NZHC 3288
• Docket Number: CIV-2018-409-000361
• Court: High Court
• Date: 13 December 2018

Between

Brendan Miles Ross and Colleen Anne Ross

Plaintiffs

and

Southern Response Earthquake Services Limited

Defendant

[2018] NZHC 3288

CIV-2018-409-000361

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

Civil Procedure, Insurance — class action — settlement of insurance claims after Canterbury earthquakes — whether the Court has jurisdiction to make an opt-out order.

Appearances:

P G Skelton QC and C Pearce for Plaintiffs

T C Weston QC, K Paterson and O Gascoigne for Defendant

JUDGMENT OF ASSOCIATE JUDGE Matthews

Judgment 1: Terms of representation order and Direction on opt-out / opt-in

Introduction

1 The plaintiffs, Mr and Mrs Ross, sue the defendant, Southern Response Earthquake Services Limited (Southern Response) on four causes of action arising from the settlement of their insurance claim for damage to their house in the Canterbury earthquakes between 2010 and 2012. They say that by certain actions in the period leading up to that settlement Southern Response breached the Fair Trading Act 1986, made misrepresentations, and breached an implied duty of good faith in their insurance contract. They also say that they were influenced in entering their settlement agreement by certain mistakes on factual matters.

2 This judgment determines Mr and Mrs Ross's application to bring this proceeding as representatives of a group of other policy holders with Southern Response who are also said to have settled claims in similar circumstances, and who have the same rights against Southern Response as a result.

3 Rule 4.24 of the High Court Rules 2016 provides:

Persons having same interest

One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding -

• (a) with the consent of the other persons who have the same interest; or

• (b) as directed by the court on an application made by a party or intending party to the proceeding.

4 As consent has not been sought, Mr and Mrs Ross require leave of the Court under r 4.24 to proceed with a representative action.

5 Evidence before the Court indicates that if leave is granted for a representative action on the basis sought by Mr and Mrs Ross, the likely number of persons whom they would represent is approximately 3,000.

6 Southern Response does not oppose Mr and Mrs Ross proceeding by way of a representative action for others with a similar interest in the subject matter of this case, but differs from them on key aspects of the orders they seek from the Court.

Overview of the basis of the claim

7 Mr and Mrs Ross insured the house that was damaged in the earthquakes under a “Premier House Cover” policy with AMI Insurance Ltd (AMI) a number of years before the earthquake sequence. The policy was renewed annually on 30 June each year and was current at the time of the Canterbury earthquakes. They say that the policy provided that if the house was damaged “beyond economic repair” they had the right to elect one of a number of options: rebuilding the house on the same site, rebuilding on another site, buying another house or taking a cash payment at the market value of the house at the time of the loss.

8 Mr and Mrs Ross also plead that under the policy they had cover for additional costs, architects’ and surveyors’ fees involved in repair or rebuilding, demolition and debris removal, removing household contents if necessary for repair or reinstatement, and the cost of any additional work required for compliance with building legislation and rules.

9 All sums payable under the policy were to be net of any sum payable to Mr and Mrs Ross by the Earthquake Commission.

10 AMI held cover over approximately one-third of the residences in Christchurch at the time of the first earthquake on 4 September 2010. After the second major earthquake on 22 February 2011 it became apparent to AMI that its financial reserves and reinsurance levels would not be sufficient to cover all claims resulting from the earthquakes. As a consequence it made an arrangement with the New Zealand Government which resulted in sequential capital injections, and a restructure of AMI. The relevant elements of this restructure were first, that the day-to-day business of AMI was sold to another company, and secondly, claims in relation to earthquake damage prior to 5 April 2012 remained with AMI, and AMI was renamed Southern Response. It then became a Crown-owned company with its shares held by the Minister of Finance and the Minister for the Earthquake Commission. Principally, therefore, the business of Southern Response is to manage and settle claims by AMI customers for damage resulting from the Canterbury earthquakes. It is required to do so, however, consistently with normal commercial and financially prudent principles, though not on a profit-making basis.

11 The causes of action in this case arise from allegations about Southern Response's use of documents which it created during the course of assessing Mr and Mrs Ross's claim. Southern Response engaged Arrow International Ltd (Arrow) to inspect damaged homes of policy holders, to recommend whether each home was able to be repaired or was beyond economic repair, and to prepare detailed estimates of the cost of repair or rebuilding, which were then set out in documents known as “Detailed Repair/Rebuild Analyses”(DRAs).

12 Mr and Mrs Ross allege that on the instructions of Southern Response, Arrow prepared two DRAs for each house. They plead that two versions of the DRA were created simultaneously with the same number, one labelled “DRA —SR —Ross” and the other “DRA – Customer —Ross”. They say both of these were supplied to Southern Response, but shortly after that Southern Response provided to Mr and Mrs Ross only the latter, which they describe as an abridged version of the former. They say the former, though held by Southern Response, was not at any point prior to settling their claim supplied to them, nor at that time were they made aware of its existence.

13 Mr and Mrs Ross plead that the “abridged” DRA gave figures for the cost of rebuilding, and for preliminary and general, and obtaining regulatory consents in a total of $290,145.42. It set out a further figure for items “outside EQC scope” of $24,945, giving a GST exclusive total for estimated costs to rebuild the house of $315,090.42, or $362,353.98 inclusive of GST.

14 Mr and Mrs Ross plead that the full DRA prepared by Arrow contained a costs schedule which was nearly identical, but also contained an additional section. This set out estimates for further items of costs for internal administration, demolition and design, which when added to the GST exclusive total in the “abridged” DRA, resulted in a subtotal of $376,069.44. To that was added a project contingency sum of $37,607 making a “Grand Total House (excluding GST)” figure of $413,676, which is then recorded as the sum of $475,727.40 when expressed inclusive of GST.

15 It will be noted that with the additional items in the full DRA the total house rebuilding cost is shown as approximately $113,000 more than in the abridged version.

16 After some negotiation Mr and Mrs Ross settled their claim with Southern Response for the lower figure of $362,353.98, from which the sum received by them from EQC was deducted, and they received a net sum. This settlement was reached after considering further material provided to them by Southern Response known as a “Decision Pack” and signing a settlement form described as a “Settlement Election Form”. Mr and Mrs Ross took the “Buy another house”, option available to them under their policy, which led to the cash payment to which I have referred. Prior to settling, however, Mr and Mrs Ross say that they obtained their own estimate of the likely cost of rebuilding, which was considerably higher than that estimated by Southern Response. When this was put to Southern Response it declined to adjust its settlement offer and in the end Mr and Mrs Ross accepted.

17 After that Mr and Mrs Ross learnt for the first time of the existence of the full versions of the DRA. They plead that Southern Response represented, expressly or impliedly, that the sum of approximately $362,355 identified in the “abridged” DRA on which they relied was Southern Response's genuine estimate of the cost of rebuilding their home, and that it was the sum to which Mr and Mrs Ross were entitled (and which it was obliged to pay) under the policy. They say that Southern Response was aware that was not a full estimate of the cost of rebuilding, and that in fact Arrow's full estimate of that cost was the higher figure contained in the unabridged DRA.

18 Based on this, Mr and Mrs Ross plead that:

• (a) Southern Response engaged in misleading conduct under the Fair Trading Act;

• (b) Southern Response misrepresented factual matters which were material to them when they entered a settlement agreement;

• (c) they were mistaken on the estimated cost to rebuild or repair their dwelling and on Southern Response's belief as to that estimated cost, and they were mistaken as to the sum recoverable under their policy; and

• (d) Southern Response breached its duty of good faith in the way I have described.

19 Of relevance to the present application, the statement of claim contains the following paragraphs:

• 58. Between 2011 and October 2014, the Defendant entered into settlements with an unknown number of policyholders (currently thought to be approximately 2,000) in circumstances materially similar to those described above.

• 59. The policyholders just referred to form a class of persons having the same interest in this proceeding, in that each of them:

  • (a) Own or owned a residential dwelling in Canterbury that was insured with the Defendant under either a “Premier House Cover” or “Premier Rental Property Cover” policy (the Polic...