Ruiren Xu and Diamantina Trust v Iag New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: William Young,Glazebrook,O'Regan,Ellen France,Arnold JJ
• Judgment Date: 03 July 2019
• Neutral Citation: [2019] NZSC 68
• Docket Number: SC 47/2018
• Court: Supreme Court
• Date: 03 July 2019

Between

Ruiren XU And Diamantina Trust Limited

Appellants

and

IAG New Zealand Limited

Respondent

[2019] NZSC 68

Court:

William Young, Glazebrook, O'Regan, Ellen France and Arnold JJ

SC 47/2018

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

Insurance — whether entitlement to replacement benefits could be assigned where the insured party had not incurred the cost of reinstatement so as to entitle the assignee to reinstate and recover the costs.

Appeal against a Court of Appeal decision dismissing the appellants' appeal against a High Court judgment regarding the scope of insurance cover under a standard replacement insurance policy.

A home belonging to the Barlows was insured under a standard replacement policy underwritten by IAG New Zealand Ltd (IAG). If the home was damaged, the policy provided the insured party with two options: first, to recover the actual costs of repairing the property to its condition when new where the insured party had reinstated the property; alternatively, if the insured did not reinstate the home, to recover the economic loss suffered (an indemnity).

The Barlows' home was damaged in the Canterbury earthquakes on 4 September 2010 and 22 February 2011. Following the earthquakes, the Barlows made a claim with IAG for the damage. However, after three years their claim remained unresolved. At that time, the Barlows decided to sell the property and accordingly entered into an agreement to sell the home in its unrepaired state to Xu and Diamantina Trust Ltd (the appellants). As part of the sale and purchase agreement, the Barlows assigned to the appellants their rights in respect of their claim under the policy. At the date of assignment, the Barlows had not incurred any actual costs of repairing the property.

All parties accept that, having been assigned the rights under the IAG policy, the appellants were entitled to payment on an indemnity basis. But the appellants claimed also to be entitled to replacement benefits under the policy should they reinstate the house. The appellants' claim was denied by IAG.

In the High Court, the Judge was bound by Bryant v Primary Industries Insurance Co Ltd, which held that a right to replacement benefits conditional on the insured incurring the cost of repair could not be assigned, where the insured party had not incurred that cost, so as to entitle the assignee to reinstate and recover the costs.

For this reason, the primary focus of the argument in the High Court was on the interpretation of condition 2 of the policy. That condition is titled “Insurance during sale and purchase” and provides that, in certain circumstances, a purchaser of an insured property may claim under the policy. The appellants argued that they are within the letter of this condition and that, irrespective of Bryant, they are entitled under it to recover the replacement benefits. The High Court Judge rejected this argument, finding that condition 2 applied only to situations where the insured event occurred between the entering into of an unconditional contract for sale of the Barlows' home and settlement.

The Court of Appeal agreed with this interpretation of condition 2 and also declined to overrule or distinguish Bryant.

The Supreme Court granted leave on whether the Court of Appeal was correct to dismiss the appellants' appeal against the judgment of the High Court.

Held: William Young, O'Regan and Ellen France JJ, dismissed the appeal. The Court declined to overrule Bryant. It found that Bryant was still correct to the extent that it stood for the proposition that the entitlement to replacement benefits conditional upon reinstatement by the insured could not be assigned so as to confer on an assignee the ability to reinstate the house and recover the costs.

The wording of the policy in this case made recovery of the replacement benefits subject to reinstatement by the insured. References to the insured in the policy could not be interpreted as extending to assignees of the insured. Accordingly, the majority concluded that reinstatement by the assignees would not give them the right to recover the cost of reinstatement effected by them.

Glazebrook and Arnold JJ dissented. They found that from the time when the property was damaged in the 2010 and 2011 earthquakes, the Barlows had an accrued right to the replacement benefits. They said that, while the right to be paid the replacement benefits was conditional on reinstatement, this did not prevent assignment. They held that there was nothing so obviously personal in the reinstatement condition that meant it could only be discharged by the Barlows. Finally, they found that, for a number of reasons, Bryant was wrongly decided and would have overruled it. They accordingly concluded that there was nothing precluding assignment of the replacement benefits so as to entitle the appellants to reinstate and recover the costs.

All members of the Court rejected the appellants' argument on the interpretation of condition 2, that the condition applied to loss that occured while the sale and purchase agreement was in force.

Counsel:

N R Campbell QC and J Moss for Appellants

M G Ring QC and C M Laband for Respondent

JUDGMENT OF THE COURT

REASONS

	Para No.
William Young, O'Regan and Ellen France JJ	[1]
Glazebrook and Arnold JJ (dissenting)	[59]

WILLIAM YOUNG, O'REGAN AND ELLEN FRANCE JJ (Given by William Young J)

TABLE OF CONTENTS

	Para No.
Introduction	[1]
Is the right under cl 1(a) to reinstate and be reimbursed for the cost assignable?	[8]
Bryant v Primary Industries Insurance Co Ltd	[8]
The general insurance law principles as to assignment	[11]
The indemnity principle	[14]
Replacement insurance, the indemnity principle and moral hazard	[16]
The personal nature of insurance	[22]
Non-standard replacement insurance	[24]
The terms of the policy	[26]
The assignment cases relied on by Mr Campbell	[28]
Other authorities and commentary on the assignment of replacement benefits	[37]
Entitlement to replacement benefits conditional on reinstatement by the Barlows: a conclusion	[43]
Condition 2	[47]
Disposition	[58]

Introduction

1 The Christchurch home of Natalie Hall-Barlow and Matthew Barlow (the Barlows) was damaged in the Canterbury earthquakes on 4 September 2010 and 22 February 2011. The house was insured pursuant to a policy underwritten by IAG New Zealand Ltd (IAG) which provides:

The amounts you can claim

1. If, following loss or damage you

• (a) restore your Home, we will pay the cost of restoring it to a condition as nearly as possible equal to its condition when new using current materials and methods plus any extra costs that are necessary for the restoration to meet with the lawful requirements of Government or Local Bodies.

• (b) do not restore your Home, we will pay the lesser of

  • (i) the amount of the loss or damage, or

  • (ii) estimated cost of restoring your Home as nearly as possible to the same condition it was in immediately before the loss or damage happened using current materials and methods.

2 The Barlows claimed under the policy but, some three years later, with their claim still unresolved, they transferred the property to a company under their control, which then, several months later, sold the house to the appellants. As part of the latter transaction, the Barlows assigned to the appellants their rights in respect of their claim under the policy. IAG has been content for the case to be addressed on the basis that the transfer by the Barlows to their company can be ignored. It is common ground that the assignment to the appellants was effective to transfer to the appellants the Barlows' entitlement to an indemnity payment under cl 1(b), but the appellants claim also to be entitled to replacement costs under cl 1(a), should they restore the house. This claim is denied by IAG and is the subject matter of this appeal.

3 The IAG policy is what we will refer to as a “standard replacement policy”. It provides for the insured to elect between: (a) recovery of “replacement benefits”, being the actual costs (on a new-for-old basis) of repair (“reinstatement”) where the insured has reinstated the property; and (b) in default of reinstatement by the insured, an indemnity payment for the economic loss suffered by the insured (being the lesser of the diminution in value of the insured property and the cost of restoring it to its pre-event condition). As we understand it, replacement building insurance has usually been offered on this basis (although sometimes with the additional option of replacing the building on another site). There are, however, some North American cases involving policies which were not explicit as to reinstatement being effected by the insured — cases which we will discuss later in these reasons. As well, it appears that some insurers in New Zealand are now offering replacement policies under which recovery of replacement benefits is not dependent on reinstatement or replacement of the property. 1

4 The primary issue in this case is whether the right under cl 1(a) is assignable so as to entitle an assignee, in this case the appellants, to reinstate and be reimbursed. It is common ground that as of the date of assignment, the Barlows had not restored, and did not intend to restore, their home and had not incurred, and would not incur, any actual costs of reinstatement of their home.

5 Standing in the way of the appellants' claim is Bryant v Primary Industries Insurance Co Ltd, a decision of the Court of Appeal nearly 30 years ago. 2 Bryant provides powerful support for IAG's primary position that under a standard replacement policy, the entitlement to replacement benefits conditional on...