Settlers Crescent Partnership v IAG New Zealand Ltd
| Jurisdiction | New Zealand |
| Judge | Gendall J |
| Judgment Date | 25 October 2018 |
| Neutral Citation | [2018] NZHC 2775 |
| Docket Number | CIV-2016-409-000780 |
| Court | High Court |
| Date | 25 October 2018 |
[2018] NZHC 2775
CIV-2016-409-000780
IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA
ŌTAUTAHI ROHE
Canterbury Earthquakes — insurance — claim by insured for further earthquake damage to buildings — applicable principles — material damage — business interruption — settlement of claim — destroyed versus repairable — interpretation of terms of agreement — objective view of what parties agreed — expert evidence on extent of damage — insured's claim for a further payment was declined
S P Rennie and W Todd for Plaintiff
I J Thain and BRD Cuff for Defendant
JUDGMENT OF Gendall J
The plaintiff, Settlers Crescent Partnership (the Partnership), owned four adjoining commercial buildings (the Buildings) at 14 Settlers Crescent, Ferrymead, Christchurch. These were damaged, to varying extents, in the Canterbury earthquake sequence of 2010/2011.
The Buildings were insured at all material times with the defendant, IAG New Zealand Ltd (IAG) and claims were made by the Partnership for the earthquake damage. In October 2011, the parties entered into two agreements:
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(a) Under the first agreement, the Partnership received and accepted the sum of $10,233,973.80, including GST, as the result of material earthquake damage to the insured Buildings on the property; and
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(b) Under the second agreement, the Partnership received and accepted the sum of $86,785.83, including GST for business interruption suffered as a result of that earthquake damage.
The first agreement relating to the Partnership's material damage claim (which, as I note below, is described as a “release agreement”), settled this claim outside the terms of the insurance policy (the Settlement). It is this first agreement and the Settlement which were the subject of this proceeding and the hearing before me. The second agreement relating to the Partnership's business interruption claim was not in issue.
The Settlement specified that it covered the damage caused to the Buildings by the 4 September 2010 and 22 February 2011 earthquakes. For some years it appeared that the parties agreed that this settled the Partnership's claim and issues between them. However, in March 2015, some three and a half years after the Settlement, the Partnership, through a litigation funder, Risk Worldwide New Zealand Limited (Risk Worldwide), contacted IAG, indicating that the Partnership intended to pursue claims in particular with respect to the 13 June 2011 earthquake. The Partnership then initiated these proceedings in 2016.
The position taken by the Partnership before me was that the Settlement only covered the damage, and resulting repair costs, for the first two major earthquakes which occurred in September 2010 and February 2011. It claimed to be entitled therefore to an additional payment under the policy for what is said to be further damage to some of the Buildings caused by the June 2011 earthquake. In response IAG maintained, amongst other things, that the Settlement precluded such a claim, and this proceeding brought by the Partnership is entirely opportunistic. This, it says, is in the sense that over three years after the event the Partnership now is seeking to obtain more money for the same loss they have already settled for.
The Partnership is made up of four partners. A representative of one of the partners, Stuart Wilson Grant (Mr Grant), gave evidence before me on their behalf. The Buildings owned by the Partnership at the Settlers Crescent property were a small warehouse with offices above (the Small Warehouse), a large warehouse (the Large Warehouse), a car parking area with a Les Mills gym above it (the Gym), and a two-storey office building (the Office). All the Buildings were damaged in the Canterbury earthquake sequence but to differing degrees.
This dispute concerns the Large Warehouse and the Gym. In 2011, they were considered to be a rebuild (although IAG, as an alternative argument, now endeavours to dispute this). It is non-contentious that the Small Warehouse and the Office were repairable at all times.
During the September 2010 and February 2011 earthquakes the Buildings were insured with IAG under an Agreed Material Damage and Business Interruption Policy (the Policy). The Partnership renewed the Policy, increasing the sum assured to a slightly higher amount on 1 April 2011, that is, after the first two earthquakes.
The Buildings all suffered major damage in both the September 2010 and February 2011 earthquakes. The Partnership instructed structural engineers Ruamoko Solutions Ltd (Ruamoko) to assess the damage. Ruamoko provided four very detailed reports, dated 6 – 13 June 2011. Significantly, this was before the 13 June 2011 earthquake occurred. In these reports, Ruamoko relevantly said:
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(a) The northern office building:
has suffered minor damage and is repairable.
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(b) The small warehouse with offices above:
has suffered moderate damage and is repairable.
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(c) The Les Mills gym and carparking area:
has been severely damaged and is considered to be well below current building code levels. Whilst the building is repairable, it is not considered economically feasible based on the level of ground damage present. It is therefore recommended that the building is demolished.
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(d) The large warehouse:
has been severely damaged and would be considered to be earthquake prone. It is therefore recommended that the building is demolished. … The very large amount of repair work required and the significant expense in carrying out this work. It would not be considered economically feasible to reinstate the building.
(Footnotes omitted)
Effectively, the reports advised that the Large Warehouse and Gym needed to be demolished. Cameron MacPherson (Mr MacPherson), a principal of Ruamoko and the structural engineer who completed the reports, considered essentially that, given what would be a realistic assessment of the cost of the repairs, it would not be economic to repair those two buildings. He did acknowledge, however, that, as he was a structural engineer and not a quantity surveyor, precise costing of a repair was not within his specific expertise.
A further significant earthquake struck Christchurch on 13 June 2011. After that June 2011 earthquake, Mr MacPherson inspected the Buildings again. Due to the further damage suffered, he reported that demolition of the Large Warehouse needed to be fast-tracked. He considered, too, that this earthquake had slightly worsened the existing damage to the Gym. Mr MacPherson's evidence, confirmed in an email he sent at the time, was specifically that:
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(a) The northern Office building:
essentially…looks the same as it was prior to [the 13 June earthquake]
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(b) In respect of the Small Warehouse:
The repairs and remedial work previously recommended still apply, and a full slab replacement is recommended.
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(c) In respect of the Les Mills gym and carparking area:
the lateral spreading that has occurred is [sic] slightly worsened the existing damage. The recommendations made in the report for this building still apply…
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(d) In respect of the Large Warehouse:
a significant amount of extra damage has occurred to this area … The recommendations for demolition still apply and should be fast tracked.
The Partnership then instructed quantity surveyors, Davis Langdon, to assess certain costs. These were specifically for a rebuild (and not a repair) of the Large Warehouse and Gym, and for a repair of the Small Warehouse and Office. Davis Langdon was provided with the Ruamoko reports and other architectural and engineering reports, including specific plans and drawings completed for these purposes. On 5 September 2011, Davis Langdon reported that its assessment of the total cost was $13,104,000 (excluding GST). This included $10,680,000 to rebuild the Gym and Large Warehouse, $1,940,000 to repair the other buildings and $484,000 for external works.
IAG appointed McLarens Young International (McLarens) as its loss adjustor. The Partnership engaged Mr Calder and Mr Hoyle of Mike Henry Insurance Brokers as its brokers to conduct negotiations with IAG. IAG made an offer to settle the Partnership's claim when it sent a copy of McLaren's fifteenth report to the Partnership's brokers. In this report, McLarens adjusted Davis Langdon's assessment to $10,078,111 plus GST. Nonetheless, it noted this was still in excess of the maximum sum insured under the Policy of $9,245,000 plus GST. Based on that sum, less the excess and payment already made, McLaren indicated that the appropriate payment was $10,093,917.56 plus GST.
The Partnership sought an additional contract works amount, which IAG agreed to. The Partnership then confirmed acceptance of the offer. On 12 October 2011, the Partnership signed a release agreement (the Release Agreement) to confirm the Settlement. IAG then paid the agreed settlement amount of $10,233,973.80 plus GST on 19 October 2011.
The Release Agreement stated that the Partnership agreed to accept the sum:
…in full and final settlement of our claim under [the Policy] in respect of loss or damage by Earthquake which occurred at 14 Settlers Crescent Ferrymead Christchurch on or about the Saturday, 4 September 2010, Tuesday 22 February 2011.
An earlier draft of the Release Agreement stated that the Settlement had also included damage from the 13 June 2011 earthquake, but this was removed.
Some two years later, in November 2013, without reference to or any involvement of IAG, the Partnership demolished the Gym and Large Warehouse. The site where those buildings once stood remains vacant today.
The Partnership alleges now that the Gym and the Large Warehouse were not in fact destroyed, within the definition of that...
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