Toomey, Simpson and Canterbury Trustees (2016) Ltd as trustees of the Toosim Family Trust v IAG New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Paulsen
• Judgment Date: 06 November 2019
• Neutral Citation: [2019] NZHC 2882
• Court: High Court
• Docket Number: CIV-2017-409-000659
• Date: 06 November 2019

Between

Jerome Anthony Toomey and Josie Louise Simpson and Canterbury Trustees (2016) Limited as trustees of the Toosim Family Trust

Plaintiffs

and

IAG New Zealand Limited

Defendant

[2019] NZHC 2882

Paulsen

CIV-2017-409-000659

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA

ŌTAUTAHI ROHE

Civil Procedure, Insurance — strike out application — purchase of earthquake damaged property — assignment of reinstatement benefit — claim for reinstatement costs not incurred by vendor

Appearances:

C Johnstone and B Burke for Plaintiffs

M Ring QC and R Hargreaves for Defendant

JUDGMENT OF ASSOCIATE JUDGE Paulsen

This judgment was delivered by me at 10.00 am on 6 November 2019

pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Introduction

1 The trustees of the Short Family Trust (Short) owned a property at 11 Jacob Street, Christchurch (Jacob Street) that suffered earthquake damage in the Christchurch earthquakes. Jacob Street was insured with IAG under a policy that provided claims would be settled by IAG meeting reinstatement costs in the event Short elected to restore the home (the reinstatement benefit), or, otherwise by an indemnity value payment.

2 Short made claims to the Earthquake Commission and IAG in respect of the earthquake damage and the claims were settled and repairs were carried out.

3 The trustees of the Toosim Family Trust (Toosim) purchased Jacob Street from Short and took an assignment of any residual rights that Short had in respect of any insurance claim made, or that might arise, from the Christchurch earthquakes. Toosim later discovered that Jacob Street had suffered undiagnosed earthquake damage (the Underfoot damage).

4 Toosim's claim is to be paid the reinstatement benefit to repair the Underfoot damage. IAG applies to strike out the statement of claim or, alternatively, summary judgment against Toosim. In reliance upon the Supreme Court decision in Xu v IAG New Zealand Ltd, 1 IAG argues that Toosim has no reasonably arguable cause of action because, as at the date of the assignment, Short had not incurred the cost of restoring the home to repair the Underfoot damage so as to satisfy the condition of the reinstatement benefit, nor did Short have any accrued right to any payment from IAG pursuant to the reinstatement benefit in respect of the damage.

5 IAG also contends that Toosim has no alternative claim to an indemnity payment under the policy as Short did not suffer any indemnity value loss which Toosim, as assignee, can recover from IAG.

The facts

6 Short acquired Jacob Street on 23 October 2009. Jacob Street was insured with IAG under a BNZ PremiumCare insurance policy. There was a change to the policy wording from 27 November 2010 (BNZ 2010 policy). It is agreed that for present purposes the change is immaterial.

7 The BNZ 2010 policy wording reads:

Part One — cover for your home

What you are covered for:

You are covered for sudden and accidental loss to the home during the period of insurance.

What you are not covered for:

…

Earthquake Commission

You are not covered for loss to the extent it is covered by the Earthquake Commission Act or that would have been covered but for:

• 1. the deduction of the Earthquake Commission's excess, or

• 2. the Earthquake Commission exercising its power to decline a claim for that loss.

Where the Earthquake Commission agrees to cover it, but your loss exceeds the Earthquake Commission payment, the most we will pay is the difference between what the Earthquake Commission pays, or would have covered, and your maximum entitlement under this Section 1 — Home Insurance.

…

What we will pay:

Repair or rebuilding costs

If you repair or rebuild the home, following a loss covered by this Section 1 — Home Insurance, we will pay either:

• 1. the repair cost for the damaged part of the home, using current materials and methods, where in our opinion it is able to be economically repaired, or

• 2. the rebuilding cost, using current materials and methods, to a condition as similar as possible to when it was new, where in our opinion the home cannot be repaired.

If you do not repair or rebuild the home, we will pay the value of the loss, based on the present value of the home.

8 Jacob Street was damaged by earthquakes on 4 September 2010 and 22 February 2011. At that time, Short notified claims to the Earthquake Commission. In 2013, Fletcher EQR carried out repairs. A description of the works was given to IAG.

9 Short also notified claims to IAG in November 2011 and December 2012 in respect of damage to a concrete patio, a driveway and pathways. IAG cash settled these claims and Short paid its own contractor to do the repairs. IAG also paid temporary accommodation and pet-care costs to Short and costs of loss adjusters and project managers.

10 By an agreement dated 22 May 2016, Toosim purchased Jacob Street at auction with settlement and possession occurring on 25 July 2016. The purchase price was $985,000. The agreement recorded that Short had no outstanding claims with EQC for damage resulting from the Christchurch earthquakes and that the earthquake-repairs had been completed. Short agreed to assign “any residual entitlement under the claims” to Toosim on settlement.

11 On settlement, Short executed a deed of assignment. The recitals record that both EQC and insurance claims made in respect of earthquake-damage had been settled. It stated (cl 1) that Short “assigns absolutely” to Toosim:

… all of [Short's] residual right, interest and title to the EQC Claim and Insurance Claim, and any other claims that may arise under the policy in relation to the earthquakes, and the resulting proceeds …

12 In June 2017, Toosim received a report from Underfoot Services Ltd identifying that Jacob Street had suffered previously undiagnosed earthquake-damage, including to its foundations, piles, bearers and floor levels (the Underfoot damage).

13 In March 2018, EQC accepted the 2013 works were scoped inadequately and were defective and cash settled its liability for this newly discovered damage, subject to statutory limits.

14 Toosim also gave notice to IAG of the Underfoot damage, but IAG denies that it is liable to pay any of the costs of repair.

IAG's applications

15 There are two applications before the Court. The first application is for strike out of the statement of claim under r 15.1 High Court Rules. Rule 15.1 of the High Court Rules 2016 provides:

The court may strike out all or part of a pleading if it–

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading…

16 The principles that apply to strike out applications are not in dispute. The pleaded facts, whether admitted or not (except those that are entirely speculative and without foundation), are assumed to be true. The applicant must show that the pleaded cause of action is plainly untenable and cannot succeed. 2 The discretion to strike out should be used sparingly and only in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. 3

17 In the alternative, IAG seeks summary judgment. IAG needs leave to pursue that application out of time but the granting of leave is not opposed and is granted. To obtain summary judgment, IAG must show that on the undisputed and/or undisputable material facts, Toosim will not, and cannot, succeed.

18 At this juncture, I will deal with one area of difference between counsel as to the appropriate scope of the arguments on these applications. Mr Ring argued that Toosim's claim must necessarily fail whether the relief sought is for reinstatement costs or the costs of repairs up to the level of indemnity. Mr Johnstone objected on the basis that a challenge to Toosim's right to an indemnity value payment had not been raised in the applications. I do not accept Mr Johnstone's submission. The statement of claim does not plead any claim for an indemnity value loss. It alleges an entitlement to the reinstatement costs. In making his submission, Mr Ring was responding to a draft amended statement of claim presented with Mr Johnstone's submissions that seeks, in the alternative, an indemnity value payment. Mr Ring's

point was that regardless of how it presents its case, the deficiencies in Toosim's statement of claim cannot be remedied by amendment. That is a point he was clearly entitled to advance

The issue

19 The issue is whether Toosim could ever succeed at trial in proving that it is entitled to a payment from IAG pursuant to the reinstatement benefit, if it proceeds to incur the cost of repairing the Underfoot damage. IAG argues that this issue has been authoritatively determined in Xu, upholding the Court of Appeal's judgment in Bryant v Primary Industries Insurance Co Ltd. 4

20 The facts of Xu were that the Barlows were the owners of a house in Christchurch that was damaged in the Christchurch earthquakes. They held insurance against loss caused by such damage under a policy underwritten by IAG. The policy provided claims would be settled based on either an indemnity payment or by IAG meeting reinstatement costs in the event the insured elected to restore the home. The Barlows made a claim under the policy but then sold the property before the claim was settled. They assigned to the purchasers their rights in respect of their claim under the policy. At issue was whether the reinstatement benefits were assignable to entitle the purchasers to reinstate and be reimbursed. 5 It was common ground that as at the date of the 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.” 6

21 A majority of the Supreme Court held that...