Tower Insurance Ltd v Domenico Trustee Ltd

• Jurisdiction: New Zealand
• Judge: Randerson J
• Judgment Date: 13 August 2015
• Neutral Citation: [2015] NZCA 372
• Docket Number: CA303/2015
• Court: Court of Appeal
• Date: 13 August 2015

BETWEEN

Tower Insurance Limited

Appellant

and

Domenico Trustee Limited

Respondent

[2015] NZCA 372

Court:

Randerson, Heath and Collins JJ

CA303/2015

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by an insurer from a High Court (HC) judgment that the insurer had delayed in making its election under a policy between reinstating the respondent's property or settling the claim on a cash basis, and that therefore the Court could itself make the election — insurer had accepted liability and had proposed a cash settlement offer — the proposed cash settlement offer was not one of the options provided for under the policy — negotiations between the parties had broken down — HC held that as the insurer had delayed in making its election, the Court would make the election for it — insurer said that the findings were not open to the HC — the insurer had not called evidence and said it would have done so if it had appreciated it was facing a different case to that pleaded — whether there had been an unequivocal election by the insurer to settle on a cash basis — whether the HC was entitled to make an election for a party where that party had failed to make its election in a reasonable time — whether a finding of election through delay was open on the pleadings.

Counsel:

M C Harris and M H A Ho for Appellant

D A Webb and S E Goodwin for Respondent

• A The appeal is allowed and the High Court judgment is set aside.

• B The cross-appeal is dismissed.

• C The proceeding is remitted to the High Court for rehearing in the light of the judgment of this Court.

• D The respondent must pay one set of costs to the appellant for a standard appeal on a Band A basis together with usual disbursements. There is no certification for second counsel.

• E Costs in the High Court are to be dealt with in that Court.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

	Para No
Introduction	[1]
The insurance policy	[11]
The factual background	[14]
Was the Judge correct to conclude that TOWER did not make an unequivocal election to settle on a cash basis on the terms pleaded in the first amended statement of claim?	[31]
The High Court judgment	[31]
Domenico's submissions	[37]
Was it open on the pleadings for Gendall J to conclude that, by reason of delay on TOWER's part, it was to be treated as having elected to settle on a cash basis?	[47]
The Judge's findings	[47]
Submissions on election through delay	[55]
Discussion	[57]
Result	[67]

Introduction

1 The respondent (Domenico) owns a residential property on Breezes Road, Christchurch that was damaged beyond economic repair by the major earthquakes in that city in September 2010, February 2011 and June 2011.

2 The appellant (TOWER) insured the house for its full replacement value. Domenico promptly made claims to the Earthquake Commission (ECQ) and to TOWER to the extent that the cost of repairing the damage exceeded the EQC's statutory cap.

3 It was not until 28 February 2013 that the EQC confirmed that the damage to the house and garage on Domenico's property exceeded the statutory cap. Formal advice of Domenico's EQC payouts did not come until 26 April 2013 and amounted in total to $132,783.41.

4 TOWER accepted liability under the policy. On 8 April 2013, it emailed to Domenico's principal, Mr Da Col, a proposed cash settlement offer of $236,413.20 based on the costs of rebuilding the house. 1 From this sum, it was necessary in terms of the policy to deduct the EQC payments. Domenico did not accept this offer nor an increased offer TOWER made on 18 April 2013 of $254,501.38. 2 Instead, Domenico's response was to issue proceedings against TOWER in the High Court on 30 April 2013 based on rebuilding costs of $842,392.45.

5 The expert evidence available to TOWER was that Domenico's claim was seriously overstated. TOWER maintained the position that, while willing to continue negotiations towards a cash settlement, it reserved the right to itself reinstate Domenico's property in the event that agreement on a cash settlement could not be reached. Mr Venneman of TOWER and Mr Da Col had direct discussions on 1 and 4 August 2014 with a view to reaching a settlement. It appeared that provisional agreement was reached in terms of which TOWER would pay Domenico $363,940 less the EQC payouts. However, this was subject to Mr Da Col obtaining legal advice. The proposed settlement was not accepted by Domenico.

6 On 25 August 2014 Domenico filed an amended statement of claim reducing the rebuilding costs to $581,787.42. Domenico added for the first time a pleading that TOWER had elected to settle the claim on a cash basis. Domenico pleaded:

• 10 The defendant has chosen to settle the claim under the policy by paying to the plaintiff in cash the costs to rebuild the house without the need for the plaintiff to first rebuild/buy a house.

  Particulars

  • (1) Email 18 April 2013 from defendant to plaintiff;

  • (2) Confirmed in oral telephone discussion 1 & 4 August 2014 between PJ Venneman of defendant and Rob Da Col of the plaintiff.

• 11 As at 18 April 2013 the defendant quantified the costs to rebuild the house at $254,501.38.

• 12 As at 2 July 2014 the defendant quantified the costs to rebuild the house at $362,940.

• 13 By failing/refusing to indemnify the plaintiff based on the cost to rebuild/replace the house of $581,787.42 the defendant has failed and/or refused to meet its obligations under the policy.

7 TOWER continued to take the view that Domenico's claim was excessive and it remained unresolved. The proceeding was set down for hearing on 2 and 3 March 2015 before Gendall J. Shortly before the hearing, agreement was reached for the purposes of trial between the expert witnesses retained on each side that the estimated rebuilding costs, as at that date, were $370,000.

8 In his judgment delivered on 8 May 2015, Gendall J found: 3

• (a) TOWER had not made an unequivocal election to settle on a cash basis as pleaded.

• (b) Nevertheless, TOWER had delayed in making its election and as a result of that delay, the Court would make the election.

• (c) TOWER was obliged to pay the “present day value” (being the indemnity value) of the property under the policy, with the opportunity for Domenico to claim any additional costs of rebuilding the house should it decide to do so in future.

9 TOWER appeals from Gendall J's judgment, contending that it was not open on the pleadings for Gendall J to make a finding that TOWER had elected to settle on a cash basis or that the Court could itself make the election on the basis of TOWER's delay. TOWER did not call evidence and says it would have done so if it had appreciated it was facing a different case from that pleaded. Alternatively, even if it was open for the Judge to make that finding, it could not be supported on the evidence. For its part, Domenico cross-appeals, contending that Gendall J was wrong to find there had been no unequivocal election by TOWER to settle on a cash basis. Domenico further contends that the High Court was wrong to conclude that TOWER was not obliged to pay the full costs of reinstatement in cash, without first requiring these costs to be incurred.

10 On the view we take of this matter, it is necessary only to determine two issues in this order:

• (a) Was the Judge correct to conclude that TOWER did not make an unequivocal election to settle on a cash basis on the terms pleaded in the first amended statement of claim?

• (b) Was it open on the pleadings for Gendall J to conclude that, by reason of delay on TOWER's part, it was appropriate for the Court to make the election and decide that TOWER was to settle on a cash basis?

The insurance policy

11 The TOWER policy is in materially identical terms to the policies at issue in the Skyward Aviation 2008 Ltd case which has been the subject to judgments in both this Court and the Supreme Court. 4 For present purposes, the key provisions are:

HOW WE WILL SETTLE YOUR CLAIM

We will arrange for the repair, replacement or payment for the loss, once your claim has been accepted.

We will pay:

• ▪ the full replacement value of your house at the situation; or

• ▪ the full replacement value of your house on another site you choose. This cost must not be greater than rebuilding your house at the situation; or

• ▪ the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding your house on its present site; or

• ▪ the present day value;

As shown in the certificate of insurance.

We will only allow you to rebuild on another site or buy a house if your house is damaged beyond economic repair.

…

In all cases:

…

• ▪ we have the option whether to make payment, rebuild, replace or repair your house;

…

We are not bound to:

…

• ▪ pay more than the present day value if you have full replacement value until the cost of replacement or repair is actually incurred. If you choose not to rebuild or repair your house or buy another house we will only pay the present day value and the reasonable costs of demolition and removal of debris including contents;

• ▪ pay the cost of replacement or repair beyond what is reasonable, practical or comparable with the original;

12 There are two definitions in the policy relevant for present purposes:

• ▪ Full replacement value means the costs actually incurred to rebuild, replace or repair your house to the same condition and extent as when new and up to the same area as shown in the certificate of insurance, plus any decks, undeveloped basements, carports and detached domestic outbuildings, with no limit to the sum insured.

• …

• ▪ Present day value means the cost at the time of the loss or damage of rebuilding, replacing or repairing your house to a condition no better...