Tower Insurance Ltd v Domenico Trustee Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeRanderson J
Judgment Date13 August 2015
Neutral Citation[2015] NZCA 372
Docket NumberCA303/2015
Date13 August 2015

[2015] NZCA 372



Randerson, Heath and Collins JJ


Tower Insurance Limited
Domenico Trustee Limited

M C Harris and M H A Ho for Appellant

D A Webb and S E Goodwin for Respondent

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.

The issues were: whether there had been an unequivocal election by Tower to settle on a cash basis; whether the Court was entitled to make an election for a party where that party had failed to make its election in a reasonable time; and, whether a finding of election through delay was open on the pleadings.

Held: The SC confirmed in Skyward Aviation 2008 Ltd the range of settlement options available to Tower under the policy and that it was for Tower to determine the option payable. The policy said as much in express terms.15

By virtue of the definition of “Full replacement value” the payment of full replacement value was dependent on the rebuilding costs actually being incurred before Tower was obliged to pay those costs. The obligation to pay present day value did not arise until Tower made an election to do so under the policy.

It was possible for Tower to make an offer to settle outside the terms of the policy. In that respect, in making the offer, Tower was effectively waiving the requirement that the costs of rebuilding be incurred before it became liable to pay the full costs of reinstatement.

Waiver was not pleaded, but even if it had been, there was no unequivocal election by Tower to make a cash settlement. At the most, Tower had an understandable preference to reach a cash settlement with Domenico, which would enable it to clear this particular liability off its books. An email from Tower expressly stated that the settlement offer was on the basis of the then current costs of rebuilding, and if those costs were to change, the reinstatement option would need to be reconsidered. Importantly, the FAQ document expressly recorded that Tower had not yet made any final decision as to which of the options would be taken in relation to Domenico's claim.

In these circumstances, there was no realistic prospect of a finding that Tower had made an unequivocal election to settle Domenico's claim by an immediate cash payment of the full costs of reinstatement. Tower had raised the prospect of settling by reinstating the property itself. This was a necessary protection for an insurer faced with an excessive or unreasonable claim by an insured, as the SC discussed in Skyward Aviation 2008 Ltd.

Thereafter, the correspondence demonstrated that Tower was continuing to pursue its preference for a cash settlement while reserving the option to carry out reinstatement itself. Faced with Domenico's excessive claim for a cash settlement, Tower had no sensible option other than to resist the proceedings that Domenico brought, while continuing to endeavour to settle with Domenico on an acceptable basis.

Subsequent discussions between the parties did not amount to an unequivocal election by Tower to settle by an immediate cash payment of the full reinstatement costs. There was nothing in Tower's subsequent conduct to suggest otherwise. All the communications showed it continued to keep its options open.

The Judge was correct to find that, on the basis pleaded, there was no unequivocal election made by Tower as to the mode of settlement.

It was undisputed that a party entitled to exercise a power of election had to do so within the time specified in the instrument conferring the power and, if no specific time was provided, then within a reasonable time. However the HC Judge went further in finding that after a sufficient lapse of time, the law will make the election in substitution for the party. There were doubts about the correctness of this.

The essence of an election was a deliberate choice to proceed in a particular way: in this case for the insurer to settle with the insured on the basis of either reinstatement or a cash payment. On the other hand, delay, whether justified or not, was a prime indicator of a failure to act. Deliberate choice and failure to act were antithetical concepts.

Other approaches were available. For example, there might be circumstances where an insurer's words or conduct were consistent only with one available choice having been exercised by the insurer. There would be no difficulty in a court reaching such a conclusion on the facts. That approach was entirely orthodox. And, if an insurer was in breach of its obligation to make a decision within a reasonable time, the court could order the insurer to make an election. Breach of any such order would risk the insurer being in contempt of court. Damages might also be an available remedy.

It was unnecessary to resolve these issues in this case, and these observations were made without expressing any final view. It was the usual practice in the Christchurch Earthquake List for an inquiry to be made as to whether an election has been made and, if not, to give suitable directions. That was an eminently practical way of dealing with the issue.

It was not open on the pleadings for the HC to find that Tower had made an election through delay or for the Court to itself make the election on that ground. Domenico's amended statement of claim was explicit in identifying by the particulars cited the basis on which Domenico was advancing the election argument. No reference was made to delay. Rather, the case was that the election had been made by the pleaded particulars and it was too late for Tower to resile from it.

At the conclusion of Domenico's case, Tower relied on the particulars given in the amended statement of claim in deciding not to call further evidence. Its closing submissions were made to the Court on that basis. The essential function of pleading in our trial system has been repeatedly emphasised. Pleadings were not to be treated as a mere formality. Rule 5.26 High Court Rules required the Statement of Claim to give such particulars “as may suffice to inform the Court and the party or parties against whom relief is sought of the plaintiff's cause of action”. A defendant was entitled to prepare his case and conduct it on the basis that he was only required to meet the case pleaded against him ( Brownlie v Shotover Mining Ltd).

The provision of particulars was also an essential part of the function of the civil justice system ( Re Securitibank Ltd v Rutherford). The function of particulars was to carry into operation the over-riding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, incidentally, to reduce cost.

Where it was desired to make a substantial departure from the pleadings, it was the duty of the Judge and counsel on both sides to see that a proper application was made for leave to amend the pleadings. The proposed amendment should ordinarily be put in writing so that counsel on the other side could consider it and apply for an adjournment if the nature of the amendment was one which involves the calling of further evidence.

In the present case, a finding of election through delay was not open on the pleadings and was not raised in argument. If the Judge was contemplating a finding that was plainly outside the pleadings and argument, he ought to have given the opportunity to both sides to address the issue and to seek an amendment to the pleadings. That did not occur. Tower was seriously prejudiced by the course of events.

Appeal allowed. Proceeding remitted to the HC for rehearing.

  • 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.


(Given by Randerson J)

Table of Contents

Para No



The insurance policy


The factual background


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?


The High Court judgment


Domenico's submissions


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?


The Judge's findings


Submissions on election through delay







The respondent (Domenico) owns a residential property on...

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1 cases
  • Kilduff v Tower Insurance Ltd
    • New Zealand
    • High Court
    • 17 April 2018
    ...... 1 The plaintiffs are trustees of the Emosh Family Trust, a family trust established in 2004 by the first named plaintiff (Ms Kilduff). The plaintiffs own a residential property ... [2013] NZHC 670 ; Skyward Aviation (2008) Ltd v Tower Insurance Ltd [2013] NZHC 1856 ; Domenico Trustee Ltd v Tower Insurance Ltd [2015] NZHC 981 ; Tower Insurance Ltd v Domenico Trustee Ltd [2015] NZCA 372 ; and Young v Tower Insurance Ltd ......

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