Vero Insurance New Zealand Ltd v Anthony Brendon Morrison

• Jurisdiction: New Zealand
• Judge: Ellen France P
• Judgment Date: 16 June 2015
• Neutral Citation: [2015] NZCA 246
• Docket Number: CA609/2014
• Court: Court of Appeal
• Date: 16 June 2015

BETWEEN

Vero Insurance New Zealand Ltd

Appellant

and

Anthony Brendon Morrison and Gail Cross

Respondents

[2015] NZCA 246

Court:

Ellen France P, Stevens and White JJ

CA609/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision that evidence based on modelling was reliable and substantially helpful for quantifying the capacity for earthquake events to cause damage to the building and as an input for the assessment of the allocation of damage per event of loss — commercial building with heritage qualities damaged in Christchurch earthquakes — owner wished to repair building because of its heritage value — the owner's insurance policy provided indemnity for damage to the building on an event by event basis — owner said that damage had been incurred in five earthquakes — insurer said that damage had only been incurred in first two earthquakes — alternatively the insurer said that the building had already been destroyed by the second earthquake and there was no further liability for the subsequent earthquakes, as “destroyed” should be read to include an implied requirement that the building could not “reasonably” be repaired in the economic sense — whether the modelling evidence should have been admitted — whether the modelling evidence was flawed — whether the building was “destroyed” as a result of the earlier earthquake.

Counsel:

M G Ring QC and P J L Hunt for Appellant

N R Campbell QC and S P Rennie for Respondents

• A The appeal is allowed in part. The question of the quantum of Vero's liability for a separate indemnity payment in relation to the June 2011 event is remitted to the High Court for reconsideration.

• B The cross-appeal is dismissed.

• C The respondents must pay the appellant 75 per cent of its costs for a complex appeal on a band A basis and usual disbursements. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Ellen France P)

Table of Contents

	Para No
Introduction	[1]
Issues on appeal and cross-appeal	[6]
Background	[8]
The building	[9]
The policy	[14]
Preference to TMT's scope of repairs — June event	[19]
The approach in the High Court	[21]
Admissibility	[23]
Paucity of information	[29]
The model	[39]
Support for the model	[43]
The limits of the model	[49]
Liquefaction	[52]
Relativities	[55]
A measure of damage to building elements?	[57]
Additional repairs necessary after June?	[65]
Drawing the threads together	[78]
The other challenges to the model	[79]
Was the Judge right the building was not destroyed?	[84]
The other relevant provisions in the policy	[87]
The approach taken in the High Court	[93]
The relevant principles	[95]
Discussion	[99]
Calculation in relation to the September earthquake	[120]
Responsibility for the cost of new piling	[135]
The High Court judgment	[140]
Discussion	[142]
Result and costs	[148]

Introduction

1 The Tony Morrison Trust (TMT) owns a building in Woolston, Christchurch. 1 The building was severely damaged by the Christchurch earthquakes. TMT had insured the building with Vero Insurance New Zealand Ltd (Vero). The insurance policy provides indemnity for damage to the building on an event by event basis. The amount of cover reinstates at the end of each 72 hour event period.

2 TMT claimed there were five earthquake events causing loss to the building: on 4 September and 26 December 2010, and on 22 February, 16 April and 13 June 2011. Vero said it was only liable to indemnify the damage caused by the

September 2010 and February 2011 earthquakes. The parties' dispute over TMT's claim was dealt with by Whata J in the High Court. 2

3 In advancing its claim in the High Court TMT employed modelling that measured the ground shaking intensity of each earthquake to assist in identifying the events of loss and quantifying the extent of the damage caused by those events. Whata J found that the modelling was reliable and substantially helpful “for the purpose of quantifying the capacity for earthquake events to cause damage to the building and as an input for the assessment of the allocation of damage per event of loss”. 3 The Judge concluded that a reasonable allocation of damage and repair costs was as per Vero's assessment in relation to the September event and as per the repair recommendations of TMT's expert for the February and June events. Whata J said that TMT had not proved its claim in relation to the December and April events. The Judge also found that TMT's building was not “destroyed” in terms of the policy as a result of the February earthquake. Finally, the Judge held that TMT could not recover the cost of new piles.

4 Vero appeals against the Judge's decision to accept TMT's expert's evidence in relation to the June 2011 event and Whata J's conclusion that TMT's building was not “destroyed”. TMT cross-appeals against the Judge's determination that the cost of repair associated with the damage caused by the September 2010 earthquake was as assessed by Vero. TMT also cross-appeals against the Judge's decision that the cost of new piles should not be recoverable.

5 Underlying the appeal is Vero's challenge to the admissibility of and weight given to the modelling used by TMT's expert and accepted, in part, by Whata J.

Issues on appeal and cross-appeal

6 The issues arising on the appeal and cross-appeal can be addressed by answering the following questions:

• (a) Was the Judge right to prefer TMT's expert evidence concerning the additional damage caused by the June 2011 earthquake, and TMT's scope of repairs for the June 2011 earthquake, over that of Vero's experts?

• (b) Was the Judge right to conclude the building was not “destroyed” as a result of the February 2011 earthquake?

• (c) Was the Judge right to conclude the depreciated cost of repairing the physical damage to TMT's building caused by the September 2010 earthquake was no more than Vero's assessment?

• (d) Was the Judge right to exclude the cost of new piling in determining the depreciated cost of repairing the cumulative physical damage caused by all of the earthquakes?

7 We set out the background before turning to each of these issues in turn.

Background

8 There are two aspects of the factual background we need to discuss, namely, the relevant features of the building and of the policy. We deal first with the building and then discuss the policy.

The building

9 We adopt Whata J's description of the key features. 4 The background is as follows. The building is located at 23 Heathcote Street in Woolston, Christchurch. The building comprises two stories. It is an industrial/commercial building. The building was originally a wool scouring facility but has since been subdivided into a number of commercial workshop and storage type tenancies. The exact age of the building was a matter of debate at trial but we need only note it was built in the first half of the 20th century.

10 The building is on a site gently sloping from the north (front) down to the Heathcote River at the rear. The riverbank is some 15 metres from the rear of the building. Whata J explained the construction features in this way: 5

The building consists of cast-in-place concrete reinforced frames with concrete masonry unit infill walls at the perimeter of the structure. The first floor is a composite floor with a reinforced concrete slab supported on either an interspan flooring system which consists of precast concrete ribs and timber infills or in some areas a metal deck spanning between the beams of the concrete frame. The mezzanine floor in the ground storey has metal decks supported on steel frames. The mezzanine floor on the first storey is timber framed. Interior walls are timber framed partition walls with plasterboard. The building is supported on top of cast in-place reinforced concrete slab-on-ground and footings. The sawtooth and gabled roof of the building has corrugated asbestos cement panels or in some areas corrugated metal panels on timber framing.

11 Before the earthquakes, there were ten tenancies and a number of common areas. After the earthquakes the rear office lean-to part of the building could no longer be used. The damage led to other tenants vacating. However, as Whata J said, “even after the major earthquakes, the vast majority continued to be leased either by the original or a new tenant”. 6 Mr Morrison, on behalf of TMT, still collects rent although rates have been reduced.

12 Initially Vero was apparently prepared to allow Mr Morrison to relocate and buy similar properties up to the amount insured as a method of reinstatement. Vero eventually decided not to enable Mr Morrison to do so. At that point, a company called Risk Worldwide New Zealand Ltd took over TMT's claims process in 2012 leading to the submission of a claims package to Vero in December 2012. Vero sought a per event claim analysis which Risk Worldwide provided on 16 August 2013 along with an apportionment statement of loss of $10,042,790.83.

13 Vero did not accept the claim. Its initial assessment was an indemnity value payment of approximately $1.8 million. However, Vero reviewed the amount it considered payable in the lead up to the trial. This meant that by the time of trial,

Vero had paid $3,904,193 in relation to the February earthquake. 7 In terms of the September earthquake, Vero had paid TMT $79,881

The policy

14 The features of the policy are also set out in the High Court judgment. 8 For present purposes we need only note some key aspects. First, the policy is a material damage and business interruption policy. 9 The total sum insured per event is $3,482,000 subject to a deductible for earthquakes of 2.5 per cent of the loss. Other...