Vero Insurance New Zealand Ltd v Anthony Brendon Morrison

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeEllen France P
Judgment Date16 Jun 2015
Neutral Citation[2015] NZCA 246
Docket NumberCA609/2014

[2015] NZCA 246

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Ellen France P, Stevens and White JJ

CA609/2014

BETWEEN
Vero Insurance New Zealand Ltd
Appellant
and
Anthony Brendon Morrison and Gail Cross
Respondents
Counsel:

M G Ring QC and P J L Hunt for Appellant

N R Campbell QC and S P Rennie for Respondents

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.

The issues were: whether the modelling evidence should have been admitted; whether the modelling evidence was flawed and the Judge had assigned too much weight to it; whether the building was “destroyed” as a result of the February 2011 earthquake; and, whether the Judge was 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.

Held: Section 25 Evidence Act 2006 stated that expert opinion evidence was admissible if the fact-finder was “likely to obtain substantial help” from the expert's opinion. The modelling evidence was admissible. It was plainly relevant. It met the reliability threshold and had some probative value. Flaws in the model that limited its probative value did not requiring any revisiting of the threshold question of admissibility.

The approach in Equitas was a logical one in its particular context and had been viewed by commentators as a practical solution to the question of proof of loss under reinsurance treaties. It was important to note that in Equitas it was common ground there was no alternative means of proof. The problems of proof in this case were not of that order.

The real issue in this case related to whether the Judge was correct to give the model the weight he did. There was some support at least at the conceptual level for the modelling exercise. However there were difficulties with the model which when taken into account meant it was given considerably more weight than it should have been.

That turned attention to whether the model, when viewed alongside J's photographic essay, nonetheless supported the conclusion as to the scope of additional repairs required after the June earthquake. Looking at this evidence in light of all of the other evidence, it was of some assistance in determining that there was additional damage to the building after the June event. It was however difficult to determine how the additional damage had impacted on the scope of repairs. There appeared to be an overlap with some of the items marked for replacement after the February earthquake. This could not be resolved on appeal. It was necessary to refer this matter back to the HC.

The approach to the meaning of “destroyed” in a similar policy was considered recently in QBE Insurance (International) Ltd v Wild South Holdings Ltd. The Court observed that the language of the policy in that case pointed to an objective assessment by the Court, informed by considerations which might include any special features of the building, the insured's intentions for it so far as they were not eccentric or unreasonable, and the respective costs of reinstatement and replacement. The test was not what the insured would do if it were spending its own money.

Applying the principles set out in Wild South, Vero correctly identified economic and practical considerations supporting its claim the building was destroyed. There were, however, some countervailing considerations. The building was still functional. M's evidence was that the building had some heritage value and he purchased it with a view to leasing it. Further the cost of repairs back at the time of the damage was much less than now. On the facts in this case, there was a basis to conclude the building was not destroyed.

It was significant that in contrast to Wild South, the policy in issue in this case contained a definition of destroyed. It was also relevant that the constructive total loss condition in the TMT policy was limited. In particular, the provision could have, but did not, include economic destruction within that extended provision. In all these circumstances it was not open to the Court to read in a reasonableness requirement as Vero would have. The building was not destroyed.

The depreciated estimated cost of installing new piles would have to be allocated to the event causing this cost to be incurred. It was clear that the cause of this cost was the February earthquake. Vero had already paid all it was required to pay in respect of the February earthquake under the policy.

The policy contained an “old for old” indemnity. The indemnity payment was founded on the depreciated estimated cost to put the building back to its “pre-earthquakes, no piles” condition. Before the earthquakes, TMT had a building with no piles. The cross appeal was accordingly dismissed.

Appeal allowed. The question of the quantum of Vero's liability for a separate indemnity payment in relation to the June 2011 event was remitted to the HC for reconsideration.

  • 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...

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