Xu and Anor v IAG New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Gilbert J
• Judgment Date: 11 May 2018
• Neutral Citation: [2018] NZCA 149
• Docket Number: CA517/2017
• Court: Court of Appeal
• Date: 11 May 2018

Between

Ruiren Xu and Diamantina Trust Limited

Appellants

and

IAG New Zealand Limited

Respondent

[2018] NZCA 149

Court:

Asher, Clifford and Gilbert JJ

CA517/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Contract, Insurance — appeal against a High Court (“HC”) decision which held that the appellants were not entitled to the benefit of an insurance contract between the respondent and the original owner of the property — house damaged in the Canterbury earthquakes — vendor had assigned their rights under the insurance policy — whether the purchaser of land was entitled to benefits of insurance between dates of sale and possession — whether Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142 should be overruled.

Counsel:

N R Campbell QC and J Moss for Appellants

M G Ring QC and C M Laband for Respondent

• A The appeal is dismissed.

• B The appellants must pay the respondent costs for a standard appeal on a band A basis and usual disbursements. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Gilbert J)

Introduction

1 The owners of a house in Christchurch that was damaged in the earthquakes on 4 September 2010 and 22 February 2011 held insurance against loss caused by such damage under a policy underwritten by IAG New Zealand Ltd (IAG). The policy provides for claims to be settled on the basis of either an indemnity payment or by IAG meeting reinstatement costs in the event the insured elects to restore the home (the replacement benefit):

The amounts you can claim

1. If, following loss or damage you

• (a) restore your Home, we will pay the cost of restoring it to a condition as nearly as possible equal to its condition when new using current materials and methods plus any extra costs costs that are necessary for the restoration to meet with the lawful requirements of Government or Local Bodies.

• (b) do not restore your Home, we will pay the lesser of

  • (i) the amount of the loss or damage, or

  • (ii) estimated cost of restoring your Home as nearly as possible to the same condition it was in immediately before the loss or damage happened using current materials and methods.

2 The owners made a claim under the policy but then sold the property before the claim was settled. They did not restore the home and will not now do so because of the sale. They assigned to the purchasers their rights in respect of their claim under the policy. There is no dispute that their right to receive an indemnity payment under the policy was an accrued right at the time of the sale and has been validly assigned to the purchasers. The question on this appeal is whether the new owners can now reinstate and claim the replacement benefit under the policy.

3 A similar issue was considered by this Court nearly 30 years ago in Bryant v Primary Industries Insurance Co Limited. 1 In that case, an old house on a farm was destroyed by fire in the early hours of the morning on the day the farm went to auction. The house was insured with Primary Industries Insurance Co Ltd (Primary) for an indemnity value of $14,060 and an excess of indemnity sum of $48,101 (replacement benefit). The policy provided that if the insured was unable or unwilling to effect reinstatement or replacement of the house then Primary would be under no liability to pay the excess of indemnity. The farm sold at auction and the purchaser took an assignment of the insured's rights under the policy. This Court held that the

right to reinstate and claim the excess of indemnity payment was personal to the insured and could not be assigned. Cooke P, who gave the judgment of the Court, reasoned: 2

The assignment after the fire could not make the purchasers retrospectively the insured at the time of the fire. They could acquire no more than whatever assignable rights had accrued to the insured before the assignment. But the right to replace under the excess of indemnity clause was personal to the insured. As stipulated in special condition (ii), if the insured was unable or unwilling to effect reinstatement or replacement of the property, the insurer was under no liability in respect of this item of insurance.

4 In view of the judgment in Bryant, the parties to the present appeal agreed in the High Court that the following issue should be determined as a preliminary question before trial:

In light of the judgment of the Court of Appeal in Bryant v Primary Industries Insurance Co Limited, does the fact that the [insured homeowners] have not and will not restore the home by itself prevent the [new owners and assignees — the appellants] from recovering from IAG the replacement benefit?

5 The appellants sought to distinguish Bryant, relying on a condition in IAG's policy (condition 2) which confers a benefit directly on them as purchasers:

Conditions of Home Insurance

…

Insurance during sale and purchase

2. Where a contract of sale and purchase of your Home has been entered into the purchaser shall be entitled to the benefit of this Section but to get this benefit the purchaser must

• (a) comply with all the Conditions of the Policy, and

• (b) claim under any other insurance that has been arranged before claiming under this Policy.

6 In a judgment delivered on 17 August 2017, Nation J answered the preliminary question “yes” thereby determining the issue in IAG's favour. 3 The Judge noted that he was bound by this Court's judgment in Bryant and the appellants could not succeed,

at least not in the High Court, unless Bryant could be distinguished on the basis of condition 2. 4 However, the Judge found that condition 2 did not assist the appellants because it only provided cover to a purchaser for insured damage occurring between the time of contract and settlement. 5 Condition 2 was therefore inapplicable in the present case because the damage occurred well before the contract was entered into

7 The appellants appeal. Their primary submission is that as assignees they are able to satisfy the condition for payment of the replacement benefit. They contend that Bryant was wrongly decided and should be overruled. Alternatively, they argue that they are entitled to recover the replacement benefit in reliance on condition 2 so long as they incur the reinstatement costs.

Agreed facts

8 The preliminary issue was determined on agreed facts.

Natalie Hall-Barlow and Matthew Barlow (the Barlows) were the registered owners of the house at the time it was damaged in the earthquakes. The Barlows are named as the “Policy Owner” in the schedule and are the “Insured” under the policy:

The Insured is the person (or persons) shown in the Schedule (“you/your”). This also includes any person you are married to or with whom you are living in the nature of a marriage.

9 The Barlows made a claim with IAG for the earthquake damage on 27 April 2011. On 16 July 2014, they transferred the property to M&N Property Ltd, of which they were (and are) the shareholders and directors. On 9 December 2014, M&N Property Ltd entered into an agreement to sell the property to Bryan Staples or nominee. Mr Staples subsequently nominated Ruiren Xu and Diamantina Trust Ltd (the appellants) as purchasers under the agreement. On 9 February 2015, M&N Property Ltd transferred legal ownership and possession of the property to the appellants. On the same day, the Barlows (as Insured), M&N Property Ltd (as vendor) and the appellants (as purchasers) entered into a deed of assignment in terms of which the Barlows assigned absolutely to the appellants all their rights and

remedies in respect of any claims lodged by the Barlows with IAG under the policy in relation to the earthquake damage. On 5 May 2016, the appellants gave written notice of the assignment to IAG. 6

10 The following facts were also agreed. As at 9 February 2015, the date of the assignment, the Barlows had not restored and did not intend to restore the home, and had not incurred and will not incur any actual costs of restoration of the home. However, the appellants do intend to restore the home and will incur the actual costs of restoring the home.

The assignment

11 The operative clause in the assignment reads:

2.1 In consideration of the settlement of the purchase of the property by the Purchaser and at the request of the Vendor, the Insured hereby assigns absolutely to the Purchaser all their rights, title and interest in the Benefits.

12 “Benefits” are defined as follows:

“Benefits” means all of the rights and remedies of the Insured with respect to:

• (a) The EQC claim and the IAG claim including without limitation:

  • (i) The right to pursue the claims;

  • (ii) The proceeds of the claims including repair or reinstatement of the property;

  • (iii) The power to give a good discharge with respect to the claims;

    and

• (b) Any other actual or potential claims against EQC and/or IAG with respect to loss or damage to the property.

Should Bryant be overruled?

13 Mr Campbell QC submits that the appellants are able to satisfy the condition and claim the replacement benefit under the policy. Mr Campbell's argument in summary is this. Under the general law of assignment contractual rights are assignable except where there is a prohibition on assignment (not the case here) or it is apparent from the terms of the contract that the right's correlative obligation is personal. A condition will be “personal” only where it makes a difference to the counterparty (here, IAG) whether the condition is satisfied by the original party or by an assignee. The condition for a claim for reinstatement costs is not promissory and does not involve the provision of any value to IAG. It should make no difference to IAG whether the original insured or an assignee restores the home. He says this is reflected in the language of the insurance contract.

14 Mr Campbell relies on the long-standing statement of principle as to the...