In February 2017, a large number of residential properties located around Worsley’s Road in the Port Hills of Christchurch were badly damaged by fire. Some were completely destroyed. About 80 owners claimed their properties would never have been damaged or destroyed had it not been for the actions of the appellant Leisure Investments NZ Limited Partnership (Leisure Investments), the owner and operator of a nearby adventure park.  The High Court entered judgment for the plaintiffs against the Adventure Park for d damages totalling $10,296,041 together with interest and costs . In the judgment 31 March 2023 in Leisure Investments NZ Ltd Partnership v Grace & ors [2023] NZCA 89 the Court of Appeal dismissed the appeal and confirmed the liability in negligence, under the Forest and Rural Fires Act 1977  and in nuisance.  It confirmed awards for damages based on reinstatement costs, alternativc accommodation and general damages.

In Napier City Council v LGMFL [2022] NZCA 422 the Court of Appeal allowed an appeal by the Council on its ability to recover from its insurer (“Risk Pool”) for its contribution of $12.355M to settle a leaky building claim about Waterfront Apartments.  The Waterfront plaintiffs claimed about $20M of which $16.2M comprised costs of remediation.  The relevant insurance policy excluded cover for claims about weathertightness.  The insurance policy did cover non-weathertightness defects.  Contrary to the High Court decision the Court of Appeal decided that the exclusion removed cover only for Council liability from weathertightness defects.  The Council could recover from Risk Pool for non-weathertighness defects.  The dispute was sent back to the High Court for it to apportion the settlement between weathertight and non-weathertight defects and to determine whether the settlement was reasonable.  

By a judgment delivered 16 December 2021 by Osborne J in Ross v Southern Response Earthquake Services Ltd [2021] NZHC the High Court has granted the representative plaintiffs (Ross) permission to end the group action against Southern Response on terms that the Southern Response package is open to eligible homeowners until at least April 2023; dissatisfied homeowners can sue Southern Response without Southern Response raising a limitation defence for a further 18 months after discontinuance and oversight/reporting by a committee to the Court.  All eligible homeowners are now free to take up the package offer and the $2000 legal fee subsidy or to sue Southern Response.  Southern Response is to pay a confidential sum of money to the litigation funder CFA.

In the Sleight v Beckia Holdings Ltd & ors [2021] NZHC 456 judgment about costs and interest Gendall J ordered IAG to pay interest at 5% pa from June 2015 under s87 of the Judicature Act 1908 on the costs to repair the Sleights’ house at 24 Kinnaird Place, Christchurch.  He ordered interest from the date that IAG was made aware that its original earthquake repairs were defective in June 2015.  He awarded interest on the cost of the repairs as quantified in mid/late 2020.  Homeowners with failed earthquake repairs ought to seek interest from when EQC/Insurer should have know about the problem.  As the Sleights commenced the proceeding pre 1 January 2018 the Interest on Money Claims Act 2016 did not apply.  IAG has appealed this judgment.

In Bruce & ors v IAG New Zealand Ltd & ors [2020] NZHC 3051 the High Court ordered IAG to pay costs of $83,179 and disbursements of $121,899 to the Bruces subsequent to the High Court judgment in Bruce & ors v IAG New Zealand Ltd [2018] NZHC 3444.  IAG argued that the Bruces were not successful and in fact IAG had been successful.  Mallon J disagreed and said that the Bruces were the successful party for the purposes of assessing costs.  IAG delayed admitting defects, lost trial issues and ended up paying more than it had ever previously offered.

The High Court in Sleight v Beckia Holdings Ltd (in liq) & ors [2020] NZHC 2851 has found all defendants liable for $389,848 being the costs to repair an earthquake damaged house at 24 Kinnaird Place, Christchurch to the policy standard of “when new”.  IAG insured the earthquake damaged house.  IAG purported to repair the house as part of its managed repair programme with Hawkins as the project manager.  Hawkins, now in liquidation, was insured by QBE.  Farrells, now known as Beckia, was the builder that did the repairs.  The house was defectively repaired.  The build contract for the repairs was between Sleight and Farrells, but it referred to IAG and Hawkins performing roles.  The Court decided that the defendants were liable because the work done did not meet the policy standard and/or the standard required by the Consumer Guarantees Act.  The Court did not award any general damages.  Based on the written agreements between IAG and Hawkins, Iag was required to indemnify QBE for $260K of the judgment.  This is an excellent result for homeowners.  Likely to be appeals.

Owners of 12 units at 152 and 160 Salisbury St, Christchurch sued Vero Insurance seeking a declaration from the High Court that by reason of earthquake damage they were entitled to have the buildings rebuilt under their Vero insurance policy.  Vero said the buildings could be repaired to meet the policy standard of”when new”.  The High Court released its judgment in Body Corporate 335089 v Vero Insurance New Zealand Ltd [2020] NZHC 2353 on  10 September 2020  more than a year after court hearing finished.    The evidence for the owners failed to prove more than minimal earthquake damage by cracking and minor floor level changes.  The argument that because the buildings have dropped was not of itself enough to lead to rebuild as relativities with floor levels, ground levels and service slopes could be maintained. So the Court refused to make the declaration sought by the owners.  Costs will follow the event so this will be an expensive loss for the homeowners.

The recent High Court judgment 15 September 2020 in the UK test case of The Financial Market Authority v Arch Insurance (UK) Ltd & ors [2020] EWHC 2448 (Comm) is all bad for insurers of business interruption insurance claims in NZ.  It says that disease extensions provide cover as do some Government authority extensions, but most importantly it says that the case of Orient-Express Hotels Limited -v- Assicurazioni Generali S.p.A. [2010] EWHC 1186 (Comm) that insurers rely on to limit liability is wrong.

FCA is the regulator of the insurers in the UK.  It brought a test case on various specimen wordings by underwriters of business interruption insurance arising in the context of the Covid 19 pandemic.  The trial took place over Skype in front of a 2 Judge divisional court.  It considered 21 lead policies underwritten by 8 insurers.  700 types of policies by 60 insurers are affected by the test case.

The test case was a policy interpretation exercise.  It considered the application of policy clauses about indemnity for disease, government authority, trends clauses and causation.  Firstly it looked at disease clause extensions that provide  cover for business interruption arising from the occurrence of a notifiable disease within a specified radius of the insured premises.  It said that there needs to be a causal connection to the business interruption, but less than proximate/but for causation.  It is enough if there is a case within the required radius.

It looked at hybrid clauses – disease combined with government restrictions.  Inability to use following restrictions following disease.  Must be enforceable restrictions.  Guidance is not enough.

It looked at prevention of access clauses.  This is  prevention of access by government restriction.  Prevention is greater than hinderance.  It must be legally enforceable restriction.

The final issue was causation.   Insurers relied on the Oriental Express case – OEH owned a hotel in French quarter of Louisiana damaged by Hurricane Katrina.  Since hurricanes damaged the rest of New Orleans OEH still would have suffered loss even if hotel was undamaged.  So the Court then said Orient Express would have suffered the business loss even if its own building was not damaged.  Adopted “but for” causation.  The Court now said Orient Express did not apply and was wrongly decided.  It adopted too narrow a view of insured peril.  The insured peril was damage and hurricane.  So the building damage and other hurricane effects could not be excluded.

Hopefully this case encourages more people to bring BI claims against insurance companies.

Business interruption insurance policies usually contemplate the loss of premises by physical damage.  Typically, the Covid 19 pandemic does not physically damage premises, however, the loss of uses of premises is arguably “physical damage”.  In a decision released 30 March 2020 the Ontario Supreme Court in MDS Inc & anor v Factory Mutual Insurance Company, 2020 ONSC 1924  decided that loss of use or function of premises could be “physical damage” for the purposes of the insurance policy.  To interpret “physical damage” as requiring tangible damage was inconsistent with the purpose of the insurance policy.  The case involves the pre-emptive shut down of a nuclear reactor with a heavy water leak that produced isotopes that were then sold by MDS.  It claimed lost profit of about $121M by reason of the regulator imposed shutdown of the premises for 15 months.  This decision will be helpful to insureds in bringing successful claims for losses as result of Covid 19 enforced closures and losses.

In its first substantive judgment in Houston v Southern Response Earthquake Services CEI-OOXX-2019 the Canterbury Earthquakes Insurance Tribunal has shown that it will be a waste of time and money for homeowners.  The decision by the chairperson of the tribunal, a former family court judge, CP Somerville, fails to follow an applicable Court of Appeal case about the policy standard of remediation and does not decide any super-structure repair scope or whether the insurer strategy complies with the Building code.  Mr Somerville surprisingly approves a jack/pack repair for a house with a heavy roof and heavy cladding on TC3 land adjacent to a stream with a floor level differential of 72mm as being “as new”.  Mr Somerville refused to get involved in deciding technical engineering issues and building code compliance.  These are the issues in most earthquake disputes.  Hopefully the judgment is successfully appealed.