The High Court in Sleight v Beckia Holdings Ltd (in liq) & ors  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  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  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.  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.
In Bruce & ors v IAG New Zealand Ltd  NZCA 590 the Court of Appeal allowed the homeowners’ appeal and dismissed the IAG cross appeal in a case about IAG’s post earthquake remedial work. IAG elected to repair the house and spent $1.4M doing so. IAG’s engaged builder, Jim the Builder, did not repair the house so that it was “as when new”. At issue at trial were the floor levels, wall verticality and internal finishes. The High Court Judge, Mallon J, found that IAG had not restored to the three items to the policy standard, but puported to limit the remedy available to the homeowners. The Court of Appeal set aside the limits on recovery and dismissed the cross appeal about the lack of damage by wall leans. There is to be a second hearing about remediation and cost of remediation. This case is important for its finding that IAG is liable for the defaults of its builder when IAG elected to repair the house.
Vero, AMI and AA Insurance refused to pay $4.9M of rental hire costs claimed by not at fault drivers where their insured drivers were at fault. Right to Drive funded the rental cars in return for rights against the insured driver(s) and their insurers. It sued to recover from the insurers. The insurers denied liability for many reasons. The insurers lost in the High Court. In Frucor Beverages Ltd & ors v Blumberg & ors  NZCA 547 the Court of Appeal dismissed the insurers’ appeal(s) and commented about the lack of merit of the appeals. Previous Australian and United Kingdom cases were similar. The Court of Appeal makes very critical comments about the insurers in paras  to  of the judgment.
In Birchs Road Ltd v EQC & anor  NZHC 2439 the High Court (DunninghamJ) considered an application to transfer a court proceeding in process for 3 years with a trial date commencing 21 October 2019 where the defendants had concerns about their ability to recover costs from the homeowner if the claim was transferred to the Earthquake Tribunal. In Fraser v EQC & anor  NZHC 2768 the High Court (Lester AJ) decided that the High Court retained jurisdiction to deal with costs in respect of a proceeding transferred to the Earthquake Tribunal. Fraser is notable for a wasted costs order against the homeowner for changing lawyers and engineers.
In Pinot Properties Ltd v Vero Insurance New Zealand Ltd  NZHC 2244 the High Court (Osborne J) dismissed an application to transfer an earthquake court proceeding to the Earthquake Insurance Tribunal as the Court decided that the relevant building at 205 Manchester St was not a residential building, nor residential property, so was not eligible. The Court reached this conclusion notwithstanding that EQC paid claim(s) and the properties had been used for residential purposes. Vero insured the property under a commercial property.
In Dewes & ors v IAG New Zealand Ltd & ors  NZHC 2270 the High Court (Lester AJ) considered an application by home owners to transfer a claim about a defectively repaired earthquake damaged house where IAG had joined Hawkins and Hawkins’ insurer, QBE. QBE did not want the claim against it transferred to the Tribunal and said that it was a separate proceeding not within the Tribunal jurisdiction. The High Court disagreed with QBE and said the entire dispute could be transferred, which it did.