By a judgment delivered 16 December 2021 by Osborne J in Ross v Southern Response Earthquake Services Ltd  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  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.
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.
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 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 Settlers Crescent Partnership v IAG New Zealand Ltd  NZHC 2775 the owners of 4 adjoining buildings at 14 Settlers Crescent, Ferrymead (funded by Risk Worldwide) sued to recover for damage in the June 2011 earthquake notwithstanding that they had cash settled for $10,233,973.80 with IAG for damage to the buildings in the September 2010 and February 2011 earthquakes on the basis that those buildings were recommended for demolition as being destroyed. The Court in a judgment 25 October 2018 unsurprisingly found that the partnership suffered no further loss in the June 2011 and the claim failed. A year later the High Court on 17 September 2019 in Settlers Crescent Partnership v IAG New Zealand Ltd  NZHC 2341 ordered the owners to pay costs of $51,067 together with disbursements of $111,147.76. IAG had claimed $297,621.72.
In Dodds v Southern Response Earthquake Services Ltd  NZHC 2016 the High Court (Gendall J) ordered Southern Response to pay Dodds $178,894.30 plus interest from 23 December 2013 because Southern Response misrepresented the cost to rebuild the house at 9 Errol Lane, Huntsbury damaged in the earthquake on 22 February 2011. Southern Response provided a Detailed Repair/rebuild Analysis to Dodds that excluded demolition, professional fees and contingency that totalled $895,937.78 whilst at the same having a full costing at $1,186,920.75 that it did not provide to Dodds. Dodds entered into a settlement agreement based on the lesser figure. The High Court decided that SR was guilty of misrepresenting the rebuild cost and engaging in misleading and deceptive conduct. It also said that Southern Response breached good faith obligations. The High Court ordered Southern Response to pay the difference in the 2 costings less the cost of demolition that Southern Response paid and some Arrow costs. It did not award general damages.