By the judgment 22 July 2015 in Southern Response Earthquake Services Ltd v Avonside Holdings Ltd [2015] NZSC 110 the Supreme Court dismissed the appeal by Southern Response against the Court of Appeal decision of 1 October 2014.

It confirmed that in calculating the rebuild cost of a house under the Southern Response insurance policy for the buy another house option, 1c.ii, a reasonable estimate for professional fees and contingencies should be included in the sums payable, as if the house is actually being rebuilt.

Both Courts were unpersuaded by the Southern Response argument that because the house was not actually going to be rebuilt there were no risks and so no contingencies.  That argument lacks common sense.

The estimate that is required is to estimate the actual cost of rebuilding the house onsite.  The Court of Appeal had held that this included any work now required by the Building Code.  The Supreme Court did not overturn this finding.

The Supreme Court held that the Court of Appeal was correct in its determination that based on the evidence a 10% allowance for each of professional fees and contingencies was appropriate.  Those numbers also accorded with standard/usual quantity surveying practice.

Both Courts held that the evidence of Stewart Harrison from Harrison’s quantity surveyors ought to be preferred over that of the Southern Response witnesses.

The effect of this decision is that there can be no objection by Southern Response to the inclusion of 8% Preliminary & General; 10% margin, 10% contingency and 10% for professional fees in any rebuild costing.  Additionally, other costs that may be required to now comply with the Building Code, such as enhanced foundations must also be included and are be payable under clause 1c.ii.

Southern Response’s handling of this claim was consistent with and symptomatic of the its inflexible attitude to claim resolution that is inconsistent with common sense and commerciality.  On this claim alone it cost itself an extra hundreds of thousands not including its legal fees.

Here is the link to the stuff commentary.