The Court of Appeal in Skyward Aviation 2008 Ltd v Tower Insurance Ltd [2014] NZCA 76 on 20 March 2014 allowed an appeal by Skyward against a decision of David Gendall J in the High Court that had wrongly said that Tower Insurance had the choice as to how it would settle the claim and could foist upon the insured a replacement house that in Tower Insurance’s view was comparable to the original.

The Court of Appeal confirmed that under its policy Tower Insurance was not to pay more than present day value until the insured incurred the costs of reinstatement, rebuilding or replacement and that Tower Insurance had reserved the right to indemnify either by making payment or by rebuilding, replacing or repairing the damaged house.  But it must provide “new for old”.

The Court decided that once it had been established that the house was not economically repairable Tower had no right to decide the basis of settlement and that it was for the insured to decide whether to rebuild (or repair)  on the existing site or rebuild elsewhere or buy another house.  But in every case Tower Insurance need only pay the costs of rebuilding on site.

The Court also decided that the High Court was wrong in its statement that any replacement house purchased by the insured had to be comparable to the original.  The Court of Appeal held that there is no restriction on the replacement house other than Tower Insurance will only contribute up to the cost of rebuilding the insured house.

The effect of this decision is that Tower Insurance can no longer try to settle claims based on a so called “replacement house” similar to the one insured.