New Zealand: Judgment summary: Xu v IAG New Zealand Ltd (SC 47/2018) [2019] NZSC 68: earthquake damage and property insurance

Last Updated: 8 July 2019
Article by Aaron Sherriff

Background

The Barlows were the owners of a house in Christchurch. It was damaged in the earthquakes on 4 September 2010 and 22 February 2011. The Barlows were insured under a policy which provided "indemnity" and "indemnity plus" (i.e. a replacement wording) in the event of insured loss. The indemnity element of the policy applied where the insured chose not to restore their home, in which case they were entitled to the lesser of the amount of loss or damage or the estimated cost of restoration as nearly as possible to the same condition it was in immediately before the loss or damage, using current materials and methods. The indemnity plus sum was available if "you restore your home", the insurers then becoming liable to pay "the cost of restoring it to a condition as nearly as possible equal to its condition when new using current materials and methods plus any extra costs that are necessary for the restoration to meet with the lawful requirements of Government or Local Bodies."

The policy also stated in Condition 2, under the heading "Insurance during sale and purchase" that: "Where a contract of sale and purchase of your Home has been entered into the purchaser shall be entitled to the benefit of this Section but to get this benefit the purchaser must (a) comply with all the Conditions of the Policy, and (b) claim under any other insurance that has been arranged before claiming under this Policy."

The Barlows made a claim under the policy, but before the claim was settled or any attempt to restore the property had been made, the property was sold to a company controlled by them, which in turn sold the property to Mr Staples or his nominee. Mr Staples nominated Mr Xu and Diamantina Trust Ltd as purchasers. The result of these transactions was that on 9 February 2015 the purchasers obtained legal ownership and possession of the property. On the same day, the parties entered into a deed of assignment under which the purchasers became the assignees of all of the rights and benefits under the policy.

The insurers were successful in both the High Court and the Court of Appeal and so the purchasers brought an appeal to the Supreme Court.

The Supreme Court

The Supreme Court, in a split 3:2 decision (William Young, O'Regan and Ellen France JJ, Glazebrook and Arnold JJ dissenting) handed down on 3 July 2019, dismissed the appeal by the purchasers and held that they were not entitled to indemnity plus.

The majority relied on the decision of Cooke J in Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142, and regarded Cooke J's ruling as a correct statement of the law both for policy and practical reasons. In terms of broad policy, insurance was a personal contract and there was force in the argument that an insurer faced moral hazard issues in the claims process when dealing not with the original policyholder but with an assignee.

The majority recognised that the effect of Bryant was, in the event of a natural catastrophe where there were numerous claims and delays were inevitable, to restrict the ability of the owner of a damaged property to sell it and to assign the full benefits of the policy to the purchaser. However, the majority view was that the consideration was ousted by the express wording of the policy whereby the entitlement to replacement value was conditional on reinstatement by the insured. That led to the practical reason for endorsing Bryant, namely that it was the leading decision on the point and must have been influential as to the terms on which insurers had offered property insurance over the three decades since it had been decided: the destabilising effect of overruling Bryant was "of paramount significance." The majority here noted that it is perfectly possible for insurers to stipulate for a different outcome by express wording.

The minority approach focused on the settled principle that a claim under an insurance policy accrues when the loss occurs. On that reasoning, the insured had a contingent right to indemnity plus as of the date of the earthquakes, subject only to restoration actually taking place. Moral hazard issues could be disregarded, as the policy controlled the possibility of fraud by providing for direct payment to contractors, and in any event the insurers faced the same risk with a claim from the original insured. In the minority's view, if the indemnity could be assigned then there was no reason to take a different approach to indemnity plus.

Discussion

The difference between the majority and the minority was a narrow one. All of the judges in the Supreme Court were of the view that the right to recover under a policy accrued at the date of the loss and that the right to recover indemnity plus turned upon satisfying the contingency that restoration was carried out. The majority held that the contingency could be satisfied only by the original policyholders, whereas the minority saw no reason why the contingency could not be satisfied by the purchasers.

As for Condition 2, the Supreme Court was unanimous in confirming the view of the lower courts that this was aimed at the same problem addressed by section 13 of the Insurance Law Reform Act 1985 and the presence of Condition 2 in the policy was not a ground for distinguishing Bryant. The minority were more amenable to an argument based upon the suggestion that the wording was ambiguous and ought to be construed in favour of the consumer policyholders, but ultimately agreed that the heading could not be disregarded and that the use of the word "during" was fatal to any argument that Condition 2 applied to give the purchasers the benefit of the policy for events that had occurred before the sale and purchase agreement had been entered into.

Key learnings from the Supreme Court's decision

  • A policy of property insurance is personal, and cannot be assigned without the consent of the insurers.
  • The right to receive payment under a policy is freely assignable, as there is nothing personal about the payment of a sum of money. However, the policy may impose restrictions on that right, and policy wording of the type used in Xu – "if you restore your home" – limits the right to recover indemnity plus to restoration by the original policyholders.
  • Different wording may produce a different result: if the policy does not impose a personal obligation on the insured to restore the property but simply grants indemnity plus where restoration is chosen, then the right to choose may be exercised by the purchasers. Insurers should therefore consider whether or not they have any objection to a claim for restoration costs by a purchaser and to draft their wordings accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions