Appeal Court overturns insurer
An insurance company did not have the unrestricted right to determine how it settled a Christchurch earthquake claim, a court has found.
Skyward Aviation 2008 Ltd appealed against a High Court judgment in August last year which ruled Tower, the company that insured a red-zoned Burwood property Skyward owned, could settle the claim by paying the amount equal to the cost of buying a house elsewhere.
Tower's repair settlement of $165,000 was based of the notion that a similar house, excluding land, could be bought for $365,000.
Skyward had also received $291,000 from the Crown purchase of the land and $203,000 from the Earthquake Commission.
Skyward submitted the repair cost was $682,524 - a difference of more than $300,000.
Tower argued it had the right to pay the cost of a comparable house because it was the most economic option available.
In the judgment released last week, the Court of Appeal found Tower reserved the right to either cash settle or reinstate the house and was required to pay only the costs of rebuilding on site.
However, it disagreed with Justice David Gendall's High Court ruling that Tower could decide whether to reinstate on the existing site, rebuild elsewhere or buy another house.
"While accepting that the policy allows Tower to insist on repair in certain situations, we do not accept that it allows Tower to control what happens in every case," the judgment said.
The Court of Appeal also found that the High Court was wrong in stating that any replacement house purchased by the insured had to be comparable to the existing house.
"The policy-holder is not obliged to choose a house of comparable size, construction, condition and style as its existing house once it is agreed that its existing house is damaged and beyond economic repair," it said.
Barrister Kevin Sullivan, who acts for Skyward, said the case was significant because it confirmed Tower could not elect to pay Christchurch claimants based on the cost of buying a comparable house elsewhere.
"This was a new-for-old replacement house policy and the residents whose houses are uneconomic to repair should have the choice to rebuild on site or elsewhere or to buy a replacement house. That should not be dictated to them by Tower," he said.
Insurance lawyer Duncan Webb, a partner at Lane Neave, said the decision was not a "real game-changer" but relevant for claimants with reinstatement policies.
"What is interesting is the overall view of the Court of Appeal, which is . . . If you've promised you're going to do it this way, even if it's expensive and might not be the most efficient, then you've got to stick to your promise," he said.
"I think that principle will be relevant across a whole lot of cases."
Tower chief executive officer David Hancock said the insurer would "fully consider" the judgment before making any comment.