Southern Response Earthquake Services Limited v Dodds [2020] NZCA 395, 7 September 2020
- Court
- Court of Appeal
- Judgment
- 7 September 2020
- Neutral
- [2020] NZCA 395
Areas of law
Judgment analysis
AI-generated summary
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Facts
The respondents' house was damaged beyond economic repair in the 2010/2011 Canterbury earthquakes. Their insurance policy with Southern Response provided a 'Buy Another House' option, where the insurer would pay the cost of buying another house, capped at the cost of 'rebuilding your house on its present site'. To quantify this cap, Southern Response provided the Dodds with an 'Abridged Detailed Repair/Rebuild Analysis' (Abridged DRA) prepared by Arrow International Ltd, which showed a rebuild cost of $895,937.78. Southern Response represented this figure as the maximum amount available under the 'Buy Another House' option. The Dodds elected this option and entered into a Settlement Agreement on this basis. They later discovered, through a Privacy Act request, that Southern Response held a 'Complete DRA' which contained an additional 'AMI Office Use' section. This section included further estimated costs for rebuilding, such as professional fees and contingencies, amounting to approximately $205,000 more than the figure in the Abridged DRA. Southern Response had intentionally not disclosed this information, holding a good faith but incorrect view that these costs were not relevant to the cap for the 'Buy Another House' option. The respondents sued for the difference, alleging misrepresentation, misleading and deceptive conduct under the Fair Trading Act 1986, and breach of a duty of good faith. The High Court found Southern Response liable for misrepresentation and breach of the FTA.
Held
- An insurer who makes unqualified, absolute statements to a consumer insured about their policy entitlement based on an incomplete version of an expert report makes actionable misrepresentations of fact (that the report is complete and represents the insurer's full estimate) and of law/mixed fact and law (about the policy entitlement) under the CCLA if those statements are incorrect.
- Providing an abridged expert report while withholding a more comprehensive version containing higher cost estimates, and representing the abridged version as the complete basis for a settlement offer, constitutes misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986.
- The loss suffered by an insured who is induced by such misrepresentations to settle their claim is the difference between the true value of their rights under the policy (as would be calculated with the complete information) and the lower sum they were persuaded to accept. This loss is recoverable as damages.
- To establish inducement, the insured need only show that the misrepresentations were a material factor in their decision to enter the specific settlement agreement at the offered figure; they are not required to speculate on what alternative course they would have taken had correct information been provided.
The appeal is allowed in part. The damages awarded to the respondents in the High Court are reduced by $10,656.44. The appeal is otherwise dismissed. The cross-appeal is dismissed.
Key passages3
To determine if there has been a misrepresentation of fact, the enquiry is what a reasonable person would have understood from the words in all the circumstances. Relevant factors include the transaction's nature, parties' knowledge, their relative positions, and the words used.
“[11] Whether there has been a misrepresentation of fact is not determined merely by considering the literal meaning of the words used without regard to the context. The enquiry is what a reasonable person would have understood from those words in all the circumstances. Relevant considerations will often include the nature and subject-matter of the transaction, the respective knowledge of the parties, their relative positions and the words used. Where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion, it will generally have to accept the consequences of being wrong. However, each case will ultimately turn on its own facts.”
It is doubtful that the old common law rule that statements of law could not amount to misrepresentations remains good law, following English developments holding the distinction between statements of law and fact is no longer maintainable for misrepresentation.
“[132] ...it was held in Pankhania v HackneyLBC that the “misrepresentation of law” rule is no longer good law. Thus, for the purposes of the law of misrepresentation, the distinction between statements of law and statements of fact is no longer maintainable and that even an incorrect statement of an abstract proposition of law may amount to a misrepresentation unless it is apparent that all that is being offered is an opinion without implication that the speaker has reasonable grounds for that opinion.”
Statements made by an insurer about entitlements under its policies, where it is not apparent that only an opinion is being offered and where it is reasonable for the insured to rely on the statement's correctness, qualify as representations for the purposes of s 35 of the CCLA.
“[133] For present purposes, however, it is sufficient for us to say that the statements made by Southern Response about entitlements under policies issued by it, in circumstances where it is not apparent that all that is being offered is an opinion, and where it is reasonable for the representee to rely upon the correctness of the statement, qualify as representations for the purposes of s 35 of the CCLA.”
Cases mentioned in judgment
Legislation mentioned
- Fair Trading Act 1986, s 9, s 13, s 43
- Contract and Commercial Law Act 2017, s 35
- Privacy Act 1993
- High Court Rules 2016, r 11.10
- Interest on Money Claims Act 2016
- Consumer Guarantees Act 1993