Young v Tower Insurance Ltd [2016] NZHC 2956, 7 December 2016
- Court
- High Court
- Judgment
- 7 December 2016
- Neutral
- [2016] NZHC 2956
Areas of law
Judgment analysis
AI-generated summary
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Facts
The plaintiffs' four-level house, situated on a steep hill in Mt Pleasant, Christchurch, was significantly damaged during the Canterbury earthquake sequence of 2010-2011, particularly the February 2011 event. A claim was lodged with the insurer, Tower. A major dispute arose as to whether the house was repairable, as Tower contended, or required a full rebuild, as the plaintiffs argued. Tower proposed a specific repair strategy developed by its engineer, Mr. Sinclair, which involved installing new micropile foundations and using a cable and winch system to pull the upper levels of the house horizontally back into alignment. The plaintiffs challenged this method as novel, untried, and non-compliant with the policy. The relationship between the parties deteriorated significantly over the five-year period leading to the trial, with allegations of bad faith, expert shopping, and unprofessional conduct from both sides. The plaintiffs also claimed Tower had made an election to cash settle and sought exemplary and general damages for Tower's handling of the claim.
Held
- A proposal to repair a multi-level house on a steep, sloping site by winching the structure horizontally is a novel and largely untried method, and therefore is not a 'construction method commonly used' as required by the insurance policy.
- Where the only repair strategy advanced by an insurer is non-compliant with the policy's requirement to use 'commonly used construction methods', the house is not repairable in terms of the policy and must be considered a rebuild.
- An insurer has an implied contractual duty of good faith which includes an obligation to disclose all material information it knows or ought to know. Failure by an insurer's agent to disclose a relevant expert report constitutes a breach of this duty by the insurer.
- Exemplary damages cannot be awarded for a breach of an insurance contract in New Zealand.
Orders
A declaration is made that the plaintiffs’ house is beyond economic repair and is regarded as a rebuild. The maximum amount payable by Tower is $1,620,887. The defendant is to pay reasonable temporary accommodation costs up to $25,000 and general damages of $5,000.
Key passages5
The text of an insurance contract remains centrally important to its interpretation, but the wider context, including the contract as a whole and relevant background, informs meaning.
“[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning that will be a powerful, albeit not conclusive, indicator of what the parties meant.”
The purpose of a 'commonly used' construction method clause is not only to limit costs for the insurer but also to provide protection for insureds that their home is not put at risk by an unusual or untried construction repair method.
“The real purpose of that “commonly used” requirement, in the defendant’s standard form insurance policy, must be not only to limit costs to the insurer... but also to provide a measure of protection for insureds that their residential home... is not to be put at risk by an unusual or untried construction repair method which might not work at the time or later, with all that entails.”
Exemplary damages for breach of contract are not permitted in New Zealand.
“[148] It follows that exemplary damages awarded in the context of a contractual breach are not available in New Zealand.”
A duty of good faith on the part of the insurer is implied in every insurance contract.
“[163] With all these matters in mind, I therefore find that a duty of good faith on the part of the insurer is implied in every insurance contract. It must, as I see it, be a necessary incident of these contracts (long said to be contracts of utmost good faith) and an obligation that flows both ways. To suggest otherwise would make no sense.”
The implied duty of good faith requires an insurer, at a bare minimum, to disclose all material information, act reasonably, fairly and transparently, and process the claim in a reasonable time.
“[163] ...I find, as a bare minimum, that the duty requires the insurer to: (a) disclose all material information that the insurer knows or ought to have known... (b) act reasonably, fairly and transparently... and (c) process the claim in a reasonable time.”
Cases mentioned in judgment
Legislation mentioned
- Building Act, Not specified
- New Zealand Building Code Clauses (NZS 3604), Not specified
- Consumer Guarantees Act 1993, s 30