The
High Court provided no help at all to Christchurch businesses trying to
establish whether insurance cover continued between multiple earthquakes which
severely damaged the city in 2010 and 2011.
A clause in insurance policies providing automatic reinstatement of
cover was not read as being “automatic”: it depended on the circumstances.
Wild South Holdings
and Maxims Fashions which each own commercial buildings in Christchurch insured
with QBE Insurance asked the High Court to rule on the interpretation of their
insurance contracts. In particular, they
wanted a ruling on whether their policies ran on after each of the large quakes
in September 2010, February 2011 and June 2011.
They had deliberately underinsured their buildings. If the policies did not expire, but ran on after
each earthquake, multiple claims would be possible following each successive
earthquake.
The insurance
contracts held by both Wild South and Maxim said insurance cover was
automatically reinstated in the event of any insured loss, in the absence of
written notice from QBE to the contrary.
Justice Fogarty said
the wording of commercial contracts is to be interpreted in a dictionary
sense. In this case, insurance cover did
extend to more than one loss or event but only for an aggregate loss up to the
sum insured.
Justice Fogarty took
the view that the commercial reason QBE had a contractual right to cancel
“automatic” reinstatement was to give the insurer a chance to assess its
ongoing level of risk after the first claim and decide whether to cancel
outright or offer further cover on amended terms.
The insurance policies
before the court did not specify a period within which this assessment should
be made. This left Wild South and Maxims
in the vulnerable position of not knowing whether their cover continued on
through subsequent earthquakes.
Justice Fogarty
interpreted policy wording on reinstatement of cover as giving QBE a reasonable
time within which to give written notice overturning the supposedly automatic
reinstatement of cover. He did not
accept QBE’s argument for a general rule that insurers had up to the assessment
and payment of any prior claim to make its assessment whether to give notice.
He said factual
evidence was required before the court could assess at what point it was too
late for QBE to give notice cancelling cover in these two cases. The court was told QBE had not given notice
by the date of the court hearing.
The replacement cost
of both Maxim’s and Wild South’s buildings was said to be in excess of eight
million dollars each. Maxim held
aggregate cover of $3.6 million and Wild South $3.04 million. At the time of the court hearing, each had
been paid some $1.5 million by QBE. In
both cases, it was disputed as to whether these payments were final
settlements.
Wild
South v. QBE Insurance – High Court (23.10.13)
13.033