Statements
by Tower Insurance that it would always act reasonably when dealing with
clients were quickly dismissed by the Court of Appeal. Tower could not override terms of a
replacement insurance policy covering a Christchurch earthquake-damaged
property just to suit its own economic imperitaves.
Tower Insurance and
Christchurch property owner, Skyward Aviation 2008 Ltd were over $300,000 apart
in their assessments of compensation payable after Skyward’s property in
Burwood was red-zoned following the 2010 and 2011 earthquakes. Skyward was covered by Tower’s Provider House (Maxi Protection) Policy.
The court was told
Skyward had full replacement cover for a villa constructed in the early
1900s. After it was red-zoned, Skyward
accepted government’s general offer for the value of the land alone and elected
to recover the value of the villa by claiming from Tower on its replacement
insurance.
Tower said Skyward was
entitled to no more than the market value of the property prior to the
earthquake. This money could be used to
buy a replacement home elsewhere.
Payment of a higher sum would amount to a windfall gain for Skyward.
Skyward said it was
entitled to the amount required to rebuild elsewhere to current regulatory
standards – a difference of over $300,000 from Tower’s offer.
The Court of Appeal
ruled in favour of Skyward. Wording of
the insurance policy promised full replacement cover: new for old. This is the agreement Tower entered into. Tower could not complain that this could
result in a policy holder finishing up with a better property than they
started.
Policy wording gave
Tower a discretion whether to repair, rebuild or replace – but this discretion
did not apply in all instances. If the
house was not economically repairable, Tower had no right to choose; policy
wording then allowed Skyward to decide.
Skyward was within its rights to demand the money equivalent of “new for
old” and to use this money to purchase any house of its choice.
Tower had tried to
argue that if there was any disagreement between Skyward and itself over
estimated “new for old” costs then Tower could simply pay pre-earthquake market
value of the property and leave it at that.
The Court of Appeal
said that while insurers can be expected to look for the most economic outcome
the terms of the insurance contract are paramount.
Skyward
Aviation v. Tower Insurance – Court of Appeal (20.3.14)
14.011