14 March 2016

Insurance: Prattley Enterprises v. Vero

The Court of Appeal refused to increase a “full and final” Christchurch earthquake payout of $1.05 million for the loss of iconic Worcester Towers following claims a mistake had been made. 
Worcester Towers at Cathedral Junction is owned by trustees of the late John Britten’s estate.  It housed a motorcycle museum dedicated to his memory.  Tenants in the three-storey brick building included a cinema.  The building was demolished, damaged beyond repair after the neighbouring Christchurch Press building fell into it during the February 2011 earthquake. 
The Court of Appeal was told the trustees settled with insurer Vero for $1.05 million in August 2011 at what they then thought was the extent of Vero’s liability.  They later changed their mind, believing the correct assessment should have been $1.605 million.  They sued, claiming the settlement agreement should be re-opened under the Contractual Mistakes Act.  They alleged both Vero and themselves had made the same mistake: The damaged building should have been valued at market value based on replacement cost.
The trustees had signed an insurance release acknowledging the $1.05 million payment was in full and final settlement.  Compensation can be ordered when any agreement is influenced by a mistake.  But sanctity of contract prevails. The Contractual Mistakes Act rules out compensation where the agreement itself has one side or the other accepting the risk of a mistake.  The Court of Appeal ruled “full and final” agreements are intended to provide closure.  Money is exchanged for peace.  Finality is provided with one side paid, accepting the risk that further claims might later arise, whilst the other having made payment is released from any further obligation.
Prattley Enterprises v. Vero – Court of Appeal (14.03.16)

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