Insurers
have an obligation of good faith during the claims process to make full
disclosure of all relevant information ruled the High Court when awarding nominal
damages of $5000 against Tower Insurance for its failure to disclose a
contractor’s report recommending rebuilding a Christchurch earthquake-damaged
house.
The McAra Young Trust owns a four level home
on a step section in Craigieburn Lane, Mt Pleasant insured with Tower for full
replacement value. Occupied by the Young
family, it was designed by their architect father Greg Young. The High Court was told of heated and
protracted negotiations between Mr Young and Tower following extensive damage
after the massive February 2011 earthquake.
Mr Young said a rebuild was required; Tower would settle for repair
only. Justice Gendall ordered a rebuild
costed at an upper price limit of $1.62 million.
Structural damage included foundations
settling in one corner with parts of the house pivoting up to 20mm out of true
as the structure twisted away from part of the foundation built into rock. Floors were out of level by up to 75mm with
internal walls out of plumb and cracking in structural bracing walls. Tower proposed attaching cables to bedrock
near the house and winching the building back into position while replacing damaged
foundations to re-level the structure.
Mr Young was horrified, taking the view this was an untried repair method
likely to cause even more damage.
Justice Gendall ruled the proposed repair
did not comply with terms of Mr Young’s Tower insurance contract. In any repair, Tower is obliged to use
“construction methods commonly used at the time of loss or damage”. This clause saves insurers from having to
risk attempts at novel or revolutionary methods when making good accidental
damage. In this case, the repair clause
operated against Tower. Winching a
damaged house back into position on a steeply-sloping section was a novel and
untried method of repair. Since the
proposed method of repair does not comply with the policy, the only proper
conclusion is that the damage is not repairable and the house must be rebuilt,
Justice Gendall said.
An initial assessment given to Tower’s
project manager in mid-2011 stated the house should be rebuilt. Mr Young alleged this report was deliberately
withheld from him, being disclosed accidentally by Tower’s project manager
three years later during a period of acrimonious exchanges between Mr Young and
Tower over the manner of any repair and the need for a rebuild. Tower said it also was unaware of the initial
report; it had not been provided with a copy by its project manager.
Tower’s project manager was an
independent contractor but was acting as agent for Tower and accordingly Tower
is responsible for its agent’s failure to properly disclose the report, His
Honour said.
Young
v. Tower Insurance – High Court (7.12.16)
17.006