Split 3:2, the Supreme Court denied Ruiren Xu’s claim demanding IAG Insurance pay replacement cost on an earthquake-damaged Christchurch property purchased ‘as is’. A full scale legal assault on a thirty year principle of insurance law failed; resulting in a harsh outcome for property owners said the minority.
The Barlow family claimed against their IAG policy after Canterbury’s earthquakes, selling their damaged Wainoni home in December 2014 ‘as is’ with their claim still unresolved. As part of the deal, their insurance rights against IAG were assigned to the purchaser.
While contractually obliged to pay replacement cost to the Barlows, IAG refused to pay replacement cost to the purchaser. The principle enshrined in Bryant v. Primary Industries, a thirty year old Court of Appeal case applied it said: cover is for the named policy-holder; after a loss has occurred, someone else cannot retrospectively claim replacement cover.
Two judges in the Supreme Court criticised this thirty year old case, saying it was wrongly decided and not relevant. It was poorly reasoned they said, applying case law about indemnity insurance contracts which had no relevance to a case about replacement cover. It was also an economic issue they said. Premiums were priced on the basis that replacement cover was promised; it should make no difference who was claiming as owner of the property. Application of the thirty year rule in these cases amounted to a windfall for insurers and perpetrated a harsh outcome for property owners, they said.
Three judges in the Supreme Court ruled the specific wording of the IAG policy was critical; wording required the Barlows as policy holder to bear the cost of reinstatement and then seek reimbursement. When selling they made it clear they had no intention of bearing repair costs. Bryant still applied, they said. Entitlement to replacement benefits conditional on reinstatement by the insured cannot be assigned where no reinstatement has occurred, the majority said.
Xu v. IAG Insurance Ltd – Supreme Court (3.07.19)
19.124