A ‘full and final’ insurance settlement was no bar to a claim for damages after Southern Response misrepresented policy cover following earthquake damage to a Christchurch property.
Karl and Alison Dodds were awarded $178,800 damages after Southern Response misrepresented $894,900 was their maximum entitlement. Southern Response said its payout offer left out contingencies otherwise payable on a rebuild because the Dodds were instead buying a replacement home.
The High Court was told the Dodds’ home at Errol Lane in Huntsbury was considered uneconomic to repair after the series of Christchurch earthquakes. The Dodds were insured with AMI Insurance. Government-funded Southern Response took over AMI’s earthquake liabilities after the insurer was brought to its knees by the magnitude of earthquake claims. Buying a replacement property was an option under the AMI policy. The Dodds took up this option. How much was payable became an issue in the High Court. Under the policy, the payout was not to exceed the cost of rebuilding on the present site; this calculation assumed there would be a notional rebuild of the damaged home. Southern Response said legal rules as then understood for calculation of a notional rebuild saw a deduction for both architect fees and any contingency for increased costs since there was in fact no rebuild being undertaken. A subsequent Supreme Court case stood this understanding on its head; insurers were obliged to pay out these costs even on a notional rebuild.
Southern Response misrepresented the Dodds’ entitlement by omitting the extra $178,800 payable on a notional rebuild, Justice Gendall ruled. Paper work provided to the Dodds emphasised the lower figure; internal Southern Response documentation containing the extra figures was held back. This omission was both a misrepresentation in negotiations over the payout and a breach of the Fair Trading Act.
Southern Response was also in breach of its duty of good faith, Justice Gendall ruled. The AMI policy promised there would be a ‘fair settlement’ of claims. Failing to disclose material facts and misrepresenting the true position was in breach of the policy. It caused the Dodds to settle their claim for less than they were entitled.
The Dodds’ agreement that their $894,900 payout was in ‘full and final’ settlement was not binding. It was not a free bargain. Southern Response misrepresented critical facts. Further, wording of the ‘full and final’ settlement did not absolve Southern Response from breaches of statute. The Dodds’ claimed under the Contract and Commercial Law Act and the Fair Trading Act.
Dodds v. Southern Response Earthquake Services Ltd – High Court (16.08.19)
19.148