Evans v IAG New Zealand Limited [2020] NZHC 1326

The purpose of the Earthquake Tribunal is to provide an alternative path to resolve insurance disputes between policyholders, insurers and EQC that is “speedy, flexible and cost effective”. When a question of law arises, the Tribunal may refer that question to the High Court for its opinion, following which, the Tribunal must continue the hearing in accordance with that opinion.1

Evans applied to the Tribunal to compel IAG to pay the cost of remedying defective repairs on the grounds that IAG’s policy obligations were not discharged until the house had been repaired to the policy standard. This was despite Evans contracting directly with the building company, and IAG making payments for the repairs upon presentation of invoices by Hawkins during a managed repair process.

Where there is a valid election by an insurer to reinstate, the contract of insurance becomes enforceable as a building or repair contract, giving the insurer the opportunity to make good the insured’s loss by taking direct control of the reinstatement work itself. The insurer is liable for damages if the repair contract is performed inadequately.2

However, there is no direct authority on the issue of whether an insurer who has elected to pay the cost of repairing a house is also liable for the costs required to remedy any defective repairs.

The 1995 Australian NSW Supreme Court case University of Newcastle3 favours imposition of liability in such circumstances and has led to much discussion and criticism. It is authority for the principle that an insurer who has provided an indemnity is liable for any subsequent events that increase the insured’s loss. In other words, the insurer remains liable for the defective building work.

Given the lack of certainty around the law in New Zealand on this issue, the Tribunal in Evans referred it to the High Court for determination.

Insurers and policyholders alike, waited in anticipation for this issue to finally be put to rest. Unfortunately, the High Court declined to answer the question stating “the answer … may be that it is not possible to answer the question in the form posed”. The Court held that a number of issues on which liability would turn were fact-based and would need to be resolved by the Tribunal itself. The Court did however provide limited guidance by stating:

  • Post-contractual conduct of the parties would be a relevant consideration as an aid to policy interpretation such as the claims administration process (alongside the text, document and prior negotiations) in order to properly colour the factual background and context for an objective assessment of the meaning of the policy.

It is debatable whether the parties‘ post-contractual/post-claim conduct is relevant, impacting on the interpretation of the policy and the insurer’s promise to pay the reasonable costs incurred by the insured and, in particular, whether this promise also includes the costs of rectifying defective repair work. It seems far from clear that the parties would have applied their minds at the inception of the policy to the claims management procedures that would be implemented after a catastrophic event some 15 years later.

“Although Evans declined to deal with the issue, we understand the High Court has recently heard another case on the question of whether a policy responds to defective repairs. We hope this will provide much needed clarity on the issue. Watch this space!”

If you would like to know more about the issues arising in this judgment, please contact Kiri Harkess

  1. Section 53 of the Earthquake Insurance Tribunal Act.
  2. Bruce v IAG New Zealand Ltd [2018] NZHC at [17] and [168].
  3. University of Newcastle v GIO General Ltd (1995) 8 ANZ Insurance Cases (NSWSC).

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