Pearce v Toka Tū Ake Natural Hazards Commission [2025] NZHC 623

The plaintiffs’ property was damaged in the Canterbury Earthquake Sequence. The plaintiffs held insurance for their property with Medical Insurance Society Limited (MIS) at the relevant time (Policy). The Policy provided that:

This cover extends the Policy to include loss or damage by earthquake… as follows:

Where the Insured Property is covered under the Act then, to the extent that the loss or damage exceeds the liability of the Commission under the Act, the Society will pay the difference between that liability and the maximum amount payable under this Policy.

The EQC Act provided cover against natural disaster damage for residential buildings insured for fire for up to $100,000 per dwelling. Section 30 of the EQC Act provided that where the homeowner has top-up insurance, that insurance is deemed to be structured to cover the additional loss not covered because of the cap on the statutory cover.

The Earthquake Commission (EQC) initially considered the plaintiffs’ claim undercap (i.e. that repair costs would fall within statutory cap). In April 2022, while EQC was reassessing the claim, MIS advised the plaintiffs that any claim against it was now time-barred. EQC then advised the plaintiffs and MIS that it considered the claim was “overcap” in November 2022.

The plaintiffs filed an application in the Canterbury Earthquake Insurance Tribunal (Tribunal) asserting that MIS had wrongly declined their claim as time-barred. The Tribunal referred the issue to the High Court at the request of the parties.

Limitation

MIS argued that section 11(1) of the Limitation Act 2010 applied to the plaintiff’s claim as it is a money claim filed at least 6 years after the date of the act or omission on which the claim is based and the limitation period will generally commence on the date of the insured peril in claims for property damage (as that is when the insurer’s obligation to pay is triggered).

This was the focus of the Court’s analysis. It found that the “top-up” cover provided by MIS is insurance structured to provide cover for the additional loss not covered because of the statutory cap. So there was a need to first establish EQC’s liability before MIS would become liable. MIS’ liability is contingent until that point. Applying Doig v Tower Insurance Limited¹, the Court found that the MIS’ obligation to pay was not triggered until EQC made the full extent of its payment, that is, it was not triggered until November 2022 in this case.

Given this finding, the Court did not have to contend with the “orthodox” position on liability in relation to insurance contracts which provides that the contract is a promise to hold the indemnified person harmless and any harm that occurs is a breach of the insurance contract.²

However, the Court did state that if required, it would have found that the orthodox position had no application in New Zealand as “they stem from a legal fiction which has no place in New Zealand”. In reaching this view, it cited criticism from Justice Campbell and some New Zealand case authority arguing that the insurer’s breach of its obligation occurs when it fails to pay the amount due at the proper time, not at the occurrence of the peril.

Duty of good faith

Separately, the plaintiffs also argued that MIS had breached its duty of utmost good faith when it attempted to decline the claim on the basis that it was time-barred. The Court agreed with MIS’ submissions that the duty of good faith did not prevent the insurer from disputing a claim.³ If the insurer has a limitation defence it is free to advance it and to signal its intention to rely on it before any litigation is issued.

The contingent nature of insurers’ liability for residential property in New Zealand led the Court to a ruling contrary to the “orthodox” position.  It remains to be seen whether the Court’s obiter comments against the orthodox position will lead to a shift away from those principles in any other context. In our view that is likely as that position is based on a legal fiction that has little support either in the policy or at law.

Unfortunately, this does mean that insurers could be left in the dark as to potential liability as a subsequent challenge to an EQC determination could occur many years after the insured peril and lengthy delays (as in this case).

1. 1. [2019] NZCA 107.
   2. The Court cited the judgment of Lord Goff in Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 for the origin of this principle.
   3. Citing IAG New Zealand Ltd v Degen [2024] NZHC 397.

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