The elephant in the room: when does full and final settlement mean exactly that? Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 262

In Sneesby v Southern Response,1 the High Court held that a settlement agreement was a bar to a new claim by the policyholder against Southern Response. This was in respect of alleged misrepresentations when settling the earthquake claim. Kiri Harkess looks at why Associate Judge Lester arrived at a different conclusion on this issue to that of Justice Gendall in Dodds v Southern Response.2

Sneesby


Mr Sneesby sought leave to bring a representative action against Southern Response (SR) on behalf of 7,500-9,500 potential claimants for misrepresenting the cost of repairing “Out of Scope” (OOS) items in his earthquake claim settlement. The Court declined Mr Sneesby’s application because his settlement with SR excluded his new claim and meant he was not a suitable representative plaintiff. The Court can decline leave to bring plainly meritless claims as representative actions.3

Mr Sneesby’s claim for damage to his dwelling was under the EQC Cap, but SR insured him for earthquake damage to OOS items (commonly fences, driveways, paving and swimming pools). In 2014, prior to the Avonside Holdings appellate judgments,4 Mr Sneesby cash settled his OOS claim for the sum of $29,588.70. This was based on a scope of works that omitted amounts for P&G, contingency, margin, and professional/design fees, totaling around $6,213. Mr Sneesby relied on Avonside Holdings and Dodds as the basis for a representative action against SR for misrepresenting his OOS entitlements under the policy.

Mr Sneesby’s OOS cash settlement included a full and final settlement clause. Sensibly, SR did not argue that this barred Mr Sneesby’s new claim. Instead, it pointed to a 2017 settlement between Mr Sneesby, EQC and SR, resolving proceedings brought by Mr Sneesby regarding his policy entitlements. The proceedings referred to the OOS claim and its settlement, and sought relief in relation to that agreement, amongst other issues. SR relied on the full and final settlement clauses in its 2017 settlement agreement with Mr Sneesby, which provided that:

    1. The Discontinuance and Costs Settlement are accepted by Southern Response in full and final settlement and discharge of any claims the Plaintiff and Southern Response have or might have against the other arising directly or indirectly out of, or in connection with the Events, Discontinuance, Proceeding and/or the Policies and/or the loss or damage to the Insured Property, whether such claims arise under contract, statute, common law, or equity; are in existence now or may arise sometime in the future; are known or unknown; and/or are in the contemplation of the Parties or otherwise; and/or arise following a subsequent Court decision that states the law in a way different to the understanding of one or more parties to this Agreement.
      1. Except on the basis that the terms of the Settlement Agreement are breached, this Agreement may be pleaded by Southern Response as an absolute bar to any further or other claim arising directly or indirectly out of the Events, the Claim, the Dispute or the Proceeding.

The question for the High Court was whether the parties intended the 2017 settlement agreement to bar Mr Sneesby’s then unknown claim for SR’s misrepresentation of his OOS entitlements. Associate Judge Lester concluded that they did. Mr Sneesby’s OOS claim and settlement was part of the dispute being settled by the 2017 agreement. Clause 14 demonstrated that the parties intended the settlement to be absolute in relation to any further or other claim arising directly or indirectly out of the earthquakes, the claim, the dispute and the proceeding. The settlement clause was drawn widely to include unknown claims. There was no basis to exclude the OOS claim from its scope because the parties would have done so expressly if that was their intent, as they had done with Mr Sneesby’s EQC claim

Mr Sneesby’s intended claim as the representative plaintiff therefore met the Court of Appeal’s test of a “plainly meritless” claim and his application was declined. Associate Judge Lester also made observations on other criteria for granting leave, which indicate that OOS claims generally may not be suitable for a representative action.5

Dodds


In Dodds v Southern Response Justice Gendall held that a full and final settlement clause between the Dodds and SR did not prevent new claims by the Dodds for damages arising out of SR’s conduct in settling their original insurance claim. This was despite the wide ambit of the settlement clause, albeit narrower than Mr Sneesby’s:

… the policyholder accepts the settlement payment, with Southern Response arranging demolition and debris removal as described in clause 7, in full and final settlement and discharge of the claims under the policy for damage to the insured property and in respect of any complaint, claim or right of action the policyholder has or may have against Southern Response, whether known or unknown, which arises directly or indirectly out of the events or any subsequent aftershock that has occurred before the date of Agreement.

Gendall J said the Dodds’ new claims against SR for misrepresentation and misleading conduct, non-disclosure of material information and failure to act fairly and transparently in resolving the Dodds’ insurance claim were not claims for “damage to the insured property” and therefore not within the scope of the clause. The Dodds’ new claims were also brought in statute, under the Fair Trading Act 1986 and Contract and Commercial Law Act 2017, not under the policy (except for breach of the implied duty of good faith). Their new claims did not directly or indirectly arise out of the earthquakes, as the earthquakes did not cause SR to make the misrepresentations or mislead the Dodds when settling their claim. The earthquakes were merely context. Gendall J concluded that the proper interpretation was that the parties intended to settle the Dodds’ claims for property damage under the policy and did not intend to settle any claims for misrepresentation or misleading and deceptive conduct. Further, SR could not contract out of liability for breach s 9 FTA and it had not expressly excluded liability for misrepresentations under the CCLA.6 Therefore, the full and final settlement clauses did not prevent the Dodds from pursuing a claim for damages in respect of SR’s misrepresentations, which ultimately succeeded.

[SR appealed but did not challenge the High Court judgment in respect of the settlement agreement. Read our article on the Court of Appeal judgment here.]

FibreTech


Although not referred to in Sneesby v Southern Response, Justice Nation recently issued judgment on a similar issue in FibreTech v Vero Insurance,7 which Peter Hunt and Lourenzo Fernandez wrote about here.

FibreTech unsuccessfully argued that a wide full and final settlement clause did not bar it from pursuing a new claim against Vero for recovery of premiums paid under separate contracts of insurance entered into after the 2011 earthquake. The settlement clause resolved the dispute over the insured’s earthquake entitlements and any claim against Vero arising directly or indirectly out of or in connection with [the earthquake], [the earthquake losses], [the Claim] and/or the Policy. Both the District Court and the High Court concluded on appeal that FibreTech’s claim for recovery of the premiums was a claim arising directly or indirectly out of or in connection with the Policy. The premiums were clearly connected to the Policy. But for the earthquake damage and cover, FibreTech would not have had a claim for recovery of the premium. Its new claim was therefore within the scope of the settlement clause.8

Comment


Dodds v Southern Response, Sneesby v Southern Response and FibreTech v Vero Insurance illustrate that whether a prior full and final settlement clause is an effective defence to further claims depends very much on whether the claimant can establish a causal connection between the subject matter of the settlement, and the subsequent dispute. In Dodds v Southern Response, there was insufficient causal connection. The fact of the earthquake and damage was merely background context to the Dodds’ misrepresentation claim, not an element of it. In contrast, in Sneesby v Southern Response, the OOS claim was directly in issue in the High Court proceedings, the subject of the settlement. In FibreTech v Vero Insurance, the insured elected to settle on terms which extended the scope of the settlement beyond the immediate dispute. This included any unknown claims in connection with his policy, and FibreTech was held to that bargain.


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


  1. Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 262.
  2. Dodds v Southern Response Earthquake Services [2019] NZHC 2016, [2019] 3 NZLR 826.
  3. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018 2 NZLR 312 at [16].
  4. Avonside Holdings Ltd v Southern Response Earthquake Services [2014] NZCA 483; Southern Response Earthquake Services [2015] NZSC 110, [2017] 1 NZLR 141.
  5. Sneesby at [52]-[64].
  6. Dodds (HC) at [189]-[197].
  7. FibreTech Holdings Ltd v Vero Insurance New Zealand Ltd [2021] NZHC 3104.
  8. FibreTech at [45]-[48].

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.