Context is Everything: An insurer’s unqualified and wrong statements about policy entitlements lead to liability for misrepresentations and misleading and deceptive conduct

Key Points

  • An insurer’s statements to insureds about policy interpretation or entitlements may be misrepresentations if the insurer does not make it clear that all that is being offered is an opinion, and the insured has or is provided with sufficient information to understand that the insurer’s opinion is contestable
  • Restitutionary damages are appropriate under the CCLA where the insurer understates the value of the Claim


The Dodds owned a house damaged by the 2010/2011 Canterbury earthquake sequence. Southern Response Earthquake Services Ltd (Southern Response) (formerly AMI) insured the house which was a total loss. Under their replacement policy, the Dodds could elect to settle their claim by the “Buy Another House” option and Southern Response would pay the cost of buying the other house, capped at the cost of “rebuilding your house on its present site.”

The Dodds cash settled their claim with Southern Response based on a “Detailed Repair/Rebuild Analysis” (DRA) for a notional rebuild of the insured house, prepared by Arrow International Ltd for Southern Response. The DRA provided to the Dodds by Southern Response was an abridged version excluding approximately $205,000 costs relating to demolition, professional fees and contingencies. Southern Response excluded these costs from the DRA because it held the honest view that they were not indemnifiable under the “Buy Another House” option because it would not actually incur the costs in a notional rebuild. The Dodds were not aware Southern Response had excluded any costs or that Southern Response had an alternative DRA with a higher estimate of rebuild costs.

After the Dodds and Southern Response settled, the Court of Appeal issued judgment in Avonside Holdings Ltd, holding that the excluded costs were relevant to determining the cost of a notional rebuild.1 The Supreme Court upheld this decision.2 Southern Response maintained it had settled with the Dodds (and others) based on a genuine view of their entitlements under the policies, and there was no reason to reopen the settlement.

The Dodds sued Southern Response for misrepresentation under the Contract and Commercial Law Act 2017 (CCLA), breach of the Fair Trading Act 1986 (FTA) and breach of a duty of good faith owed to them by Southern Response.

High Court

The High Court found for the Dodds.3 Gendall J held that Southern Response’s representation in the DRA about the estimated cost of rebuilding the house on its present site was false and that Southern Response implicitly represented to the Dodds that the DRA was the complete and only report it had on the cost to rebuild their house. Southern Response’s misrepresentations induced the Dodds’ entry into the settlement agreement and breached the FTA, causing them loss.

Gendall J said the duty of good faith must be implied as a term of every insurance contract. At claim time, this requires the insurer to disclose all material information relating to formation of the contract and after lodgement of a claim, act reasonably, fairly and transparently, and process the claim in a reasonable time.4 Southern Response had breached this duty by withholding information from the Dodds.

The High Court awarded the Dodds damages of $205,000, being the difference between the estimated costs in the two DRAs. It declined to award general damages.

Court of Appeal

Southern Response appealed the High Court’s findings that it was liable under the CCLA and FTA. The Dodds sought to uphold the judgment on the basis of breach of the duty of good faith and cross-appealed the general damages finding. The Court of Appeal agreed with the High Court on all points.


The Court of Appeal stated the meaning of a representation is determined by what a reasonable person would have understood from the words, considered in context and in all the circumstances. Circumstances relevant to meaning include the respective knowledge of the parties, their relative positions and the words used.5 A party with superior knowledge who makes an unqualified representation will generally have to accept the consequences of being wrong.6

The Court of Appeal found three misrepresentations. First, the Southern Response rebuild estimate was $895,000. Second, the abridged DRA was the only relevant estimate of rebuild costs that Southern Response had received. Third, that the Southern Response estimate of $895,000 was their maximum entitlement under the policy if they chose the Buy Another House option.

The Court rejected Southern Response’s argument that it was not liable because its representations were reasonably and honestly held opinions of the Dodds’ policy entitlements. The Court said that if an insurer dealing with consumers makes absolute statements which are subsequently proven to be wrong then the insurer is exposed to liability. To avoid that exposure the insurer should make it clear it is expressing an opinion, the matter is not clear cut and the insured should be given information to understand other approaches are arguable. This applies to representations about both law and fact.

The Court of Appeal also held Southern Response’s representations were misleading and deceptive conduct under s 9 FTA. Statements about contractual rights, including incorrect statements about the effect of an insurance policy,7 can amount to misleading and deceptive conduct for the purposes ss 9 and 13 FTA. Southern Response’s conduct was an effective cause of the Dodds’ loss or damage.8


The High Court awarded the Dodds the same relief for both causes of action, assessing the measure of damages as being the value of the rights the Dodds surrendered by entering into the settlement agreement with Southern Response ($205,000). The Court of Appeal confirmed this approach.9

Damages under s 43 FTA are based on the tort measure, even where the representation induces the claimant into a contract.10 The Dodds did not have to prove they would have entered into a different agreement. It was enough to show that it was likely that they would not have entered into the particular agreement surrendering their rights to the $205,000.11

Under the CCLA, the Court applied the restitutionary approach focusing on the transfer of value from the Dodds to Southern Response as a result of its wrong.12 The Dodds received less than their entitlement under the policy so Southern Response should pay the difference between what they received and the value of their rights under the policy.

Good faith

Unfortunately the Court did not deal with this other than to observe, contrary to Gendall J’s decision, that not every insurance contract will have an implied term of good faith that applies to all aspects of the parties’ dealings in connection with the contract. It said post-contractual good faith obligations are context specific but that does not give any guidance on this uncertain area of law.13


As the Court of Appeal said, context is everything. This decision sounds a warning to insurers to be extremely careful in presenting their positions on policy entitlement and policy interpretation to insureds when negotiating settlement of a claim, particularly in the consumer space. Where the insurer’s position is contestable, it is important to convey clearly and unequivocally to the insured that the insurer is stating their view or opinion of policy entitlements. It may not be enough simply to recommend the insured take independent technical and legal advice.

Although the Dodds and Southern Response have settled their dispute, this judgment will affect other claimants, including the proposed class action. We expect to see an application for leave to appeal. It will be interesting to see if the Supreme Court considers the post-contract good faith cause of action, particularly given the recent Taylor14 decision.

Please contact Peter Hunt or Kiri Harkess for more information about this case.

  1. Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2014] NZCA 483
  2. Southern Response Earthquake Services Ltd v Avonside Holdings Ltd [2015] NZSC 110 [2017] 1 NZLR 141
  3. Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016
  4. Dodds (HC) at [64]
  5. Dodds (CA) at [114] citing Ridgway v Empire Ltd v Grant [2019] NZCA (2019) 20 NZCPR 236
  6. At [129]
  7. Clifton-Mogg v National Bank of New Zealand Ltd (2001) 10 TCLR 213 (HC)
  8. Dodds (CA) at [160]-[165]
  9. At [166]
  10. At [173] confirming Cox v Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA)
  11. At [175]
  12. At [183]
  13. At [194]
  14. Taylor v Asteron Life Ltd [2020] NZCA 354

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