Respected insurance law authority Professor Rob Merkin has criticised the New Zealand Appeal Court’s decisions in a trio of earthquake cases, saying “I don’t know which is worse”.

Appeal Court Justices John Wild, Christine French and Forrest Miller heard QBE v Wild South Holdings and Maxims Fashions; Peter and Eunice Marriott v Vero; and Crystal Imports v Lloyd’s underwriters and Sirius International together.

Prof Merkin, a special counsel with DLA Phillips Fox in Auckland, told the NZILA conference the cases were “a heady cocktail of problems therefore it’s no surprise people are confused”.

But he said it seemed the result was “a situation where if you pay one premium and have successive losses, you get the lot. If you have automatic reinstatement and pay more premium for that, you don’t”.

Justice Forrest Miller’s judgement said the policies at issue in the appeals all concerned commercial buildings. Each policy provided full replacement cover subject to a sum insured, and each provided for annual aggregate with automatic reinstatement of cover upon loss. One policy was renewed between earthquakes. 

The successive losses raised two distinct questions which divided the owners and their insurers: what was the limit of an insurer’s liability in the circumstances and for what losses may an insured claim indemnity?

He said the three issues at the heart of the appeals were:

• What do the automatic reinstatement clauses mean; in particular, is cover continuous, or does it reinstate only when depleted by an insurer’s payment?
• Whether the marine insurance doctrine of merger applies to material damage policies.
• When is a building “destroyed”?

Prof Merkin said NZ Supreme Court Justices John McGrath, William Young, Susan Glazebrook, Peter Blanchard and Andrew Tipping’s Ridgecrest decision was definitive until the Appeal Court handed down the trio of judgements.

While the decisions were favourable for policyholders, the Appeal Court construed partial losses followed by a total loss from successive earthquakes occurring in the same policy period in “an odd way”.

“The word that struck me was ‘sneaky’. “It’s plausible if you redefine the policy to have three separate losses.

“The Supreme Court looked at the doctrine of merger and seized on something I had written that they didn’t like. The Supreme Court was wrong. They said marine insurance was different because you only get paid at the end of the year ... while a property claim accrues on the date of the peril.”

But Prof Merkin said the Supreme Court had confused accrual of the action with the right to be paid. The Appeal Court said merger applied only to total loss “and they are right”.

However, Prof Merkin predicted further appeals were likely.

QBE Insurance (International) Ltd v Wild South Holdings Ltd [2014], NZCA 447, 10/09/2014

Ridgecrest NZ Ltd v IAG NZ Ltd [2014], NZSC 117, 27/08/2014

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