NZILA President's message
Craig Langstone

NZILA Annual Conference

By the time you read this, the NZILA Annual Conference should be well under way.

Due to the size of the conference facilities in Queenstown, only 225 people could attend this year. The conference sold out more than a month before it took place, with several potential registrants going on a waiting list. It is fantastic to have such a great response and a real credit to the organising committee. I hope Queenstown turns on some great weather, particularly for the Australian visitors.

There will be a summary of the NZILA conference in the special conference issue of Resolve that follows the AILA conference.

New Zealand remains a very interesting and challenging place to live and work. No sooner had the dust settled on the Canterbury earthquakes than Wellington and the top of the South Island were hit by a series of substantial earthquakes.

Due to the much larger earthquake deductibles imposed since the Canterbury earthquakes, the impact of the recent earthquakes on the insurance industry is much less than it would have been two or three years ago. That is good news from the industry’s point of view, but has raised interesting issues about what an insurer should do with an earthquake claim that seems to be well below the relevant deductible limit.

Commercial property deductibles are now often 5% and, in some cases 10%, of the site sum insured. A 5% site deductible on a building worth NZ$20 million is NZ$1 million, so insureds often retain a very substantial uninsured interest in their properties.

Insurers are caught between a rock and a hard place with claims that appear to be under deductible. Should an assessor be appointed at the insurer’s expense or should the insurer sit back and do nothing? It is either spend money unnecessarily on experts on a claim that ends up being under deductible or risk facing a claim where you only have the insured’s expert’s evidence available to assess the insured’s claim.

Insurers remember only too well the increases in reserves following the Canterbury earthquakes. Sometimes initial repairs were estimated at say NZ$20,000, then revised upwards to NZ$100,000 with the claim ultimately being settled for the sum insured of NZ$8 million. So what to do?

Case law from the Canterbury earthquakes is starting to proliferate. As I predicted when I spoke at Lloyd’s back in April 2012, NZ will become a common law testing ground for many material damage and business interruption issues that infrequently come before the courts.

UK academics are keeping a weather eye on NZ court decisions, with a summary of the NZ Court of Appeal decision in Ridgecrest being written up in an English online periodical within 48 hours of the judgement being released in NZ.

Some issues the NZ courts have ruled on over the past 12 months include:

  • In Ridgecrest New Zealand Ltd v IAG New Zealand Ltd [2013] NZCA 291, a building suffered damage in multiple earthquake events. The initial earthquakes caused only partial damage to the building. But the building was ultimately demolished due to damage suffered in a later earthquake. The insured was paid the full sum insured for the total loss of the building, but argued it was also entitled to be paid for the unrepaired partial damage. The NZ Court of Appeal rejected that argument because the costs of repairing that damage would never actually be incurred.
  • In TJK (NZ) Ltd v Mitsui Sumitomo Insurance Co Ltd [2013] NZHC 298, the insured elected to reinstate under the reinstatement memorandum of the policy. The costs of reinstatement had not yet been incurred. But the insured argued it was immediately entitled to be paid indemnity value. The NZ High Court agreed and made a declaration the insurer was liable to pay the building’s indemnity value immediately.
  • In Turvey Trustee Ltd v Southern Response Earthquake Services Ltd [2012] NZHC 3344, an old Edwardian-style villa was damaged beyond repair. The insured wanted to replicate the house at great expense. The NZ High Court said the insured was entitled to the cost of constructing a new house of the same style and quality as the original property. However, the court considered the materials and methods used must be in common use in 2012 and reasonable consideration must be given to using modern substitutes.

  • In O'Loughlin v Tower Insurance Ltd [2013] NZHC 670, the insureds claimed creation of the NZ Government’s residential “red zone” meant their house should be treated as a total loss. The NZ High Court rejected that argument because the red zone had not caused any physical damage to the insureds’ house.

A separate Earthquake List has been established in the High Court and a summary of all cases on it is available online.

On a different note, it is interesting to see the NSW Court of Appeal agreeing with the NZ Court of Appeal about defence costs under a D&O policy.