Lumley General Insurance (NZ) v Evolving Landscapes Limited
[2020] NZHC 737
•9 April 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000380
[2020] NZHC 737
BETWEEN LUMLEY GENERAL INSURANCE (N.Z.) LIMITED
ApplicantAND
EVOLVING LANDSCAPES LIMITED
First Respondent
AND
NEW ZEALAND FIRE SERVICE COMMISSION AND SELWYN DISTRICT COUNCIL
Second Respondents
AND
JOHN ERNEST CHAMBERLAIN AND KATHERINE BERNADETTE CHAMBERLAIN
Third Respondents
AND
SELWYN QUARRIES LIMITED
Fourth Respondent
AND
ROSS ALLEN CAMMELL AND MARY-ANN CAMMELL
Fifth Respondents
AND
ROBERT BRIAN WYNN-WILLIAMS, MARGARET-ELIZABETH
WYNN-WILLIAMS AND JOHN LINDSAY JOSEPH
Sixth RespondentsAND
LOUJOHN HOLDINGS LIMITED
Seventh Respondent
AND
TIMOTHY JAMES MALLETT AND HEIDI JANE BRACE
Eighth Respondents
AND
JONET CARR WARD
Ninth Respondent
LUMLEY GENERAL INSURANCE (N.Z.) LIMITED v EVOLVING LANDSCAPES LIMITED [2020] NZHC 737 [9 April 2020]
AND RICHARD PETER DUNCAN AND
WENDY ANN RUSCOE
Tenth RespondentsAND
STEPHEN JAMES OVERTON AND LINDA KAY OVERTON
Eleventh Respondents
AND
MERVYN WILLIAM ALLAN WHITE
Twelfth Respondent
AND
JUDITH ANN SMITH
Thirteenth Respondent
AND
BRIAN DAVID COURT AND LESLIE STEPHANIE COURT
Fourteenth Respondents
AND
NEVELE R STUD LIMITED
Fifteenth Respondent
AND
CLIVE WILLIAM HARTLEY AND DEANNE MAY HARTLEY
Sixteenth Respondents
AND
KOTUKUNUI PROPERTIES (NO 2)
LIMITED AND AMBROSIA NURSERIES LIMITED
Seventeenth RespondentsAND
ALLAN PETER MARSHALL AND JUDITH ANN MARSHALL
Eighteenth Respondents
AND
ELIZABETH RUTH MITCHELL
Nineteenth Respondent
Counsel: J N Bierre and L G Cox for the Applicant
J A Knight and G K Rippingale for the Second Respondents
V S Wethey and A R Cornwell for the Eighteenth RespondentsJudgment:
9 April 2020
(Determined on the papers)
JUDGMENT OF OSBORNE J
Introduction
[1] Evolving Landscapes Ltd (Evolving) took out a policy with Lumley General Insurance (N.Z.) Ltd (Lumley). The policy covered liability under the Forest and Rural Fires Act 1977.
[2] Evolving was responsible in 2013 for a fire which caused damage to other properties and involved the New Zealand Fire Service and Selwyn District Court (collectively here “the Fire Service”) in fighting the fire. One of the properties damaged by the fire was the farm of the 18th respondents (the Marshalls).
[3]The Fire Service obtained a judgment against Evolving for $217,118.30.1
[4] Subsequently Evolving obtained an order that Lumley indemnify it in the sum of $51,107.70 for costs and disbursements incurred by Evolving in defending the Fire Service’s claim (the $51,107.70 costs).2
[5] Under s 9(1) Law Reform Act 1936, Evolving’s liability to the Fire Service and other persons (including the Marshalls) is the subject of a charge on the insurance monies payable by Lumley (the insurance sum). The policy had a limit of $1 million in respect of its General and Products Liability cover. The policy also contained a sub-limit provision, imposing a sub-limit of $250,000 in relation to liability under the Forest and Rural Fires Act.
[6] The Marshalls were entitled to recover against Evolving the indemnity value of what they lost. This required the application of a depreciation rate. Lumley and the Marshalls contend for different depreciation rates (65 per cent and 50 per cent respectively).
[7]Four issues arise for determination:
(a)As between Evolving and Lumley:
1 New Zealand Fire Service Commission v Legg [2016] NZHC 1492, [2016] 3 NZLR 685.
2 New Zealand Fire Service Commission v Legg [2017] NZHC 29.
(i)Should the $51,107.70 costs be included in the calculation of payments to be made by Lumley from the insurance sum?
(ii)Should the interest which runs on the $217,118.30 judgment be added to Evolving’s claim on the insurance sum?
(iii)Does the $250,000 policy sub-limit apply?
(b)As between the Marshalls and Lumley:
(i)Should the depreciation rate to be applied to the Marshalls’ property be 65 per cent or 50 per cent?
[8] Nation J held that Evolving was entitled to be indemnified under its liability policy for claims arising from a fire for which Evolving was responsible.3
[9] This proceeding was brought because Lumley was concerned that the amount of cover it provided to Evolving would be insufficient to meet all Evolving’s liability to those who suffered damage as a result of the fire. It appeared to Lumley that Evolving was not in a financial position to meet in full its liabilities in respect of the fire damage.
[10] Lumley considered s 9 Law Reform Act applied as Evolving would not be a good common law defendant because of insolvency. This Court made directions confirming that the second to 19th respondents to this proceeding are the only holders of s 9 Law Reform Act charges, and confirming that Lumley may distribute the insurance payment pro rata to those respondents. A procedure was then put in place to allow the respondents to challenge Lumley’s assessment of the value of their claims.
[11] Two objections to the proposed allocation of the insurance sum were received within the timeframes directed by the Court.
3 New Zealand Fire Service Commission v Legg, above n 1.
[12] The Fire Service sought to have included in the value of their claim interest on the judgment sum awarded in their favour by Nation J together with the $51,107.70 costs.
[13] In the event that the Fire Service are entitled to include interest and costs in their claims, then Lumley says that a $250,000 sub-limit under its policy for claims under the Forest and Rural Fires Act applies to restrict the second respondents’ recovery to $250,000.
[14] The Marshalls are the other respondents who have an issue for determination. Their buildings and plant were extensively damaged in the fire caused by Evolving. There is common ground between Lumley and the Marshalls as to all matters other than the depreciation rate to be applied in relation to their property for the purposes of calculating their claim on the insurance sum. The difference between the parties relates to whether the loss adjusters should (as Lumley’s loss adjusters have) set a higher depreciation rate to take account of market information which post-dates the loss.
Procedure
[15] With the agreement of the parties, this judgment follows the filing of detailed written submissions. The Court was invited to determine the applications on the papers.
The Fire Service claim
The Fire Service’s judgments
[16] The principal amount awarded to the Fire Service by Nation J (for firefighting costs under the Forest and Rural Fires Act) was $217,118.30.4 Interest under the Judicature Act 1908 is calculated at $72,452.08 for the period from 8 April 2013 to 9 December 2019.
4 New Zealand Fire Service Commission v Legg, above n 1, at [158].
[17] By way of costs and disbursements, Evolving was then ordered to pay the Fire Service $61,235.61.5 Lumley in turn was ordered to indemnify Evolving for its costs and disbursements liability to the Fire Service to the extent of $51,107.70 – this sum not being payable pursuant to Evolving’s policy but as costs awarded by the Court.6
[18] Accordingly, the total amount of the Fire Service’s claim is $340,678.08 – the principal sum of $217,118.30, interest of $72,452.08 and costs of $51,107.70.
The interest component
[19] Lumley has recognised for participation by Evolving in the insurance sum only the principal sum of $217,118.30.
Operation of s 9 Law Reform Act
[20]Section 9(1) Law Reform Act states:
If any person … has … entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.
[21] The Fire Service has the benefit of a charge on the insurance sum payable in respect of Evolving’s liability arising from any fire.
[22] What sum then is payable to Lumley in respect of Evolving’s liability (it is common ground that the principal sum is payable)?
Costs and disbursements
[23] The policy provides that costs and expenses are in addition to the applicable limits of indemnity. The policy provides at cl 2.2:
5 New Zealand Fire Service Commission v Legg, above n 2, at [35].
6 New Zealand Fire Service Commission v Legg, above n 2, at [75].
In addition to the applicable Limit of Indemnity Lumley will pay Costs and Expenses necessarily and reasonably incurred in relation to any claim against the Insured for which there is cover under this Policy.
[24]In turn, “Costs and Expenses” are defined as meaning:
… any legal costs, disbursements, witnesses’ costs … that relate directly to the investigation, defence, compromise or handling of any claim, incurred by Lumley, or by the Insured with Lumley’s prior written consent, and also includes expenses incurred by the Insured for first aid to others at the time of any Personal Injury for which the Insured is entitled to compensation.
[25] Here, Lumley was joined to the proceeding heard by Nation J as a third party. The costs incurred by Evolving against Lumley as third party were not costs incurred with Lumley’s prior written consent so as to make them “Costs and Expenses” recoverable under the policy. The clauses in [23] and [24] above were referred to by Nation J in his costs judgment.7
[26] The costs and disbursements awarded in favour of Evolving against Lumley by Nation J were party costs incurred in the proceeding. They were costs awarded because Lumley was held to have declined to indemnify and then become the unsuccessful party in litigation. Costs were not ordered because they were a policy entitlement. They are not. They are a debt due from Lumley to the Fire Service as litigation costs, not insurance entitlements. The costs became payable by Lumley to Evolving independently of the insurance sum and interest has accrued on them from the date they were awarded.
[27] The $51,107.70 costs (with interest) are not to be included in the value of the Fire Service’s quantum to be taken into account in the apportioning of the insurance sum.
Interest on the $217,118.30 judgment
[28] Lumley, in calculating for the purposes of payment of the insurance sum, excluded judgment interest from the calculation in relation to the Fire Service. Only the $217,118.30 figure was allowed.
7 New Zealand Fire Service Commission v Legg, above n 2, at [42] and [43].
[29] It is common ground that, under the policy, Lumley was required to indemnify Evolving for the $217,118.30 figure as that represented “liability under the Forest and Rural Fires Act” in terms of the policy.
[30] In the 2016 liability judgment, the Court also gave judgment for interest under the Judicature Act on that sum from 8 April 2013.
[31] It would be incorrect to suggest that the liability for interest on the principal sum was other than a liability arising “under the Forest and Rural Fires Act”. Lumley’s policy does not say that the liability has to arise strictly in terms of a particular statute. It says simply that it must have arisen “under the policy”. The natural meaning of that word, in its context, is that indemnity arises where the liability exists by reason of the Forest and Rural Fires Act.
[32] The Fire Service therefore established that the interest awarded by this Court in the 2016 judgment is a liability under the Forest and Rural Fires Act. It accordingly falls to be included in the calculation of the Rural Services’ entitlement for the purposes of distribution of the insurance sum.
$250,000 sub-limit
[33] Section 3 of the Lumley policy is headed “Automatic Coverage clauses”. The relevant provision is:
The following Coverage clauses to the Policy are included automatically, provided always that each clause is to be read in conjunction with Section 2 Coverage clauses above, and is subject to the Policy terms, unless otherwise stated. Some clauses have specified sub-limits and Excesses and these will apply unless specifically stated otherwise in the Schedule. All sub-limits are included in and are not in addition to the Limit of Indemnity specified in the Schedule.
[34]Clause 3.3 is headed “Forest and Rural Fires Act”. The clause provides:
Lumley will indemnify the Insured in respect of liability under the Forest and Rural Fires Act 1977 for:
(a)costs and losses incurred during the Period of Insurance recoverable under section 43;
(b)levies imposed by a Fire Authority and apportioned to the Insured during the Period of Insurance under sections 46 and 46A.
Provided that a sub-limit of $250,000 any one Period of Insurance shall apply, and an Excess of $1,000 shall apply.
This Extension will apply regardless of whether or not Property Damage has occurred.
[35] As recorded in Nation J’s substantive judgment, the Fire Service brought its claim under s 43 of the Forest and Rural Fires Act.8 The judgment set out cl 3.3 of the policy, above at [34].9 Nation J granted the Fire Service judgment against Evolving for $217,118.30 plus interest.10 His Honour held “Evolving Landscapes is entitled to judgment against Lumley for all sums for which the plaintiffs have obtained judgment against Evolving Landscapes.”11
[36] Here, counsel for the Fire Service rely on the way Nation J expressed Evolving’s entitlement to judgment against Lumley. They submit that it is a finding that Evolving has the benefit of a general indemnity against Lumley and that the sub-limit under the policy therefore does not apply.
[37] Reading Nation J’s judgment as a whole, I do not consider that was its import. Evolving was claiming an indemnity under its insurance policy with Lumley. His Honour set out the Forest and Rural Fires Act extension. At the time of his Honour’s judgment, the value of the Forest and Rural Fires Act award in favour of the Fire Service was within the sub-limit of $250,000.
[38] Accordingly, I conclude that the sub-limit of $250,000 does apply to the Fire Service’s claim.
The Fire Service claims – orders
[39]Accordingly, in respect of the claim by the Fire Service I make these orders:
8 New Zealand Fire Services Commission v Legg, above n 1, at [34] and [35].
9 At [40].
10 At [159].
11 At [161].
(a)the costs and disbursements (awarded in CIV-2014-409-681) are not to be included in its claim;
(b)interest is to be included in its claim; and
(c)the $250,000 sub-limit under cl 3.3 of the policy applies.
The Marshalls’ claim
Depreciation rate
[40] The fire caused extensive damage to the buildings and plant of the Marshalls’ poultry farm. The reinstatement costs exceeded $2 million. On an indemnity value basis Lumley assessed the Marshalls to have lost $836,166.90. It is common ground that the Marshalls are entitled to recover the indemnity value only.
[41] The issue between the parties arises from the depreciation rates applied by the parties’ respective loss adjusters. Lumley has applied a depreciation rate of 65 per cent to arrive at its figure of $836,166.90. The Marshalls’ figure is based on 50 per cent depreciation rate resulting in the value of their claim being $908,581.29.
[42] Lumley’s figure was arrived at in 2018. Lumley’s loss adjuster was aware that the Marshalls’ figure was arrived at using a 50 per cent depreciation rate.
[43]The Marshalls’ counsel explains the difference as follows:
The reason for the higher rate is at the time of preparing [the Lumley] report (in 2018), leading retailers had made announcements that they will, in future, be banning the sale of eggs from caged hens. The higher rate therefore accounts for a more limited life of the plant.
[44] Counsel for the Marshalls submits that it was an error to refer to market influences in assessing the correct depreciation rate. They submit that, if market factors were to be considered, it should be done at the date of the fire on 10 January 2013 at which time the retailer announcements had not been made.
[45] I accept the second limb of counsel’s argument. The object of the indemnity assessment is to determine the value of what the Marshalls lost in the fire as opposed to the replacement cost.12 That assessment should take place as at the date of loss unaffected by announcements in the industry made in 2018, some five years after the fire.
[46] The appropriate figure to be utilised by Lumley in respect of the 18th respondents’ claim is $908,581.29.
The Marshalls – order
[47]Accordingly, in respect of the claim by the Marshalls, I order:
(a)The Marshalls’ claim is to be based on assessment as at the date of loss, being $908,581.29.
Costs
[48] Lumley made this application for orders in relation to the distribution of the insurance sum as a person under a liability. Rule 4.58(1) High Court Rules 2016 establishes such a procedure.
[49] Once the positions of the Fire Service and the Marshalls were notified through memoranda, Lumley promptly signalled that it did not wish to be heard further on the objections notified and would abide the decision of the Court.
[50] In view of those matters, the parties may take the view (as I tentatively do) that there should be no order as to costs and disbursements.
[51]I make an appropriate direction in relation to costs below.
12 See Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158, [2017] 1 NZLR 352 at [50], where the pre-event value of the insured property was held to be the indemnity value.
Order in relation to costs
[52] I order that the costs and disbursements of this application are reserved. Any party wishing to make an application for costs is to do so by memorandum (four page limit) filed and served by 15 May 2020, with any party opposing the application to file and serve their memorandum (four page limit) within five working days thereafter. In the absence of any such application, the order of the Court will be (without further minute) that there is no order as to costs.
Osborne J
Solicitors:
Chapman Tripp, Wellington Fee Langstone, Auckland Morgan Coakle, Auckland
This judgment was delivered by me on 9 April 2020 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
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