Maqbool v Tower Insurance Limited
[2023] NZHC 632
•28 March 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2389
[2023] NZHC 632
BETWEEN SAIJAD ALI MAQBOOL
First Plaintiff
JALAL KHAN MAQBOOL
Second PlaintiffAND
TOWER INSURANCE LIMITED
Defendant
Hearing: 6-9 March 2023 Appearances:
Plaintiffs in person
R Coltman, V Ma and A Bennett for Defendant
Judgment:
28 March 2023
JUDGMENT OF LANG J
This judgment was delivered by me on 28 March 2023 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Duncan Cotterill, Auckland
MAQBOOL v TOWER INSURANCE LIMITED [2023] NZHC 632 [28 March 2023]
[1] The first plaintiff, Mr Saijad Ali Maqbool (Saijad), is one of the owners of a property situated in Papatoetoe. His father is the other owner of the property. The second plaintiff, Mr Jalal Khan Maqbool (Jalal), also claims an interest in the property by virtue of funds he contributed to the purchase of the property.
[2] A large wooden bungalow was situated on the property. Saijad and his father insured the dwelling through an ANZ Master Cover House Policy underwritten by the defendant, Tower Ltd (formerly Tower Insurance Ltd). Saijad and his father are named as the joint owners of the policy.
[3] In the early hours of 27 October 2013 the dwelling caught fire. The fire was extinguished but it caused significant damage. Saijad and his father then lodged a claim with Tower in respect of that damage.
[4] A specialist fire investigator subsequently determined that the fire was most probably caused by a power outlet overheating in a kitchen in the dwelling. That fact is not of any significance for present purposes because the cause of the fire is not in dispute.
[5] Tower appointed a private investigator, Mr Brent Bills, to undertake an investigation into the wider circumstances surrounding the fire. This revealed that the tenants who occupied the dwelling in 2010 had altered it to enable two families to live in separate areas of the dwelling. On 19 March 2014, Tower avoided the policy on the basis that Saijad and his father had failed to disclose the fact that the dwelling had been altered to create two self-contained residential units.
[6] In this proceeding the plaintiffs seek a declaration that they are entitled to indemnity under the policy. Tower defends the claim on the basis that it was entitled to avoid the policy because Saijad and his father breached both their common law duties and their contractual obligations owed to Tower under the policy. Tower contends that Saijad and his father were required to disclose the fact that they had converted the dwelling into two separate residences and they failed to do so.
[7] Tower also raises subsidiary arguments in relation to the level of indemnity available under the policy if its principal argument does not succeed.
Relevant principles
[8] In the present context the initial onus is on an insured to prove there has been a loss and that this was caused by a risk covered by a policy that was in force at the time of the event causing loss. The burden then shifts to the insurer to establish that it is entitled to avoid liability.1
[9] In the present case Tower accepts that the dwelling was damaged by a fire and that this was a risk covered under the policy. It is also common ground that the fire occurred whilst the policy was in effect. Tower therefore accepts that it must prove, on the balance of probabilities, that it has no liability under the policy to indemnify Saijad and his father to cover the loss. As I have already observed, Tower seeks to do this by establishing that Saijad and his father breached their obligations under the policy and at common law to advise Tower of any material change in circumstances. Tower accepts that it must also prove that they knew or ought to have known about the facts giving rise to that change in circumstances.
[10] It is now well established that, independently of any contractual obligations, a person entering into a contract of insurance has a duty to disclose to the insurer all information that might be material to enable the insurer to undertake a proper assessment of risk. This is sometimes described as an obligation to act in utmost good faith. On Tower’s behalf Mr Coltman referred me to the following observation made by Scrutton LJ in Rozanes v Bower:2
As the underwriter knows nothing and the man who comes to him to ask him to insure knows everything, it is the duty of the assured, the man who desires to have a policy, to make a full disclosure to the underwriters without being asked of all the material circumstances, because the underwriters know nothing and the assured knows everything. This is expressed by saying that it is a contract of the utmost food faith – uberrima fides.
1 Robert Merkin and Chris Nicoll Colinvaux’s Law of Insurance of New Zealand (2nd ed, Thomas Reuters, Wellington, 2017) at 7.2.1.
2 Rozanes v Bower (1928) 32 LILR 98 at 102.
[11] These principles mean that Mr Saijad Maqbool and his father had a duty to act with the utmost good faith and honesty in dealing with Tower. The common law obligations arising from this duty required them to disclose all material facts to Tower and its agents and also to provide sufficient information that would enable Tower to decide whether, and if so to what extent, it was prepared to provide indemnity against assessed risks.
[12] Sections 5 and 6 of the Insurance Law Reform Act 1977 (the Act) also apply to the present case. They relevantly provide as follows:
5Mis-statements in other contracts of insurance
(1)A contract of insurance shall not be avoided by reason only of any statement made in any proposal or other document on the faith of which the contract was entered into, reinstated, or renewed by the insurer unless the statement—
(a)was substantially incorrect; and
(b)was material.
…
6Incorrectness and materiality defined
(1)For the purposes of sections 4 and 5 of this Act, and notwithstanding any admission, term, condition, stipulation, warranty, or proviso in the application or proposal for insurance or in the life policy or contract of insurance, a statement is substantially incorrect only if the difference between what is stated and what is actually correct would have been considered material by a prudent insurer.
(2)For the purposes of sections 4 and 5 of this Act, and notwithstanding any admission, term, condition, stipulation, warranty, or proviso in the application or proposal for insurance or in the life policy or contract of insurance, a statement is material only if that statement would have influenced the judgment of a prudent insurer in fixing the premium or in determining whether he would have taken or continued the risk upon substantially the same terms.
[13]The plaintiffs contend that s 11 of the Act is also relevant. It provides:
11 Certain exclusions forbidden
Where –
(a)by the provisions of a contract of insurance the circumstances in which the insurer is bound to indemnity the insured against loss are so defined as to exclude or limit the liability of the insurer to indemnify the insured on the happening of certain evens or on the existence of certain circumstances; and
(b)in the view of the court or arbitrator determining the claim of the insured the liability of the insurer has been so defined because the happening of such events or the existence of such circumstances was in the view of the insurer likely to increase the risk of such loss occurring, -
the insured shall not be disentitled to be indemnified by the insurer by reason only of such provisions of the contract of insurance if the insured proves on the balance of probability that the loss in respect of which the insured seeks to be indemnified was not caused or contributed to by the happening of such events or the existence of such circumstances.
[14] As will be evident from the wording of the section, s 11 prevents an insurer from relying on exclusion clauses within a policy in certain circumstances. However, the section does not assist the plaintiffs in the present case because Tower is not seeking to rely on an exclusion contained in the policy. Rather, it relies on alleged non-disclosure of material facts after the policy was issued but before it was renewed.
[15]In Sampson v Gold Star Insurance Ltd Barker J observed:3
I read nothing in [s 11], however, to exclude the common law duty of the insured to act with the utmost good faith. This duty is fundamental to all branches of insurance law and relates principally to disclosure by the insured of all matters which could affect the risk. See Ivamy, General Principles of Insurance Law (3rd ed, 1975), Chapter 12. However, the same author at p 385 states (with appropriate reference to authority):
Since it is the duty of the assured to observe the utmost good faith in his dealings with the insurers throughout, the claim which he puts forward must be honestly made; and, if it is fraudulent, he will forfeit all benefits under the policy, whether there is a condition to that effect or not. The assured must make a full disclosure of the circumstances of the case.
The policy
[16]The material portion of the policy for present purposes reads as follows:
WHAT YOU MUST TELL US
3 Sampson v Gold Star Insurance Ltd [1980] 2 NZLR 742 (SC) at 746.
We would like to point out some of the important obligations you have.
The correctness of all statements made in relation to this policy or any claim is essential before we have any liability under this policy. We must receive all relevant information. This means that you must tell us everything you know, or could reasonably be expected to know, that may influence our decision to insure you. If any circumstances change or may change during the time we provide your insurance you must tell us. Examples of a change in circumstances or any other information may include:
·if the use or occupation of the house or land at the situation changes to include any business use;
·if any structural alteration or addition is made to the house;
any modifications or changes to your vehicle that are different from the manufacture’s standard specifications;
·if anyone becomes a new regular driver of your vehicle;
·if you or anyone who may drive your vehicle is charged with, convicted of or commits any criminal or traffic offence, other than parking infringements.
These examples are a guide only. If you are in any doubt you should disclose information, whether or not we have asked questions that relate to it. If we are not told we have the option to decline any claim, or avoid this policy from the date of change. No claim shall be false or fraudulent in any way.
If any relevant circumstances change or may change during the time we
provide your insurance then you must tell us.
[17] Saijad and his father renewed the policy each year after 2010 without disclosing the fact that the dwelling had been altered to enable two families to live in separate areas. Tower avoided the policy as from 2011, being the renewal date following the alterations being undertaken.
Was there a change in circumstances after the policy commenced?
[18] Saijad and his father purchased the property in 2005 for use as a rental property. It was tenanted from shortly after they acquired it until the date of the fire. In the long term Saijad and his family planned to subdivide the property and to build as many as three units on it. However, this plan was thwarted by the fire.
[19] From 2010 the property was occupied by persons called Raj and Sarwan. They were builders and had worked with Saijad, who is a plumber. Raj and Sarwan decided to convert the dwelling into two living areas. They erected a diagonal partition in the
central hallway that stopped the hallway being used as a means of access between the front and rear areas of the dwelling. They also converted the existing dining room into a second kitchen for use by the occupants of the front unit. The occupants of the rear unit were able to use the existing kitchen. A diagram showing the dwelling following these alterations is annexed as an appendix to this judgment. The alterations converted the existing three bedroom dwelling into two units, each with its own kitchen and a single bedroom.
[20] Before Raj and Sarwan carried out these alterations they spoke to Saijad and obtained his consent. Saijad did not, however, meet the cost of the alterations. Sarwan and Raj met this cost.
[21] In or about March 2013, Ms Rovina Lal and her four children began living in the address after arriving in New Zealand from Fiji. She had a close connection with Raj’s wife and her husband had already been living at the address for approximately 12 months. It appears that Raj and his family moved out of the address at or about the time Ms Lal and her children arrived. Ms Lal’s husband moved out of the dwelling in August 2013 after difficulties arose in their relationship. Thereafter, Ms Lal and her children lived in the rear part of the dwelling whilst Sarwan and his family, comprising his wife and two children, occupied the front portion.
[22] The fire originated in the kitchen used by Ms Lal. There were two power points in that kitchen but only one was functional at the time of the fire. This had a rice cooker plugged into it along with a multi-plug box that provided power to a microwave oven and a kettle. The kitchen did not contain an oven but there was a gas cooker connected to the gas mains.
[23] The kitchen constructed in the former dining room contained a sink unit and several electrical appliances. These included a refrigerator and a stove as well as a washing machine. A gas cooker was also installed in this kitchen.
[24] Saijad gave evidence that the former dining room contained a small sink or basin. He was not challenged on this point and Mr Bills could not contradict it when he was cross-examined about it. Saijad’s evidence must therefore be accepted. The
plaintiffs relied on Saijad’s evidence to submit that the plumbing for the original basin was used for the sink that was installed in the new kitchen. However, Saijad told Mr Bills that he arranged for an associate called Francis to carry out the plumbing work in the new kitchen. There is no evidence as to what work Francis carried out in the conversion process. Even if Francis had used the original plumbing for the new sink he would still have been required to carry out further plumbing work to enable the washing machine to be installed.
[25] Against that background I turn to factual issues that were in dispute at the hearing. The first of these relates to an assertion by the plaintiffs that, contrary to the plan prepared by Tower’s investigator, the second kitchen contained a doorway that led into the other kitchen. This is depicted in a photograph taken at the time of the fire. It is also logical to assume there would have been direct access between the original kitchen and the original dining room. I therefore accept there was a door between those two rooms.
[26] The plaintiffs place considerable emphasis on this fact because they say it demonstrates that there was direct access between the two units. They say this undermines Tower’s argument that the dwelling was divided into two self-contained units. There is no evidence as to whether this door was locked or otherwise secured after the dwelling was converted into two units. However, a sketch plan drawn by Ms Lal when Mr Bills interviewed her shows that a dining table and chairs was placed against the wall in the original kitchen in the location of the doorway. It therefore appears likely that the doorway was not in use at the time of the fire.
[27] There was also a dispute as to who erected the diagonal partition in the hallway. Sarwan told Mr Bills that he installed a temporary wall in the hallway to separate the two parts of the house. However, Ms Lal told Mr Bills that there was no wall in the hallway when she moved into the address. She said that she and her husband put up a temporary wall in the hallway because six children were living at the address. This had the effect of separating the two families. Ms Lal said there were no other changes made to the house whilst she and her husband lived there. There were already two kitchens at the address when she arrived. She said that the only change they made to
the house was to install the temporary wall and this was done with the permission of the owner.
[28] The two versions of events are not irreconcilable because it is possible that Raj removed the partition he had installed before he moved out of the address. However, neither Raj nor Ms Lal gave evidence at the hearing so it was not possible to explore this issue further.4 It is not in any event necessary to do so because there is no dispute that the firemen who attended the fire encountered and removed a plywood partition that had been installed across the hallway of the address. This had been nailed to a wooden base. The partition was therefore clearly in place at the time of the fire regardless of when it was installed.
[29] The plaintiffs also challenged Tower’s assertion that the partition amounted to a structural alteration or addition so that they were bound to advise Tower of its installation. There is some force to this argument because the partition did not compromise or adversely affect the structural integrity of the dwelling. Had the partition been the only alteration or addition to the dwelling Tower would not have been entitled to avoid the policy. However, that is not the case.
[30] There can be no dispute that Raj and Sarwan fundamentally altered the nature of the dwelling when they converted the original dining room to a second kitchen. This meant that, once the partition was installed, the house was physically divided into two self-contained units regardless of the fact that there was a doorway between the two kitchens. Furthermore, that is how the dwelling was used from that point on.
[31] The evidence is overwhelmingly to the effect that the dwelling was being used as two separate residential units at the time of the fire. Ms Lal told Mr Bills that she lived on her side of the house with her husband and four children and Sarwan lived on the other. She said that she only had a key to the back door of the address and not the front entrance that Sarwan and his family used. She did not know whether Sarwan had access to her family’s side of the dwelling.
4 A written statement Ms Lal gave to Mr Bills on 7 November 2013 was admitted by consent at the trial after she failed to appear even though she knew she was required as a witness.
[32] Similarly, Sarwan told Mr Bills that, although he shared the house with Ms Lal, they lived independently of each other. Saijad and his wife also told Mr Bills that Ms Lal and Sarwan did not know each other.
[33] The evidence therefore establishes that, regardless of whether it might be possible for the occupants of one unit to have access to the other, the two units were being used as separate dwellings. This is also reflected in the fact that, at the time of the fire, Sarwan was paying the sum of $210 per week whilst Ms Lal was paying $190 per week.
[34] I consider this amounted to a change in circumstances from the situation that existed before the partition in the hallway was erected and the second kitchen was installed in the original dining room. The next issue is whether this amounted to a material change in circumstances that Saijad and his father were bound to disclose to Tower.
Did the alterations to the dwelling constitute a material change in circumstances?
[35] The question of materiality in the present context is governed by s 6 of the Act, which I set out again for convenience:
6 Incorrectness and materiality defined
(1) For the purposes of sections 4 and 5 of this Act, and notwithstanding any admission, term, condition, stipulation, warranty, or proviso in the application or proposal for insurance or in the life policy or contract of insurance, a statement is substantially incorrect only if the difference between what is stated and what is actually correct would have been considered material by a prudent insurer.
(2) For the purposes of sections 4 and 5 of this Act, and notwithstanding any admission, term, condition, stipulation, warranty, or proviso in the application or proposal for insurance or in the life policy or contract of insurance, a statement is material only if that statement would have influenced the judgment of a prudent insurer in fixing the premium or in determining whether he would have taken or continued the risk upon substantially the same terms.
[36] In this context Mr Coltman referred me to the following observation by Lord Lloyd of Berwick in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd:5
5 Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1994) 3 All ER 581 (HL)
Whenever an insurer seeks to avoid a contract of insurance or re-insurance on the grounds of misrepresentation or non-disclosure, there will be two separate but closely related questions. (1) Did the misrepresentation or nondisclosure induce the actual insurer to enter into the contract on those terms? Would the prudent insurer have entered into the contract on the same terms if he had known of the misrepresentation or non-disclosure immediately before the contract was concluded? If both questions are answered in favour of the insurer, he will be entitled to avoid the contract, but not otherwise. The evidence of the insurer himself will normally be required to satisfy the court on the first question. The evidence of an independent broker or underwriter will normally be required to satisfy the court on the second question. This produces a uniform and workable solution, which has the further advantage, as I see it, of according with good commercial common sense.
[37] In order to establish that the non-disclosure of the change in circumstances in the present case was material Tower relies on evidence given by Mr Fei Ding, one of its own underwriters, and by Mr Richard Godman, an underwriter employed by an independent insurer.
[38] Mr Ding is a product manager at Tower and provides internal underwriting advice to the company. He was involved in the process that led to Tower declining cover under the policy. He said that, if Tower had been informed of the alterations that had been made to the dwelling, it would not have agreed to insure the property. Mr Ding said Tower considers anything that may increase its risk of liability under a policy is prima facie material. He said Tower would not have underwritten the risk posed by the alterations because they had been carried out without any resource or building consent and were not certified as having been carried out correctly. In addition, the increased number of tenants living in the dwelling increased the risk of damage or loss.
[39]Mr Ding went on to say:
12 There is no question that claims are more likely to result where there are unconsented alterations made to a property and this is why Tower had specifically requested disclosure of any structural alteration or addition. I consider the failure to disclose the unconsented alterations to be material for the following reasons:
12.1The house was separated into two residential home units from a single residential home unit. The conversion meant that the property contained two kitchens, two living areas and other separated areas which were being used independently of each other;
12.2Prior to the conversion this was a three-bedroom house. After the conversion, it was a two-bedroom house with 9 people residing in it. The more people at a property obviously creates more risk;
12.3The work was not carried out in accordance with the Building Code 2011 and the property would not have obtained a building consent. Building work that has not been carried out properly increases the risks of loss or damage;
12.4The plaintiffs did not obtain a report from a registered fire engineer regarding compliance and design parameters to ensure compliance with the Building Code. Without the proper fire rating walls this increases the risk of the fire spreading from one unit to the other; and
12.5There is also a considerable risk that EQC [the Earthquake Commission] would not accept a claim in respect of this property in the event of a natural disaster as it was operating as two units.
[40] In answer to questions from me, Mr Ding said that, if Tower had been notified of the alterations after they had been carried out, it would have required the alterations to be checked by qualified professionals to confirm they had been undertaken in accordance with the relevant building codes and that they would have met the Council’s requirements so they could obtain a code of compliance.
[41] In cross-examination Mr Ding said that the existence of the doorway between the two kitchens did not alter his assessment. He said Tower would look at the functionality of each room and the fact that there were two families living there separately. He also emphasised that Tower did not focus on any single aspect of the alterations. Rather, it looked at the overall effect of the alterations on the dwelling.
[42] Mr Godman is the manager of the Technical Underwriting Team at Suncorp New Zealand. He is the lead underwriter in New Zealand for all of Vero’s domestic insurance and is responsible for putting in place the risk acceptance and mitigation practices adhered to by Vero’s underwriting personnel throughout New Zealand. His role also requires him to monitor Vero’s competitors including the products they offer, the policy wording they provide, the premia they charge and underwriting decisions they make.
[43]Mr Godman gave evidence as follows:
11I confirm that I advised Tower that I would not have insured the [plaintiff’s] Property based on the plaintiff’s non-disclosure for the following reasons:
11.1The fact that a home has undergone a transition from a previously disclosed single unit residential home into a building that now includes two residential home units, is indeed material information to an insurer;
11.2The alterations and/or unconsented alterations to the Property would be kay information to a prudent underwriter’s decision- making process in agreeing to provide cover and on what terms;
11.3The issue of homeowners carrying out, or allowing others to carry out, unconsented alterations to their homes is an obvious concern to insurers due to the increased risk of loss or damage (either at the time the alterations are undertaken or at a later date) to the home and its contents, not to mention the lives within; and
11.4The reluctance of an insurer to knowingly become involved with a property that has undergone extensive unconsented alterations, due to the complex claim settlement process that would need to take into account what is/isn’t covered by the policy (including consent fees, the costs of the changes made by the tenant(s), and the additional costs to correctly rebuild the home to the appropriate standard that did not exist at the time), which would not only put financial burden upon the owner, it would result in a protracted and messy claim at best.
11.5EQC’s reluctance to accept a claim for two units in the event of a natural disaster event (when only one has been disclosed) can unintentionally lead to possible increased financial outlay for the insurer. In turn, this means that the insurer could be liable to cover any damage to the second unit. However, this is not something an insurer would be prepared to accept.
[44] Tower also adduced evidence from Mr Robert Tidd, a design and compliance manager for a construction company in Christchurch. Mr Tidd has 48 years of experience in the building industry and provides design advice for building and repair strategies. He specialises in issues relating to weathertightness and compliance with the Building Act 2004 (the Building Act) and the Building Code. Tower instructed Mr Tidd to provide his independent opinion regarding possible resource and building consent issues that the alterations at the plaintiff’s property may have created.
[45] Mr Tidd pointed out that s 17 of the Building Act requires all building work to be carried out in compliance with relevant provisions of the Building Code. This applies to any building work regardless of whether a resource consent has been issued
authorising the work. He also pointed out that s 40 of the Building Act provides that a building may not be altered without a building consent. Furthermore, ss 84 to 88 of the Building Act require all construction falling within the description of “restricted building work” to be carried out by a Licensed Building Practitioner (LBP). Sections 114 and 115 require written notice to be given to the Council where building work will result in a change of use. All new work must comply with relevant provisions of the Building Code and s 115 expressly requires the issues of fire escape and protection to be addressed.
[46] Mr Tidd said that the alterations in the present case converted the dwelling from a single household unit to a multi-household unit and this required a building consent. The application for building consent should therefore have included a change of use notification to the Council under the Building Act. This would include an assessment of compliance with relevant clauses of the Building Code as required under s 115 of the Building Act. In addition, Mr Tidd said that the alterations needed to be approved by the Auckland Council by way of a resource consent permitting a change of use under the Resource Management Act 1991. This was necessary because of the zone in which the property is located under the Auckland District Plan6. This requires a section comprising not less than 400m2 for each household unit. The section in the present case was 602m² in size. This meant the site was not sufficiently large to permit the creation of two residential units without a resource consent.
[47] Mr Tidd has worked for Auckland Council and says that the Council’s planning approach is to require resource consent if there is a change from a single household unit to a multi-household unit in any existing residential dwelling. Other Councils he has worked for and with adopt the same approach. This means that territorial authorities generally approach the subdivision of sections and buildings in the same way. Both are only permitted where a resource consent is issued.
[48] Mr Tidd also said that in his experience a building is regarded as a single household unit where it has just one kitchen or kitchenette. Any other room in the same building that contains a kitchen sink and cooking facilities is deemed to be a
6 Manukau Section 2002 provides that the minimum net site area is 400m² per household unit.
second kitchen. It is permissible to have two kitchens in certain situations such as where temporary accommodation is being provided. Generally, however, it is not permissible for a dwelling to have more than one kitchen.
[49] Mr Tidd also said that that the alterations would have required compliance with several clauses in the Building Code. In addition, the plumbing work that was carried out to install a kitchen in the dining room needed a building consent because it did not fit within any of the exemptions outlined in Schedule 1 of the Building Act. Schedule 1 prescribes the circumstances in which a building consent is not required for certain types of minor work. Furthermore, the plumbing work falls within the definition of restricted building work under the Building Act and needed to be performed and certified by an LBP. In addition, any stove in the new kitchen needed to be hard-wired into the electrical system. This needed to comply with the Building Code and should have been done by a registered electrician, who would have provided a certificate confirming that the work had been carried out in accordance with the Building Code.
[50] Mr Tidd considered it was unlikely that a resource consent would have been granted if it had been applied for because of the zoning requirements restricting the number of household units in accordance with the size of the site. Mr Tidd also said that another issue was the lack of fire protection for both units created by the change of use. He said there needed to be fire protection at all adjoining walls and that the sub-floor and ceiling spaces needed to be enclosed to prevent fire from spreading from one unit to the other. A designer or fire engineer would need to design and specify how compliance with this requirement would be achieved.
[51] I do not consider the fact that more people were living at the address than was previously the case to be a matter of material significance. Before they carried out the alterations Raj and Sarwan could have had nine people living at the address without compromising cover under the policy. However, I am satisfied that the alterations they carried out resulted in a material change of circumstances that potentially affected the level of risk Tower would be required to assume under the policy. First, it would assume increased risk of loss because the property was subject to one levy for EQC purposes on the basis that the dwelling comprised a single household unit. EQC cover
for the second household unit is unlikely to have been available, thereby rendering Tower solely liable for any damage to that unit.
[52] Secondly, building work was carried out without obtaining consents required under the Building Act and the RMA. The risk that the work did not meet the standards imposed by the Building Code also led to a risk that the dwelling was more prone to damage through fire or other hazards. Thirdly, the establishment of a second kitchen plainly created an increased risk of fire. Mr Godman said that kitchens are the most frequent sources of accidental household fires because of the concentration of electrical appliances and heat points within them.
[53] Fourthly, if the risk of damage by fire was to be mitigated it was necessary to ensure the two units were protected through adequate fireproofing of adjoining walls as well as sub-floor areas and roof spaces.
[54] I consider these factors were plainly relevant to any proper assessment of the risk Tower would be assuming under the policy after the alterations were carried out. It follows that Saijad and his father needed to disclose the fact of their existence. There is no dispute that Saijad knew the alterations had been carried out because he gave his consent when Raj and Sarwan told him what they planned to do. He also arranged for Francis to carry out the plumbing work in the new kitchen. Saijad and his father ought to have told Tower about the alterations at the very latest in 2011 when the policy was next renewed. Tower has therefore established on the balance of probabilities that it was entitled to avoid the policy for non-disclosure of material facts.
Result
[55]The plaintiffs’ claim is dismissed.
Costs
[56] Tower is the successful party and is entitled to an award of costs and disbursements in its favour. If the parties cannot reach agreement regarding costs they have leave to file and serve concise memoranda setting out their arguments and I will determine costs on the papers.
Lang J
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