Nand v Tower Insurance
[2016] NZHC 1455
•29 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2111 [2016] NZHC 1455
BETWEEN NITYA NAND AND SUNITA NAND
Plaintiffs
AND
TOWER INSURANCE LIMITED Defendant
Hearing: 14 June 2016 Appearances:
A M E Parlane for the Plaintiffs
A Sherriff for DefendantJudgment:
29 June 2016
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 29 June 2016 at 5:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Angela Parlane, Auckland, for Plaintiffs
Duncan Cotterill (Aaron Sherriff), Wellington, for Defendant
NAND v TOWER INSURANCE [2016] NZHC 1455 [29 June 2016]
[1] In 1999 Mr and Mrs Nand bought a rental property at Flatbush, Manukau and insured it. On 1 July 2012 there was a fire at the property and the house was extensively damaged. They made a claim under their insurance policy but the insurance company turned them down. At the time of the fire the Nands’ son, Nicholas, was living in the house – they say, as a tenant. Tower, the insurer, says that he let other people onto the property and, with his knowledge, they began cooking methamphetamine. Something went wrong and a fire started. Their son was later prosecuted under the Misuse of Drugs Act. Tower does not suggest that Mr and Mrs Nand were in any way involved in manufacturing methamphetamine manufacture at the Flatbush property. They live elsewhere in Auckland and knew nothing about it. But Tower says that on these facts the terms of the insurance policy entitle it to decline the Nands’ claim. It says that the matter is so clear-cut that it has applied for summary judgment.
[2] Since the start of this proceeding, Mr Nand has died. He and his widow owned both the Flatbush property and the insurance policy jointly. Mrs Nand has taken his interest under the policy by survivorship.
[3] The principles on which the courts act on defendants’ applications for summary judgment are well-established and do not need to be repeated. The Court of Appeal’s decision in Westpac Banking Corporation v MM Kembla New Zealand Ltd remains authoritative.1
Shortcomings in Tower’s evidence
[4] Some matters are not contentious: the Nands’ ownership of the Flatbush property, that they insured the property with Tower, the terms of the certificate of insurance and the policy, the fire on 1 July 2012 and Tower’s declinature. Other matters, especially those going to Tower’s affirmative defences, are disputed. For
those parts of the case, Tower relies largely on hearsay evidence.
1 Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at
[58]-[64].
[5] The following evidence of Tower is inadmissible as hearsay that does not qualify under ss 16- 20 of the Evidence Act 2006:
(a) Paragraphs 8 and 9 of the affidavit of Mr Roe, Tower’s claims manager, (reporting on fire cause investigations) passing on information given by others.
(b)Paragraph 8 of the first affidavit of Mr Iafeta, Tower’s investigator, as to information given by the son.
(c) Paragraph 9.1 of the same affidavit as to Mr Iafeta’s understanding of the cause of the fire. Mr Iafeta has not qualified himself as a fire cause expert.
(d) Paragraph 9.2 as to charges laid against the son.
(e) Exhibit A of Mr Iafeta’s affidavit, his report to Tower, records statements made by Mr Nand under the heading “Interview of insured”. That is admissible, as is his description of the Flatbush premises. But most of the rest of the report records statements made to Mr Iafeta by others and is accordingly hearsay.
[6] In so far as Tower might wish to rely on makers of statements being unavailable under ss 18(1)(b)(i) and 19(1)(a) of the Evidence Act, it has not adduced any evidence that they are unavailable under s 16(2). Nor do I consider under ss
18(1)(b)(ii) and 19(1)(c) that undue expense or delay would be caused if the makers of the statements were required to give affidavits. Tower has not made out any case to accept witnesses’ statements of belief under r 7.30 of the High Court Rules.
[7] Even if the evidence were admissible, I would not accept it as carrying sufficient weight for summary judgment purposes. That is because of the substance of the matters in issue. There are some matters that are generally unsuitable for determination on a summary judgment basis. They call for a fuller testing of evidence. Examples are allegations of oral representations and conduct alleged to
fall below a required standard of care in negligence cases. In this case there are questions of fire cause, wilful and reckless misconduct and taking part in criminal activity. These matters are not the general stock-in-trade of summary judgment applications. Given that on a summary judgment application, a defendant needs to show that the plaintiff has no arguable case for any of the causes of action, Tower’s reliance on hearsay evidence to prove matters of fire cause, reckless or wilful behaviour and criminal activity falls short of the standard.
[8] Mr Nand’s affidavit makes up for some of the shortcomings in Tower’s
evidence. Paragraphs 10 to 15 of his affidavit say:
10 We rented out the house to tenants over the years. Our adult son, Nicholas Nand, was the tenant who rented the property from us in 2010. Annexed marked “D” is a copy of the tenancy agreement. Nicholas lived there with his partner and young child.
11 On 1 July 2012, a fire occurred at the property. The Police and Fire Service attended the fire and ascertained that the fire was most likely started in the garage. Police and Fire Service determined the fire was accidental as opposed to deliberately set.
12 Further investigation determined that some persons who did not live at the property had been involved in the manufacture of methamphetamine in our garage. We also learned that the people at the property who were involved in this incident had been allowed on the premises by the tenant, Nicholas Nand. My wife and I only discovered this after we received a call from the Police advising that the house had suffered a fire.
13 The Police carried out investigations with the Fire Service. The Police stated to me the fire was accidental and accidentally started as a result of something going wrong in a drug manufacture.
14 I was very shocked and devastated that my house had been used for this purpose and was unaware that Nicholas Nand was in any way associated with this kind of incident. If I had known that Nicholas Nand was involved or likely to be involved in drugs I would never have allowed him to rent our house. After learning this we evicted him. My wife and I were horrified when we learned what had happened because we are law abiding citizens. We were very upset and disappointed that this had happened and it brought great disappointment on our family.
15 Nicholas Nand was also interviewed and he was charged by Police and prosecuted. I understand that the persons who were physically manufacturing the methamphetamine were also prosecuted and sentenced.
[9] Mr Nand’s evidence is also hearsay in relying on statements made by the
Police and Fire Service. Notwithstanding that, he accepts those statements and
Tower may rely on them as admissions. They provide facts on which to decide the summary judgment application. Insofar as Tower’s case relies on matters not admitted by Mr Nand, I find that it has not proved its case to the summary judgment standard.
[10] The Nands’ evidence includes an affidavit by a Fire Service investigator. He also relies in part on information given by the Police. He was able to establish the area of origin, but not the point of origin. He considered that the most likely cause of the fire was accidental. By that he meant that the fire was not lit deliberately. He did not ascribe responsibility to anyone. Tower’s evidence did not challenge that.
[11] I also note the following:
(a) While the Nands’ son was prosecuted, there is no admissible evidence
as to the outcome of any prosecution.
(b)While Mr Nand has attached a copy of a tenancy agreement with his son, Tower contests that there was a written agreement.2 Whether there was or was not a written tenancy agreement cannot be resolved on the evidence in this proceeding. It remains arguable for the Nands that they had a written tenancy agreement with their son.
The insurance policy
[12] The policy is called a “Kiwibank house, contents and vehicle insurance policy” and provides cover under three sections: house, contents and vehicles. The policy defines the cover available under each section and also includes optional extensions. The insuring clause for the house section covers sudden and unforeseen accidental physical loss or damage unless excluded by the policy.
[13] The exclusions include the following:
You are not insured for:
2 Mr Iafeta’s reply affidavit.
·any unreasonable, criminal and reckless or wilful act or omission or any disregard for, or failure to comply with any provision in or notice or order under any Act of Parliament by you;
…
·theft or deliberate damage caused directly or indirectly by you, or anyone who normally lives at the situation or is lawfully at the situation. This exclusion does not apply to deliberate damage by fire, by tenants or their guests.
[14] The conditions section of the policy includes this continuing warranty:
You and any person in charge of your property with your permission must:
…
Not cause or facilitate loss or damage to any property covered by this policy or incur liability by any unreasonable, reckless or wilful act or omission;
…
Otherwise we can decline your claim and/or recover any payment already made.
[15] The policy has a section “Meanings of words” which includes this definition of “you”:
You or your means the person(s) named in the certificate of insurance as the insured, your spouse and your children normally residing at the situation. You or your does not include a de facto partner (unless you have been living together in the de facto relationship continually for at least three years), or family member such as parent, grandparent, brother or sister unless they are named in the certificate of insurance. Where you jointly own any of the property this policy insures you jointly.
[16] “Situation” is defined as the location shown in the certificate of insurance.
[17] A certificate of currency shows that the insurance policy was in force on
1 July 2012. The insured are Mr and Mrs Nand. The policy is full replacement house cover, with extensions: the deletion of a $400 rental excess and an extension for loss of rent and landlord’s contents and fixtures. The situation is the Flatbush property. Their son is not shown as an insured. No property is covered except the house and landlord’s contents. There is no cover for vehicles and no cover for tenant’s contents.
[18] Mr Nand says that when they arranged the insurance through their bank, they told the bank’s representative that they needed cover that would protect them in the event of damage caused by any tenant who occupied the property, as any reasonable landlord would require. The representative allegedly assured them that that would not be a problem. It is not, however, necessary to rely on Mr Nand’s evidence, because the insurance certificate makes it clear that the purpose of the policy was to provide insurance cover for a tenanted property.
The meaning of “you”
[19] For its declinature, Tower relies on the actions of the Nands’ son in allowing methamphetamine manufacture at the Flatbush property. A large part of its defence relies on bringing their son within “you” under the policy. On its case, if their son is a “you”, any actions by the son which amounted to courting the risk or triggered an exclusion or breached a continuing warranty disqualify Mr and Mrs Nand from claiming under the policy. Tower says that the son is a “you” because under the definition he is a child of the insured and he normally lived at the situation, the
Flatbush property.3 On its case it does not matter that the son did not have any cover
under the policy. Its literal approach requires the defined meaning of “you” to apply regardless of context.
[20] In support, Tower cited Scott v Wawanesa Mutual Insurance Co.4 There a fifteen-year old son of the owners deliberately set fire to the house covered by an insurance policy, which included this exclusion:
LOSSES EXCLUDED
This policy does not insure:
…
(d) loss or damage caused by a criminal or wilful act or omission of the Insured or of any other person whose property is insured hereunder;…
“Insured” was defined:
3 There is one part of the policy which Tower might invoke which does not rely on the son being a
“you”. That is addressed below at [46].
4 Scott v Wawanesa Mutual Insurance Co [1989] 1 SCR 1445.
The unqualified word “Insured” includes (1) The Named Insured, (2) if residents of his household, his spouse, the relatives of either, and any other person under the age of 21 in the care of the Insured.
The majority of the Supreme Court of Canada held the son to be within the definition, so that the parents’ claim under the policy failed. L’Heureux-Dubé J for the majority said:5
In my view, the terms of the insurance policy are perfectly clear and unambiguous. The policy does not cover the type of risk which occasioned this loss. Such risk was specifically excluded. The wording of the exclusion clause for the purposes of the present case is unambiguous, as is the definition of “Insured”.
[21] Opposing, the Nands’ submission proposes a restricted interpretation of “you”. In this case the son was grown-up and living independently of his parents. He was no longer a child under the definition. Further, the definition applies to a household where parents and any children live together in a house, not to children living apart from their parents. Under this interpretation, the son is not a “you”.
[22] The interpretation issue goes to whether the insured owners are to be denied cover when their son, a potential “you”, is said to have been responsible for the fire that damaged the house. In Firm PI 1 Ltd v Zurich Australian Insurance Ltd the Supreme Court outlined the general approach to construction of contracts as
applying to insurance contracts:6
[60]Given the issues in the case, it is not necessary that we discuss the approach to contractual interpretation in any detail. It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[61] The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a
5 Above, at 1465.
6 Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147, [2015] 1 NZLR 432 at [60]-[63].
reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed. Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
[62]It should not be over-looked, however, that the language of many commercial contracts will have features that ordinary language (even a “serious utterance”) is unlikely to have, namely that it will result from a process of negotiation, will attempt to record in a formal way the consensus reached and will have the important purpose of creating certainty, both for the parties and for third parties (such as financiers). The fact that parties are aware their contract might be relied upon by a third party may justify a more restrictive approach to the use of background in some instances, the parties’ awareness being itself part of the relevant background. In Re Sigma, where the interpretation of security trust deed was in issue, Lord Collins said that the background was not relevant “except in the most generalised way” and went on to say:
Where a security document secures a number of creditors who have advanced funds over a long period it would be quite wrong to take account of circumstances which are not known to all of them. In this type of case it is the wording of the instrument which is paramount. The instrument must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument and from the nature of the debtor’s business. Detailed semantic analysis must give way to business common sense …
To some extent, then, the scope for resort to background is itself contextual. We also note at this point that Lord Collins’ reference to “business common sense” is one that is echoed in many interpretation cases, as we discuss at paras [77]–[79] and [88]–[93] below.
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
(Citations omitted)
[23] The contextual approach to interpretation may modify the application of defined terms in particular cases. That is undoubtedly the case with statutory
interpretation7 even in the absence of the usual “unless the context otherwise requires” found in interpretation sections. The same applies to definitions clauses in contracts.8 An example is Prenn v Simmonds, a leading case on the contextual approach to contractual interpretations.9
[24] In policies such as this one, some provisions may be surplus in a particular case. The policy is intended to apply in a wide range of situations: for example, a single household, a secondary house, an apartment or, as here, a residential investment property. The insured may be a single person, a couple, with or without children. Various insured may own different assets covered by the policy: ownership of contents may be divided among members of a household and owners of vehicles need not be the same as owners of the house. The insured may take out cover for their house, contents and vehicles, but they need not do so. In this case the Nands took cover only under the house section of the policy with extensions for their interests as landlords. The certificate of insurance defines the scope of cover. Policy provisions outside the scope of cover are irrelevant. It is not necessary to read the policy on the basis that every provision must apply.
[25] Because the policy is intended to apply in a wide range of situations, it need not be read as written only for a particular paradigm. Given that this is a consumer policy, it is also reasonable to assume that both insurer and insured would expect claims to be decided efficiently and without protracted inquiries.
[26] Tower accepts that “you” applies to those with cover under the policy. It also goes further and says that it applies to those who do not have cover. It says that if a “you” without cover under the policy triggers an exclusion (for example, that for an unreasonable, criminal or wilful act or omission), that deprives an insured of a claim for the damage caused. Before dealing with that aspect, it is helpful to work out how
the policy works if a “you” is another insured under the policy.
7 Police v Thompson [1966] NZLR 813 (CA) at 818.
8 Gerard McMeel The Construction of Contracts (2nd ed, Oxford University Press, Oxford2011) at
4.31-4.33.
9 Prenn v Simmonds [1971] 1 WLR 1381 (HL). “R.T.T.” was defined as referring to a holding company. Lord Wilberforce found that in context it referred to the entire group, not just the holding company.
[27] A “you” with cover under the policy may have an interest in the same asset as that belonging to the named insured who have made a claim. In those cases the current favoured approach is to have regard to the interpretation of the policy, rather than to the nature of the interest of the insured in the property.10 If an insurer seeks to impose joint obligations on the insured (so as to deprive an innocent insured of a claim because of deliberate loss caused by another), clear language is required.11
Where the insured do not have joint interests in the insured asset,12 each insured may
claim separately from the other. In Challenge Finance Ltd v State Insurance General Manager, the Court of Appeal applied the older approach of construing according to the parties’ interests and said:13
There is nothing in the policy document to suggest that principle is not applicable in this case with the result that the policy is to be construed as made between the insurer and the insured severally for their respective rights and interests. In such a case, in the absence of a contrary stipulation, even the deliberate act of one insured in destroying the subject-matter of the insurance may not defeat the claim of another insured.
To illustrate the clarity required, in Maulder v National Insurance Co of New
Zealand Ltd Eichelbaum CJ said:14
The “A and B” formula is insufficient: the meaning the insurer wishes to ascribe to the expression to exclude liability is A or B, or A and B or either of them.
The reason for such an approach is not hard to understand, as the Chief Justice explained:15
Holding an innocent party to be prejudiced by the criminal acts of another is a concept repugnant to ordinary notions of fairness, and it would take clear words to convince me that such was the intention.
Similarly in Scott v Wawanesa Mutual Insurance Co, La Forest J for the minority said:16
10 Maulder v National Insurance Co of New Zealand Ltd [1993] 2 NZLR 351 (HC) at 358.
11 Above at 359.
12 The “composite” policy identified by Sir Wilfred Greene MR in General Accident Fire and Life
Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 (CA) at 405.
13 Challenge Finance Ltd v State Insurance General Manager [1982] 1 NZLR 762 (CA) at 767.
14 Above n 10, at 359.
15 Above n 10, at 359.
16 Above n 4, at 1457. A caveat is required. In New Zealand an insurance policy is not interpreted
according to the insured’s reasonable perception of it (Maulder at 358). Notwithstanding that
Clearly, an insurer might choose to contract on the basis that it considered its indemnification obligation joint with regard to both the named insured and other insured. But in offering to contract on such terms, it would be incumbent on an insurer to manifest this intention in the very clearest of language. This is because a person entering such a contract would be agreeing to assume vicarious liability for the criminal conduct of another. This, it is fair to say, is fundamentally at odds with the expectation of the reasonable person when buying fire insurance. He or she insures on the assumption that his or her undivided interest is protected. That is the whole point of taking out insurance.
[28] In a case where there is not multiple ownership of the subject-matter of the insurance, but different people own different assets which are all covered under the one policy, it becomes even more obvious that clear language is required to deprive an insured of cover because of the actions of someone without any interest in the damaged asset.
[29] In this case the definition of “you” includes: “Where you jointly own any of the property this policy insures you jointly.” For Tower, it is arguable that in respect of a jointly-owned policy, this is enough to bring into effect the dictum of Viscount Cave in P Samuel & Co Ltd v Dumas:17
It may well be that, when two persons are jointly insured and their interests are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance.
While the policy is written in plain language, this aspect can be criticised because ordinary consumers may not appreciate that joint ownership of the policy may deprive an innocent insured of cover because of the effects of joint contracting. Be that as it may, this provision is as close as it gets for the insurer in depriving an innocent insured of cover because of actions of another insured under the policy. Indeed, the fact that the policy addresses only joint ownership suggests that in other cases, the actions of other insured are not to deprive an innocent insured of a claim under the policy.
[30] The policy wording in Maulder gives helpful guidance. A married couple owned a house jointly and insured it under a policy which provided:
difference, La Forest J’s statement is sound for New Zealand.
17 P Samuel & Co Ltd v Dumas [1924] AC 431 (HL) at 445 (citations omitted).
“You” or “Your” means the insured named in the Schedule
And
You must … not cause or facilitate loss to the house or incur liability by any
reckless or wilful act.
That wording was not enough to deprive the wife of a claim when her husband burnt the house down. Aside from the joint-ownership aspect, the “you” definition in this case does not differ significantly from that in Maulder.
[31] Given that except in the arguable case of jointly-owned property, the deliberate actions of one insured in destroying property or triggering exclusions will not bar a claim by an innocent insured under this policy, the same must also apply when the person causing the loss is not insured under the policy at all. That answers Tower’s argument that a non-insured may still be a “you”. The policy wording is not clear enough that the actions of a non-insured should deprived an innocent insured of cover.
[32] That is supported by further considerations. In Morgan v Greater New York Taxpayers Mutual Insurance Association, Conway J said of a policy under which liability cover was extended to others:18
But that argument, based upon the “Definitions” section, cannot withstand analysis. Defendant, we think, seeks to turn to its own advantage a provision of the policy intended to benefit, not to prejudice, the named assured. The “Definitions” section, by assigning a broad meaning to the term “Assured”, extends coverage to various persons in addition to the named assured. That section which might be termed an “additional assured” provision serves as an inducement to purchase insurance to one contemplating taking out a liability policy, by affording coverage, without added premium, to others in addition to the applicant. To hold that such a provision, purporting as it does to broaden coverage by extending it to additional assureds, works a reduction in the coverage which would be afforded to the named assured in the absence of such a provision is not in harmony with the true, beneficial purpose of the provision. In Wenig v Glen Falls Indem. Co., 294 N.Y. 195 at page 201, 61 N.E. 2d 442, at page 445, we discussed a somewhat similar provision and said (Lehman, Ch J): “The liability of the insurance company upon its promise to insure the “named assured” is neither extended nor limited by the fact that under the terms of the policy it assumed an obligation also to insure the “additional assured” against liability for damages for which he might become liable.”
That applies here too.
[33] If Tower really intended to use the “you” definition to exclude cover because of actions by third parties, it has been ham-fisted about it. If Tower wanted to bar claims because of other non-insured members of a household, it is odd that it limited that exclusion to a spouse and children living in the house and did not extend it to short-term de facto partners and other family members. The “you” definition does no more than extend coverage to some defined members of the household, but its purpose is not to provide an exclusion of claims by innocent insured.
[34] Accordingly, under the definition of “you” the policy extends coverage to a spouse and children normally living at the place stated in the certificate of insurance. The definition only applies if those people have assets covered under the policy. It allows those additional people to claim under the policy for losses covered. Except in the case of jointly-owned property, it does not allow the insurer to decline a claim by the insured by reason of the conduct of others covered by the policy. The Nands’ son is not a relevant “you” in this case because he was not covered by the policy. The words, “your children normally residing at the situation” are redundant in this case.
[35] As for Tower’s reliance on Scott v Wawanesa Mutual Insurance Co, the policy wording is different. The majority found the words in that case effective to bar a claim. That is not the case here. Besides, in Maulder Eichelbaum CJ preferred the minority’s judgment.19
[36] Tower suggested that the son had cover under the policy. He was a “deemed insured” because he had the benefit of living in the house. I do not understand how that gives him any rights under the policy. His parents owned the house and can claim for any damage to the house covered by the policy independently of him. The policy, as defined by the certificate of insurance, does not provide cover for a tenant of the property. But even if he had cover as a tenant, that interest is distinct from his parents.’ It is not a joint interest with his parents’. It does not make him a “you” for the purpose of a claim by the parents.
[37] Now for the Nands’ interpretation of the definition. While the policy applies to a typical family unit of parents and children who have not yet left home, it would be a mistake to interpret the definition so as to limit coverage under the policy to only those circumstances. The policy is to apply in a range of cases that may or may not be typical. It is to be interpreted as requiring that flexibility. Any narrowing of coverage is more likely to be found in the certificate of insurance which states how the policy is to apply under a particular contract. “Children” is used as referring to a relationship with the insured, not to those younger than a certain age or in a state of dependency. Similarly children living at the place in the certificate of insurance need not have their parents living at the same place. That is required to capture secondary homes, baches and city apartments. “The insured, your spouse and your children normally living at the situation” covers not only all of them living in the same place but also some of them. “Children” includes one child. Accordingly the Nands’ submission as to this aspect of “you” does not provide an answer to Tower.
The “courting the risk” defence
[38] Tower’s “courting the risk” defence denies that there was accidental loss within the terms of the policy. It accepts Lord Macnaghten’s well-known definition of “accident” in Fenton v J Thorley & Co Ltd as “an unlooked-for mishap or an untoward event which is not expected or designed”.20 It says however that when an insured has taken such a risk as almost to invite the damage, the matter is no longer an accident. It cites Mount Albert City Council v New Zealand Municipalities Co- operative Insurance Co Ltd where Cooke J said:21
I would accept that there is a category of cases falling short of a deliberate causing of the damage by the insured where his conduct is nevertheless so hazardous and culpable that the event cannot fairly be called an accident. It can only be a question of fact whether a case falls within this category. The insured's knowledge of the risk must be important, in that unless the evidence justifies the inference that he deliberately incurred the risk one would be very slow to find that the event was other than an accident. On the other hand it seems to me not decisive that the risk may have been deliberately run or calculated. For instance, if the risk was reasonably seen by the insured as not a high one, the occurrence might still be found to be an accident.
20 Fenton v J Thorley & Co Ltd [1903] AC 443 (HL) at 448.
21 Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd [1983] NZLR 190 (CA) at 194.
It is not profitable to essay precise rules or semantics in this field. Facts and risks vary too greatly. One expression that has been used in some cases, and was used by Thorp J here, is "courting" the risk. If that is understood as a term stronger than merely running or incurring, and in the sense rather of inviting or wooing, I respectfully agree that it can be a useful test for the tribunal of fact to apply. So can Lord Macnaghten's definition already quoted. But in the end, in relation to the simple words "accidents" and "accidental damage to property" in this insurance policy, I doubt whether as a matter of law the Court can go further than to say that those are helpful but not necessarily exhaustive tests…
[39] Tower does not say that Mr and Mrs Nand indulged in such risky conduct. There is no evidence to support such a suggestion. From their point of view the fire in the Flatbush property was entirely accidental. They had nothing to do with the fire. Instead Tower says that their claim should be declined because of their son’s conduct. That requires the Nands to be identified with their son, but the policy does not give any basis for doing so. The defined “you” does not apply to the insuring clause: “sudden and unforeseen accidental loss or damage.” Only the conduct of the relevant insured, the Nands, could be relevant under this argument. Their son’s is not.
[40] Further it is not possible on the admissible evidence to assess whether the son’s conduct would bring the calculated risk principle referred to in Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd into play. Tower invited me on the basis of dicta in R v Fatu to find that illegal
methamphetamine manufacture was inherently hazardous.22 That was a guideline
sentencing judgment on methamphetamine manufacture, supply and importing. The Court’s observations were general findings of legislative facts, not adjudicative facts.23 They do not provide a satisfactory basis to assess the son’s conduct. That will turn on the particular facts, but at this stage we do not know enough about them.
The exclusion defence
[41] Tower relies on this exclusion:
You are not insured for:
22 R v Fatu [2006] 2 NZLR 72 (CA) at [23]-[25].
23 For the distinction between legislative and adjudicative facts, see Hansen v R [2007] NZSC 7, [2007] 3 NZLR 1 at [230].
any unreasonable, criminal and reckless or wilful act or omission or any disregard for, or failure to comply with any provision in or notice or order under any Act of Parliament by you
[42] Here Tower again relies on “you” to pin the son’s conduct on the parents. As explained above, in this context “you” refers only to the Nands, the only people with insurance cover under the policy. The son is not a relevant “you.” This policy wording does not deprive the insured of cover because of conduct of their uninsured son.
[43] Again not enough is known about the facts to establish whether the son’s
conduct comes within the exclusion.
The continuing warranty defence
[44] Tower relies on the condition:
You and any person in charge of your property with your permission must:
…
Not cause or facilitate loss or damage to any property covered by this policy or incur liability by any unreasonable, reckless or wilful act or omission;
…
Otherwise we can decline your claim and/or recover any payment already made.
[45] As with the exclusion, “you” does not help Tower to use the son’s conduct to decline the parents’ claim. Additionally, there is not sufficient evidence to show to a summary judgment standard that he caused or facilitated the fire by unreasonable, reckless or wilful acts or omissions.
[46] There is another aspect to this provision. Here Tower may rely on conduct of other persons without relevant cover to decline a claim: those in charge of the property with the permission of the insured. That is clear language of the sort required to show that the actions of others may bar a claim. The provision is however in part inconsistent with this exclusion:
theft or deliberate damage caused directly or indirectly by you, or anyone who normally lives at the situation or is lawfully at the situation. This exclusion does not apply to deliberate damage by fire, by tenants or their guests.
The condition operates as an exclusion: it specifies matters which, on their occurrence, bar a claim. There is an overlap between the condition’s “Any person in charge of your property with your permission must…not cause or facilitate loss or damage to any property covered by this policy or incur liability by any unreasonable, reckless or wilful act or omission” and the exclusion’s “theft or deliberate damage caused directly or indirectly by you, or anyone who normally lives at the situation or is lawfully at the situation.” The exclusion is subject to an exception for deliberate damage by fire by tenants or their guests. Equally the exclusion cannot apply to non-deliberate damage by fire caused by tenants or their guests. The condition is not however subject to such an exception. But Tower cannot use the condition to refuse a claim for fire damage to tenanted premises caused by tenants or their guests. The exception in the exclusion is more specific and prevails over the wider condition. Accordingly the words, “any person in charge of your property with your permission,” do not allow Tower to sidestep the limited “you”.
Outcome
[47] Tower has not shown that the Nands’ cause of action cannot succeed. Tower’s defence relies on being able to decline their claim for fire damage to the Flatbush house because of misconduct by their son alleged to have caused the fire. It does not suggest that the Nands were in any way implicated in causing the fire. The terms of the policy do not allow Tower to rely on the son’s actions to bar their claim. Moreover, the admissible evidence does not allow findings on a summary judgment basis as to the son’s role in causing the fire. Accordingly, the summary judgment application must be dismissed.
[48] During the hearing, counsel for Mrs Nand suggested an alternative cause of action based on representations made when the policy was taken out. Mrs Nand may assess that in the light of this decision. Case management directions are required so that the case can go to a hearing in the ordinary way.
[49] Tower should pay costs on the summary judgment application. While it is the general practice to reserve costs on a plaintiff ’s unsuccessful summary judgment application,24 that is not necessarily the case with a defendant’s summary judgment application. The court is reluctant to order costs against an unsuccessful plaintiff because of the difficulty in assessing the ultimate merits of the case at the summary judgment stage. In some cases, defences raised at the summary judgment may be shown later to have no foundation. In such cases it would be wrong to award the defendant costs on dismissing the summary judgment application. On the other
hand, a defendant is usually able to assess the strength of its case before applying for summary judgment. The usual consequence of costs following the event may apply. That is the case here.
[50] I make these orders:
(a) The defendant’s summary judgment application is dismissed;
(b)The defendant is to pay the plaintiffs costs on a category 2 basis. If the parties cannot agree costs, memoranda may be filed and I shall decide costs on the papers;
(c) Mrs Nand is to file and serve an amended statement of claim which
will plead her husband’s death and her survivorship;
(d)The Registrar is to direct a case management conference. Before the conference, the parties are to confer as to discovery and as to directions through to hearing.
………………………............
Associate Judge R M Bell
24 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
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