Parkin v Vero Insurance New Zealand Ltd
[2015] NZHC 1675
•17 July 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-009-1849 [2015] NZHC 1675
BETWEEN KANE BRUCE PARKIN
Plaintiff
AND
VERO INSURANCE NEW ZEALAND LIMITED
Defendant
Hearing: 14-20 April 2015 Appearances:
D Webb and S Goodwin for Plaintiff
C M Meechan QC and M Atkinson for DefendantJudgment:
17 July 2015
JUDGMENT OF MANDER J
PARKIN v VERO INSURANCE NEW ZEALAND LIMITED [2015] NZHC 1675 [17 July 2015]
Table of contents
Background [2] The parties’ respective cases in summary [18] Mr Parkin’s claim [18] Vero’s response [23] Issues [29] The insurance policy [30] Approach to interpretation of the policy [33] What is meant by “damage” [36] Responsibility or control of the reinstatement [39] The evolving nature of Mr Parkin’s claim [48] Alleged breach of duty of good faith and the terms of the fair insurance code [54] Assessment of the allegation of breach [63] Cash settlement proposal [86] Post-commencement obligation to settle [102] The repair standard [105] Damage and remedial solution [122] Overview of damage to the house [125] Lower level piles [127] Pile at extreme southeast corner [146] External cladding [150] Driveway [169] Rotation and cracking of front foundation [170] Upper level subfloor support of garage [171] Interior of the dwelling – linings etc [172] Rotation of the timber retaining wall and water seepage [178] Remaining aspects of damage [201] Quantification of the cost of reimbursement [202] Is an award of general damages appropriate? [209] Conclusions [213] Costs [215]
[1] The plaintiff, Mr Kane Parkin, owns a house in Lyttelton which is insured by the defendant, Vero Insurance New Zealand Limited (Vero). The house suffered damage in the Canterbury earthquakes. Mr Parkin claims Vero has failed to discharge its obligation under the insurance policy, to pay him the cost of rebuilding or repairing the house, and has breached the contract of insurance.
Background
[2] The house is a new three level townhouse, completed in March 2009. It is situated on a moderately steep site, sloping to the south and overlooking Lyttelton Harbour. It was constructed at the same time as a second dwelling which is effectively its twin.
[3] In broad outline, the home is accessed from the street or top level via a garage and entranceway. The middle level is accessed from the entrance via stairs, and comprises a kitchen, dining and living area, with doors to a balcony. The lower level is accessed via stairs from the middle level and comprises two bedrooms, a bathroom, toilet and laundry. The schedule to the insurance policy describes the area of the house as 135 m2.
[4] The house suffered some damage in the September 2010 earthquake event. More significant damage was incurred as a result of the February 2011 earthquake. Claims were lodged with the Earthquake Commission (EQC), which resulted in a payment of $58,019.19 for the September event. In respect of the February earthquake, Mr Parkin received the maximum payment under EQC’s capped statutory liability of $113,850. Mr Parkin seeks to recover from Vero the costs of reinstatement that exceed the EQC payment.
[5] In March 2011, the property was first inspected by Vero. By that time, both Mr Parkin’s house and the neighbouring unit had been “red stickered”. This prohibited its use or occupation, and required the dwelling’s structural integrity to be
checked by an engineer.1
1 Building Act 2004, s 124.
[6] Vero engaged MWH (Mainzeal) (MWHM) on 8 March 2011 for the purpose of assessing damage and to scope reinstatement of houses damaged by the Christchurch earthquakes. Vero instructed MWHM to obtain an estimate of the cost of repairing the house. The advice received by Vero was that Mr Parkin’s house could be economically repaired. In its “MWHM Reinstatement Recommendation Report”, MWHM estimated the cost of repair to be $185,479 (excl GST).
[7] In July 2011, EQC produced a scope of works with a cost of repair significantly higher ($318,213.46 – $331,986.60 (incl GST)) than that provided by MWHM to Vero, and raised whether the house could be economically repaired. The EQC payments for the two earthquake events, paid in October 2011, were, however, to be ultimately based on the MWHM report which provided a more detailed assessment of the damage and costings.
[8] The house was located in an area that was classified as the “white zone”. Together with a number of other areas in the Port Hills, this zone was awaiting further classification by the Canterbury Earthquake Recovery Authority (CERA) into either “green zone” (suitable for residential construction) or “red zone” (not suitable for use as earthquake land). The house would remain in the white zone until May
2012, when the area was finally classified as green.
[9] In November 2011, a further assessment of the house was carried out by a building contractor, Simplexity Construction (Simplexity), engaged by MWHM. A recommendation in the building inspection report resulted in an engineer visiting the site and confirming that subject to land classification (from white to green), the house was capable of being repaired. In December, Vero’s conclusion that the house was repairable was communicated to Mr Parkin. He was advised a final scope of works would not, however, be produced until the zoning decision for the locality had been made.
[10] Mr Parkin was unhappy about the delay in progressing his claim. As a result of a telephone conversation between Mr Parkin and the claims manager assigned by Vero to his claim, Mr Steven Youl, Mr Parkin’s claim was put on the “cash settlement list”. This was done as a means of expediting the release of a full repair
scope with pricing. Mr Parkin was unhappy about having to wait for a change in zoning. He appeared to be of the view the house was a rebuild as a result of the earlier EQC advice and oral statements he said had been made by the assessor from Simplexity who had inspected the house in November.
[11] The following day, after Messrs Parkin and Youl’s telephone conversation, Mr Parkin received a revised reinstatement report prepared by MWHM. This report which constituted an updated estimate was unconnected with the “cash settlement” process initiated the previous day to obtain a full repair scope and detailed costing. It resulted, however, in Mr Parkin raising further concerns with Vero about the completeness and accuracy of the assessments being undertaken by MWHM, and in particular the estimated cost of repair, which at that stage was put at $157,514.
[12] After further correspondence, during which another earthquake occurred on
23 December 2011, a site meeting took place on 15 February 2012. This resulted in another building inspection report. As a result, Vero again advised Mr Parkin the house could be repaired. However, remediation would not be able to be advanced while the property remained in the white zone.
[13] In March 2012, Mr Youl further advised in an email to Mr Parkin that a formal reinstatement report would not be prepared until the zoning was changed. He explained the procedure which Vero would follow at that point in terms of discussing the proposed remedial work with Mr Parkin.
[14] In the subsequent months, there were further email exchanges between Mr Parkin, his insurance broker, and Vero. Mr Parkin was frustrated about the delays and believed Vero was stalling the settlement of his claim. Mr Youl’s view was that Mr Parkin’s concern with MWHM’s cost estimates was rooted in the discrepancy between EQC’s initial conclusion that a rebuild was likely, and MWHM’s assessment the house could be repaired. On 2 May, Mr Youl suggested a joint inspection between EQC and MWHM. Mr Parkin rejected that proposal. On
18 May 2012 the land classification changed from white to green.
[15] On 30 May, Mr Parkin’s broker suggested, in an effort to make some progress, that an engineer inspect the property and provide a preliminary report. Mr Youl, however, was not prepared to get further engineering input until the house was in the preconstruction phase and building consents were being applied for. Mr Youl noted the property had been inspected three times, and each time found to be repairable. He also observed that a full reinstatement scope would be needed and agreed to by Mr Parkin before any work could actually start. If engineering input was required at that stage, that would be arranged, but until that time he considered engaging an engineer was premature.
[16] On 4 July, Mr Parkin met with representatives from Simplexity and a quantity surveyor from MWHM. It was proposed by MWHM that, for the purposes of providing an accurate estimate, another independent builder be engaged. Mr Youl considered it may be helpful to get someone new to estimate the cost of the repair in order to resolve Mr Parkin’s concerns. However, following the meeting on 4 July, Mr Parkin advised he had no confidence in MWHM providing him with an accurate reinstatement report.
[17] On 6 July, Mr Parkin’s insurance broker advised that Mr Parkin intended to obtain his own building consultant’s report. Subsequently, in August, Mr Parkin through his broker advised that the further MWHM sponsored inspection should be put on hold pending receipt of his own building report. No building report was provided to Vero before Mr Parkin issued proceedings on 10 September.
The parties’ respective cases in summary
Mr Parkin’s claim
[18] Mr Parkin’s claim is that Vero breached the insurance contract. In his statement of claim, Mr Parkin pleaded that Vero had failed, or refused, to meet its obligations under the policy because it only offered to pay costs to repair part of the house, which did not indemnify the plaintiff under the policy. A declaration was sought that Vero be liable to pay to Mr Parkin the costs of rebuilding the house to the same standard, specification and condition as new. Alternatively, judgment for the cost of repairs. General damages were also claimed.
[19] In opening his case, Mr Parkin sought to clarify the basis on which his claim rested. He identified that fundamental to his claim was his allegation that Vero had undervalued his loss, and inappropriately sought to control the basis upon which the house was to be reinstated. Mr Parkin challenged whether Vero had properly assessed the damage and cost of reinstatement. He disputed Vero’s view of the proper method of reinstatement of the damage. He submitted Vero was liable to pay him the cost to rebuild the house under the terms of the policy and in accordance with the assessment of damage and scope of works provided by his experts. It was further submitted that the parties had proceeded on the basis that Vero would pay the cash equivalent of the cost of reinstatement.
[20] In closing, Mr Parkin reframed the alleged breaches of the contract by Vero in the following terms:
(a) In breach of its obligations at law and under the terms of the policy, Vero failed to pay the indemnity cost of the reinstatement once an election was made to pay the indemnity cost;
(b)In breach of express terms of the policy, Vero refused to accept the claim in respect of all earthquake damage; and
(c) In breach of the express terms of the policy, Vero refused to settle the claim on the basis of a reinstatement to the policy standard of “rebuilding or repairing the damaged portion of the home using currently equivalent building materials and techniques to a standard of specification no more extensive, nor better than its condition when new”.
[21] In addition, Mr Parkin articulated two further previously unidentified breaches of the contract of insurance, namely:
(a) In breach of the implied term of good faith, Vero failed to properly draw the attention of Mr Parkin to his entitlements under the policy.
(b)In breach of express terms of the Fair Insurance Code incorporated into the policy, Vero failed to:
(i)explain the special meanings of particular words or phrases as they apply in the policy;
(ii) explain the meaning of legal or technical words or phrases; (iii) settle all valid claims fairly and promptly (or at all).
[22] Overarching these allegations is the question of who had control and responsibility for conducting the reinstatement. Mr Parkin submitted the reinstatement strategy was to be determined by the policy holder, the cost of which the insurer was obliged to meet unless clearly outside the terms of the policy.
Vero’s response
[23] Vero refuted it had breached any obligation owed to Mr Parkin under the insurance policy. Damage to Mr Parkin’s house was able to be repaired and, in accordance with the policy, Vero had always been prepared to meet the actual costs incurred by Mr Parkin to repair his home. Mr Parkin, however, was not entitled to a cash payment based on an estimate of the repair cost. Rather, Mr Parkin is required to incur the costs of undertaking the remedial work before Vero’s obligation under the policy is triggered. This is a precondition to Mr Parkin receiving payment. Vero accepted that it is obliged to pay whatever is ultimately necessary to repair his house.
[24] Vero denied that an election had been made by Vero to pay him the indemnity cost of the reinstatement, which is an option available to it under the policy. In the circumstances of this case, placing Mr Parkin’s claim on the “cash settlement list” did not have that effect, and this was understood by the parties.
[25] In terms of any remedy, at most, Mr Parkin was only entitled to declaratory relief, limited to clarification of the damage caused by the earthquake, how it is to be fixed, and whether Vero’s proposal to remediate the damage discharges its policy
obligations. Vero submitted Mr Parkin is not entitled to general damages in the absence of a breach of its contractual obligations prior to the issue of proceedings.
[26] In response to the reformulated basis upon which Mr Parkin put his case, Vero re-emphasised that it was not obliged to pay Mr Parkin any amount under the policy until Mr Parkin had incurred costs in rebuilding or repairing the damage to his house. Further, that the obligation on Vero to pay costs incurred in repairing the damage, did not require Vero to meet the cost of identically replicating the home when it was new, but rather to meet the costs of remediation which achieves a comparable standard of structural performance, quality and appearance, and provides the same level of amenity.
[27] As a discrete issue, Vero contested whether Mr Parkin had any entitlement under the policy in respect of damage caused to retaining walls. It submitted Mr Parkin had not established that EQC had accepted liability under the Act for a claim in relation to damage to the land, rather than the house. As a result, the Vero policy had not been triggered in respect of the retaining wall. Alternatively, Vero’s liability under the policy for damage to a retaining wall is limited to a maximum of $10,000. Mr Parkin does not dispute the alternative argument.
[28] In relation to the claimed breaches of the implied term of good faith and of the Fair Insurance Code as incorporated into the terms of the policy, Vero submitted that neither breach had been pleaded in its statement of claim, nor had Mr Parkin opened his case on such alleged breaches. Raising such allegations in closing submissions on the last day of trial, which had not been referred to in Mr Parkin’s own statement of evidence, came too late. While denying the breaches, Vero should not have to meet a different case to that pleaded or opened upon by Mr Parkin, about which it had not had the opportunity to call evidence.
Issues
[29] The matters in dispute between the parties gives rise to the following issues: (a) The correct interpretation of the insurance policy. In particular:
(i)which party has responsibility for and control of the reinstatement strategy;
(ii)is Mr Parkin entitled to rely on alleged breaches of the implied term of good faith and breaches of the Fair Insurance Code incorporated into Vero’s policy; and
(iii)does placing Mr Parkin’s claim onto the “cash settlement list” constitute an election by Vero to pay the indemnity cost of the reinstatement.
(b) What constitutes damage under the policy?
(c) What is the standard of repair required by the terms of the policy?
What is the identified earthquake damage to the house and the remedial solution necessary to repair or replace in order to meet the policy standard? This will require review of discrete areas of damage to the house and the appropriate approach to remediation. Separate areas of damage to the house have been identified and were the subject of expert evidence. Those areas of damage can be summarised as follows, and will be addressed in turn later in this judgment:
(i)The lower level piles: In particular, whether the proposal to “jack and pack” the piles at the lower level of the house to remediate floor dislevelment discharges Vero’s obligations under the policy. Secondly, whether a corner pile situated proximate to filled ground requires attention.
Cladding: Whether the external cladding needs to be replaced. There is agreement that some of the exterior cladding has moved, however, there is disagreement as to whether sheets of the Colorsteel cladding have bulged. The repair strategy in
issue extends to issues relating to the movement of fixings and a section of cladding affixed to the junction with the neighbouring unit. The parties agree the timber framing of the house has racked in the earthquake and will need to be realigned. Mr Parkin’s expert considers it necessary to remove the cladding in order to “re-plumb” the building. Vero’s expert disagrees.
(ii) Driveway: The parties’ experts are in agreement that the
driveway will need to be replaced.
(iii)Rotation and cracking of the front foundation wall: The parties agree there is a crack in the front concrete foundation wall under the top level. The wall has rotated and needs to be repaired. There is agreement that filling the crack with an epoxy resin and constructing a façade wall to mask the rotation would be acceptable.
(iv)Loss of support to the garage piles under the upper level: The parties’ experts agree the piles have lost support and cannot be repaired in compliance with the Building Code by reinstating the same foundation system which previously existed. The parties are in agreement that a modified “flitch beam” support system would be acceptable.
(v)Interior of the dwelling, including linings: The parties’ experts agree the internal “gib” linings have suffered extensive cracking. Only one area of the house is in dispute, namely the west wall which Vero considers remains undamaged. The parties, however, are in substantial agreement the interior linings need to be replaced and that the stairways have been damaged and also need to be replaced.
(vi)Rotation of the timber retaining wall: The parties’ experts agree part of the retaining wall has rotated outwardly and is in an “active state” as a result of the earthquakes. There is disagreement regarding whether the functionality of the wall has been reduced. The repair strategies vary from removal and replacement to retention of the retaining wall. An associated issue relating to the timber retaining wall is the appropriate remedial strategy to address or mitigate water emanating from the wall.
(d)In relation to the retaining wall, it is accepted that any claim is limited to a maximum sum of $10,000. However, there remains an issue as to whether Mr Parkin is entitled to make any claim under the policy for such damage.
(e) Can the cost of the repairs be quantified and accurate costings determined?
(f) Is Mr Parkin entitled to any award of general damages?
These issues are discussed in detail below. I have, however, summarised my findings at [213]-[214].
The insurance policy
[30] Before examining the issues that arise from the terms of the insurance policy, the relevant terms and conditions are required to be identified. The Vero policy provides:
We will insure you for Accidental loss or damage to your home at the situation shown on the schedule during the period of cover.
What we will pay – at our option
1. the cost incurred in rebuilding or repairing the damaged portion of the home using currently equivalent building materials and techniques to a standard or specification no more extensive, nor better than its condition when new; or
2. the indemnity value should you not rebuild or repair within 12 months unless we agree to extend the time period.
[31] Should the house suffer damage caused by earthquake, the policy provided that Vero would pay:
a. The difference between the cost of reinstatement and the amount received by you under the Earthquake Commission Act 1993 and its amendments provided that:
i. the Earthquake Commission has accepted liability under the Act for the lost or damage;
ii. we shall not be liable for any excess imposed by the Act; and
iii. the total amount paid by us with the addition of the amount recoverable from the Earthquake Commission shall not exceed the amount that would be paid under the policy if the cause of the loss was other than natural disaster;
b. for loss or damage to any permanently installed swimming or spa pools, drains, pipes and cables, paths, driveways, garden walls (other than retaining walls that will be limited to $10,000) and tennis courts.
The basis for settling claims and all other policy terms and conditions will apply.
[32] The definition section of the policy relevantly provides:
Home means each dwelling (including residential flat or holiday home) within the residential boundaries of the property on which the home is situated.
…
but does not include:
•retaining walls except for the cover provided under the Retaining wall additional benefit;
...
• the land itself
Indemnity value is the amount needed to put you back in the same financial position you were in immediately before the loss occurred. This is either:
1. the market value of the home at the time of the loss or the damage;
or
2.the cost of rebuilding or repairing the damaged portion of the home to a condition no better, or more extensive than it was when new, less an allowance for depreciation and wear and tear; or
3.the market value of the Landlords furnishings at the time of the loss or damage (where the Landlords extension is shown on the schedule).
Market value means the reasonable value of the insured property immediately prior to the loss or damage.
Approach to interpretation of the policy
[33] The approach to the interpretation of insurance contracts is no different from the construction of any other contract. In O’Loughlin v Tower Insurance Ltd, Asher J, in assessing his interpretive task observed:2
[36] So I must strive to interpret the policy in a way that correlates with the presumed mutual intention of the parties, construed objectively. The parties' views as to what they subjectively thought and intended are irrelevant and I record that I put to one side the O'Loughlins' statements about what sort of cover they thought they had.
[34] The accepted approach of the extent to which there may be inquiry into the circumstances providing context to the plain words of a contract was articulated by Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd:3
Nor does the objective approach require there to be an embargo on going outside the terms of the written instrument when the words in issue appear to have a plain and unambiguous meaning. This is because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean.
[35] It is clear therefore that the construction of an insurance contract must commence with the plain words of the contract and the ordinary meaning ascribed to individual words. It may be necessary to bear in mind that some words have assumed a technical or special meaning.4 Any conclusion reached by that process needs to be checked against the context of the factual matrix in which the agreement was made. The orthodox approach is neatly summarised in McGechan J’s judgment
in Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd:5
2 O’Loughlin v Tower Insurance Ltd [2013] NZHC 670, [2013] 3 NZLR 275 (citations omitted).
See also Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262.
3 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
4 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 (HL).
5 Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [2001] NZAR 789 (CA) at [29].
The best start to understanding a document is to read the words used, and to ascertain their natural and ordinary meaning in the context of the document as a whole. One then looks to the background — to “surrounding circumstances” — to cross-check whether some other or modified meaning was intended. Apart from matters of previous negotiation, and matters of purely subjective intention as to meaning, both excluded on policy grounds, one looks at everything logically relevant.
What is meant by “damage”
[36] Before moving to the terms of the policy itself, it is necessary to clarify what constitutes damage, although there does not appear to be significant disagreement between the parties in relation to that concept. In Ranicar v Frigmobile Pty Ltd, Green CJ considered the meaning of damage in the following terms:6
In my view, the ordinary meaning, and therefore the meaning which I should prima facie give to the phrase "damage to" when used in relation to goods, is a physical alteration or change, not necessarily permanent or irreparable, which impairs the value or usefulness of the thing said to have been damaged. It follows that not every physical change to goods would amount to damage. What amounts to damage will depend upon the nature of the goods.
[37] In the context of insurance, Lord Atkinson in Moore v Evans remarked:7
In the enumeration of the perils insured against the words "damage to the property" must mean, I think, "physical injury" to the property, but it is difficult to attach any rational meaning to the words "misfortune to the property" other than "loss or physical injury."
[38] The Court must ask itself whether the item in question has suffered damage in the ordinary sense of the word. That is, whether the physical state has been altered in a negative way, in which case the item is prima facie damaged.8
Responsibility or control of the reinstatement
[39] The policy is clear on its face. The insured, Mr Parkin, must actually incur
the costs of remediating his property before Vero’s obligation as the insurer is
6 Ranicar v Frigmobile Pty Ltd (1983) 2 ANZ Insurance Cases 60-525 (TASSC).
7 Moore v Evans [1918] AC 185 (HL) at 191.
8 See O’Loughlin v Tower Insurance Ltd [2013] NZHC 670, [2013] 3 NZLR 275; Kraal v Earthquake Commission [2014] NZHC 919, [2014] 3 NZLR 42; Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307 (HCA); AXA Global Risks (UK) Ltd v Haskins Contractors Pty Ltd [2004] NSWCA 138, (2004) 13 ANZ Insurance Cases 61-611.
triggered to pay the replacement sum.9 In the absence of Vero opting to pay the indemnity value as provided in the policy as the second of two options available to it after the elapse of 12 months, there is no entitlement on the part of Mr Parkin to a cash payment upon assessment and quantification of the loss alone. In respect of a claim under the policy, the contract of insurance provides:
5. Claims
a.On the happening of any event that may give rise to a claim under this policy you must:
…
iv. obtain our consent before proceeding with repairs (other than for replacement or repair of window glass);
…
b.You shall not without our written consent incur any expense or negotiate, pay, settle, admit, repudiate or make any agreement in relation to any claim.
[40] Before Mr Parkin can incur repair costs, he is required to obtain Vero’s consent to the method of repair and its cost, which may not be reasonably withheld by the insurance company. The terms of the policy envisage the type of process discussed by Dobson J in Turvey Trustee Ltd v Southern Response Earthquake Services Ltd, where His Honour remarked:10
[38] I endorse the suggestion that an insurer and insured working through the detail of a claim in circumstances such as the present should both be required to measure the liability involved, reasonably. It is relevant in the limited sense that entitlement of an insured or limitation on liability for an insurer in relation to particular items can seldom be resolved in absolute terms. I acknowledge that beyond that qualification, imploring parties to such a dispute to be reasonable cannot lead to an objective resolution when reasonableness can so easily be in the eye of the beholder.
[41] Ordinarily where dispute arises between the parties, each will need an independent assessment of the damage, and the appropriate way to repair or replace
to the standard required by the policy. This is likely to take the form of an exchange
9 Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015] 1 NZLR 341 at
[27].
10 Turvey Trustee Ltd v Southern Response Earthquake Services Ltd [2012] NZHC 3344, (2013) 17
ANZ Insurance Cases 61-965.
of scopes of work, followed by discussion and agreement on outstanding issues. The remedial strategy could then proceed.
[42] Mr Parkin has sought to rely on the judgment of Whata J in East v Medical Assurance Society New Zealand Ltd.11 In that case, the operative policy term read as follows:
[The Medical Assurance Society] will cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or territorial authority by-laws.
[43] The insurer in the case argued at first instance that the phrase “will cover the cost” required the insured to first incur the cost of the repair before the insurer was liable to reimburse the insured. In relation to the construction of this particular part of the policy, Whata J stated:12
… the reference to “will cover the cost” does not obviously mean that [the insurer’s] obligation to pay is only triggered when the costs are actually incurred or just about to be incurred and subject to an incremental approval basis. Different words are needed to place such a strict and cumbersome fetter on the prima facie right to replacement value compensation.
[44] The wording of the relevant condition of the policy in that case was different from the Vero policy. In particular, the Vero policy refers to the insurance company paying “the cost incurred in rebuilding or repairing the damaged portion of the home…”. However, leaving that distinction aside, the Court of Appeal’s recently delivered judgment, allowing an appeal in respect of that aspect of Whata J’s judgment, eclipses the reliance that may otherwise have been available to Mr Parkin
based on the High Court judgment.13
[45] The Court of Appeal, in allowing the appeal in part, set aside the declaration made in this Court that the insurance policy did not require the cost of rebuilding or
restoring the insured’s dwelling to have been incurred (or about to be incurred)
11 East v Medical Assurance Society New Zealand Ltd [2014] NZHC 3399.
12 At [24].
13 Medical Assurance Society of New Zealand v East [2015] NZCA 250.
before the insurance company was liable to pay the replacement value. The Court of
Appeal found to the contrary, and observed:14
We should add that, contrary to the Judge's conclusion, we are not satisfied that [the insurer’s] approach — that its liability to cover the cost only arises when those costs are actually or about to be incurred — “place[s … ] a strict and cumbersome fetter on the prima facie right to replacement value compensation”. The Easts' right to settlement on that basis is absolute once they incur a contractual obligation for the purpose of restoring the building: it has no bearing upon the timing of and basis for liability.
[46] While Mr Parkin must actually incur costs, that does not equate to a requirement that he expend his own money. Rather, a legal obligation to pay on his part is required to have been created.15 The incurring of costs does not cap the insurance company’s liability. As Vero itself acknowledged, should further damage be uncovered in the course of repairs covered by the policy, Vero’s contractual obligations continue to oblige it to meet the costs necessary to repair that damage.
[47] It follows therefore that there is no requirement that Vero’s contractors must carry out the repairs. Mr Parkin would be free under the contract to use his own contractors subject to compliance with the terms of the policy. These include the requirement that Vero consent to the works subject to the overarching requirement of reasonableness.
The evolving nature of Mr Parkin’s claim
[48] Mr Parkin in his pleadings alleged that Vero had failed or refused to meet its obligations under the policy because it had only offered to pay costs to repair part of the house, which did not indemnify him under the policy. Mr Parkin sought to rely on an interpretation of the policy, which he alleged required Vero to pay the costs to repair or rebuild the damaged portion of the house. No mention was made of the need for Mr Parkin to incur the costs of rebuilding or repairing, nor that liability to pay the indemnity value was only a secondary alternative at Vero’s option.
[49] Mr Parkin’s pleaded claim was clarified in opening by reference to Vero
being liable to pay costs to rebuild the house “under the policy terms, in accordance
14 At [29] (emphasis added).
15 Hawkins v Bank of China (1992) 26 NSWLR 562 (NSWCA).
with damage assessment and works required as set out by the plaintiff ’s experts”. Mr Parkin submitted that in accordance with the terms of the policy, the appropriate reinstatement strategy was for him to determine in accordance with the expert advice he had received. The insurer was obliged to meet the cost of that remediation subject to Vero rights to refuse to approve unreasonable costs.
[50] Vero did not substantially disagree with that approach. It submitted that it was inherent in the “costs incurred” precondition of its liability that it was for the insured to organise the repair. Vero expressly disavowed any responsibility for it to drive the remedial work, or of having any right to initiate or manage the remedial process. Vero’s position, however, is that Mr Parkin provided no scope of works or costings before he issued his proceedings. There was therefore nothing which could trigger its liability for “costs incurred” under the insurance contract.
[51] Mr Parkin’s argument, however, became more focussed in closing his case. Firstly, he identified what he claimed to be breaches of the insurance contract relating to the implied term of good faith and failures to comply with the obligations of the Fair Insurance Code written into the policy document, which was said to have arisen as a result of the way Vero approached and handled Mr Parkin’s claim.
[52] Secondly, that the obligation to pay arose not from the primary obligation of the insurer to pay the costs incurred in rebuilding or repairing the damaged house, but as a result of failing to pay the indemnity cost of the reinstatement based upon an election said to have been made by Vero in placing Mr Parkin’s claim on the “cash settlement list”.
[53] Both of these allegations are dealt with as separate issues in this judgment. The first issue, which was only articulated in closing, the breach of express and implied terms of the insurance contract, arises from the narrative of the management of Mr Parkin’s claim, and the interactions between himself and Vero prior to him issuing the proceeding. It can conveniently be dealt with at this point.
Alleged breach of duty of good faith and the terms of the Fair Insurance Code
[54] Mr Parkin submitted that he had not been made aware by Vero that under the insurance policy he was required to incur the costs of reinstating his house before Vero was obliged to make any payments towards his claim. He submitted this was because Mr Youl, Vero’s claims manager, was labouring under the same misapprehension that Vero had control of the reinstatement process. It was submitted on behalf of Mr Parkin that he was unaware that Vero held the right to elect between paying the cost of reinstatement, or paying the indemnity value, and he proceeded in the belief he had the right to make this election. Mr Parkin submitted that Vero had failed to properly explain to him what his policy entitlements were. Mr Youl rejected that proposition.
[55] It was submitted on behalf of Mr Parkin that, had he been aware of how the Vero policy was intended to operate, he would have progressed the claim himself, and that, as a result of Vero failing to advise him of his policy entitlement, his claim remained unsettled. This, it was submitted, was a breach by Vero of its obligations of good faith under the policy.16
[56] The alleged failure by Vero to explain to Mr Parkin his policy entitlement was submitted to have been compounded by Vero then failing to apply the terms of its own policy to the management of Mr Parkin’s claim. Under the policy, Mr Parkin had the responsibility or right to assess the costs of reinstatement and to embark on the repair project with the guidance of his chosen professional advisors. Apart from some parameters relating to the standard and specification of the repairs under the policy, the only other requirement on an insured was to obtain Vero’s consent before proceeding. Mr Parkin submitted that any refusal of consent would have to be reasonable and consistent with the insurance company’s duty to act in good faith. Mr Parkin submitted this was not how Vero proceeded to deal with his claim.
[57] There is no evidence of Mr Parkin having received expert advice regarding the damage to the house, or obtaining a scope of repairs and costing as contemplated
by the policy prior to him commencing his proceeding. Since that time, however, he
16 Carter v Boehm (1766) 3 Burr 1905, 97 ER 1162 (KB); Fussell v Broadbase Christchurch Ltd
(2011) 16 ANZ Insurance Cases 61-913 (HC) at [140].
has instructed experts, and it is submitted he is now entitled to rely on their view in assessing the work to be done to reinstate his house.
[58] Mr Parkin submitted that Vero did not manage his claim in accordance with his policy entitlements, but applied its own internal management procedure which resulted in a failure by it to correctly apply the terms of the policy. He contended that Vero had conducted itself on the basis it was entitled to determine the method of reinstatement and apply the advice and costing of its experts to assess the proper cost of reinstatement. Mr Parkin submitted there was no basis for this in the contract of insurance between the parties.
[59] MWHM was engaged by Vero to assess the damage at Mr Parkin’s house at a very early stage, in accordance with the arrangements made between MWHM and Vero to assess damage, determine scope of repairs, and price work for the purpose of carrying out reinstatement of properties insured by Vero. This, it was submitted, had been imposed by Vero onto policy holders, including Mr Parkin, despite him never having consented to such a process. Mr Parkin submitted this was a process which fell outside the terms of the policy.
[60] Mr Parkin identified instances where he submitted this approach by Vero was to his detriment. Firstly, Vero did not progress claims in relation to houses in the CERA white zone, on the basis that repair work would not be able to commence until the final zoning decision had been made. Mr Parkin submitted there was no restriction on carrying out repairs on properties in the white zone. The Council was still issuing building consents at that time for properties in the red zone and building
was not prohibited.17 Mr Parkin referred to Vero’s refusal to obtain an engineer’s
report to properly assess the damage while the house remained situated in the white zone. He submitted there was no impediment to obtaining such a report, and this was an example of Vero dictating the management of the repair in a manner outside the terms of the policy.
[61] Either Vero could have instructed an engineer to progress a cash settlement under the second option of the policy, or Mr Parkin could have instructed an
17 O’Loughlin v Tower Insurance Ltd [2013] NZHC 670, [2013] 3 NZLR 275 at [27].
engineer himself to progress his claim under the first option. Mr Parkin submitted that the failure to advise him of his right to commence repairs himself under the policy caused him to wait for Vero to progress his claim and breached the Fair Insurance Code, which had been incorporated into the terms of the contract of insurance.
[62] Secondly, Mr Parkin points to a further delay in settling his claim after the property had been designated as green zone, as a result of Vero’s own internal assessment programme, known as “CHIP”. Under the CHIP programme, assessments were made regarding the order in which, or priority given to the commencement of repairs, according to which area a house was located. Mr Parkin submitted this was imposed by Vero’s own internal procedures in breach of the insurance contract, and did not reflect his rights and Vero’s obligations under the policy.
Assessment of the allegation of breach
[63] The evidence discloses that Vero did introduce a claims management process to handle the unprecedented large number of claims arising from the damage to properties caused by the Canterbury earthquake sequence. Mr Youl stated that Vero had to adjust its normal claims handling procedures in order to deal with the volume of claims it received.
[64] Part of Vero’s response, as with other insurance companies, was to enter into business relationships with construction companies to manage the assessment and costing of reinstatement of damaged properties. Mr Youl’s evidence was that the programme was established to help manage the reinstatement process for its clients, notwithstanding that under most of its policies, including Mr Parkin’s, Vero was not required to directly undertake the repair work. Mr Parkin did not dispute that it was open to Vero to offer additional settlement options to home owners. He says however, it was not entitled to unilaterally substitute a claim settlement procedure that it considered more efficacious than that set out in the insurance contract, which Mr Parkin submitted had occurred in his case.
[65] Vero submitted that it has no right or obligation to drive the remedial work or manage the remedial process. It was not required under the insurance contract to provide a scope of works, or provide Mr Parkin with the type of technical input, such as the services of an engineer. Vero submitted that in processing the claim under the auspices of its joint venture with MWHM, it was offering to help the insured manage the reinstatement of their property, but that this did not create any obligation on Vero to repair the property outside the terms of the policy. Vero submitted that following notification of a claim it carried out an assessment of the damage to determine whether it can be repaired, or whether the house may need to be rebuilt. That assessment is for its own purposes, and does not change the extent of its contractual obligation, or the onus on the insured establishing damage, or of taking responsibility for the remediation.
[66] In reliance upon the type of dynamic outlined in Turvey Trustee Ltd v Southern Response Earthquake Services Ltd, discussed at [40] above, Vero submitted that assessments and preliminary scope of works would normally be obtained for the purposes of dialogue between the insured and the insurer, and that it remained for the insured to challenge the insurer’s view of the extent of the damage, how it is to be repaired, and the cost. Vero submitted that Mr Parkin did not do that in the present case before commencing his proceedings.
[67] While he advised Vero that he was obtaining a builder’s report in July 2012, and expressly requested that Vero desist from proceeding with its initiative to obtain a further assessment for the purpose of developing a more detailed scope of works upon which to base a “cash settlement list” offer, no alternative scope or report was provided by Mr Parkin prior to the commencement of proceedings.
[68] Vero’s interaction with Mr Parkin, and in particular with Mr Youl after he took over management of the claim, is largely documented in email exchanges between Vero, and Mr Parkin and his insurance broker. Mr Youl also gave evidence of Vero’s file notes recording telephone conversations between Vero staff members and Mr Parkin, in addition to his own conversations with Mr Parkin, which were followed by emails, either recording an agreed course of action, or confirming Vero’s position regarding matters raised by Mr Parkin.
[69] That evidence discloses that Mr Parkin was becoming increasingly frustrated with the lack of progress in respect of his claim. It is also apparent that both Mr Parkin, his broker and Vero were dealing with Mr Parkin’s claim within the framework of the processes provided to policy holders by the Vero/MWHM joint venture. In following that course, there were advantages and disadvantages to both parties. Importantly, however, the adoption of that process did not alter the terms and conditions of the contractual relationship between Mr Parkin and Vero. In my view, it did not result in Vero misleading Mr Parkin about his rights under the policy.
[70] In December 2011, Mr Youl, in an email to Mr Parkin, made it clear what Vero’s position was in respect of obtaining a full repair scope for his house with cost estimates. In the absence of CERA completing its geotechnical investigations for the purpose of determining its land classification, no accurate scope or price for the repairs was able to be obtained. In particular, Mr Youl noted that in the absence of knowing the technical requirements necessary for the foundations in respect of the yet to be determined classification of land, it was not prepared to advance matters. Vero submitted that if Mr Parkin was dissatisfied with the position being taken by Vero, he, in terms of the policy, could have progressed the remediation of the house, notwithstanding the white zone status of the property.
[71] Whether, in those prevailing circumstances, he could have obtained an accurate scope of works, a building consent, and engaged a builder to carry out the work is moot. The short point, however, is that Mr Parkin did not choose that course. Like other people in the same situation of having to wait for a determination as to whether the white zone went green or red, he had little option but to wait. While that resulted in further frustrating delay it was a realistic and sensible course to follow. Mr Parkin would have been entitled to a cash payment for the total value of both his land and building if the land had been classified as red zone.
[72] Similar considerations arise in respect of Mr Parkin’s frustration at the lack of progress after the land classification changed from white to green in May 2012. Mr Parkin was insisting that engineering input be obtained by Vero. In replying to this request, Mr Youl advised Mr Parkin’s insurance broker that, in Vero’s view, geotechnical and structural engineering advice would not presently be necessary
until repairs had entered the preconstruction phase, and consents were required for any building. Reference was made by Mr Youl to possible changes to build requirements and guidelines by the Council or the Department of Building and Housing which may render any reports out of date. Mr Youl advised that Vero would wait until the locality of Mr Parkin’s house had been released by its “CHIP risk assessment programme” and would not be considering further engineering input until that time.
[73] Mr Youl observed in his email to Mr Parkin’s broker that the property had been inspected three times and each time found to be repairable. He further observed the earlier MWHM price estimates were sufficient for setting “our reserves at this stage of the claim” and that “clearly” a full reinstatement scope will be produced and agreed with Mr Parkin before work was actually started. If engineering input was required at that stage, it would then be arranged. Mr Youl advised Mr Parkin’s insurance broker that if Mr Parkin felt strongly an engineer was required he could make that arrangement himself.
[74] Mr Parkin has referred to this issue as an example of an obstacle presented by Vero which stalled the progress of Mr Parkin’s claim, noting the reference to the “internal CHIP risk assessment programme”. This, it was submitted, was an example of Vero’s own internal procedures being imposed on Mr Parkin in breach of the insurance contract.
[75] I am not satisfied that Mr Parkin’s criticism is borne out upon analysis. Mr Youl’s email specifically makes reference to Mr Parkin having the option of seeking engineering advice himself, which accords with the terms of the policy. It is also apparent that Mr Parkin had an ongoing concern about the differing approaches to remediation of MWHM on behalf of Vero, that the property could be repaired, and that of EQC, which at least initially assessed the property as a rebuild.
[76] Mr Parkin also seemed to be labouring under a misapprehension that Vero had not obtained engineering advice in respect of the house. This was a contention Mr Parkin persisted with when giving his evidence. However, an engineer had visited the house in November 2011 as part of the MWHM assessment, and had
concluded the house could be repaired. Mr Parkin himself referred to an onsite meeting with a MWHM contracted engineer and builder in an email he sent to Vero on 14 December 2011.
[77] The following month, in July 2012, there was an onsite meeting attended by Mr Parkin and representatives of Simplexity and MWHM, as a result of which approval was given by Mr Youl to engage an independent builder to provide an estimate for the purpose of progressing the “cash settlement” process. Mr Parkin did not have confidence in MWHM assessments, and this initiative was viewed as a way of making progress. In August, after Mr Parkin had been contacted by the builders instructed by MWHM to prepare the new estimate of costs, he advised through his broker that the inspection should be put on hold until he had obtained his own building report. That report had not been provided to Vero before Mr Parkin commenced proceedings the following month.
[78] I am not satisfied that Vero breached any contractual terms of the insurance policy, implied or otherwise. While Mr Parkin’s claim was managed within the purpose designed framework of the centralised process put in place by Vero to administer the large number of claims generated by the Canterbury earthquakes, it did not alter the terms and conditions of the policy which governed the contractual relationship between Mr Parkin and Vero. I am not satisfied that Mr Parkin did not understand his contractual rights under the insurance policy. He did not give evidence to that effect. Nor am I satisfied that any actions on the part of Vero, in particular Mr Youl, led Mr Parkin to misapprehend the rights and obligations of the parties under the policy.
[79] Mr Parkin was represented by an insurance broker who was actively involved in the claim process. In my view, it is apparent that both parties saw advantages in having Vero directly involved in the management of the claim by utilising resources provided by MWHM to assess, scope, and cost the remedial work. I do not find there was any breach of the obligation of good faith on the part of Vero in the way it sought to manage Mr Parkin’s claim. Similarly, I am not satisfied there has been any breach of the Fair Insurance Code referred to in the introduction to the insurance policy. Express terms relied upon by Mr Parkin in that regard, relating to the
explanation of special meanings of particular words or phrases in the policy, or the meaning of legal or technical words, simply do not arise on the evidence. The requirement on the insurance company to settle all valid claims fairly and promptly is a duty to be assessed against the terms of the insurance contract, and the conduct of the insurance company managing the claim of the insured. I have not found Vero to have acted unfairly, nor was it unresponsive to Mr Parkin in its endeavour to progress his claim in the circumstances pertaining to his house.
[80] Mr Parkin was clearly frustrated by what he considered was a lack of progress in settling the claim. However, as I have already observed, I have the strong impression that, in large part, this frustration related not only to the delays associated with remediating the damage to his property, but also out of Vero’s assessment that the property could be repaired, and what Mr Parkin considered was the inadequate building reports and assessments of costs to achieve an appropriate standard of remediation. Having received advice from EQC that the house was a rebuild, Mr Parkin’s discontent with the approach taken by Vero may be understandable. However, EQC’s assessment was a limited one. As later became apparent, EQC’s assessors did not enter the house at the time they visited the property, and EQC advised Mr Parkin in February 2012 that the settlement of his EQC claim was actually based on Vero’s assessment of the damage, not its own.
[81] I have taken the time to deal with Mr Parkin’s argument relating to the alleged breach of the duty of good faith and the Fair Insurance Code, as incorporated into the policy document, because it was apparent on the evidence that the process developed by Vero to manage the large wave of earthquake claims was the framework within which Mr Parkin and Vero worked to progress Mr Parkin’s claim. I have not found, however, that the express terms of the policy were displaced. The contractual relationship between the parties continues to be governed by the express terms of the insurance policy.
[82] While there was some cross-examination of Mr Youl about the approach taken by Vero to Mr Parkin’s claim regarding the imposition of a remediation strategy on him, the allegation of breaches of the implied duty of good faith or of obligations under the Fair Insurance Code were only articulated in closing. These
allegations were not pleaded by Mr Parkin, nor was it the basis upon which he opened his case. Vero was not on notice that these were allegations it was required to meet, and it was not apparent there were live issues between the parties until identified in Mr Parkin’s closing written submissions.
[83] While Vero was able to respond to the wider allegation of a breach of contract, and called evidence of its narrative of the management of Mr Parkin’s claim, that was in the context of the express terms of the policy. Vero, as the defendant, is entitled to be fairly and fully informed of the case that it must meet. While a degree of flexibility can be extended to reflect the organic nature of the way evidence may develop at trial, essentially, Mr Parkin’s claim, based upon a breach of the duty of good faith and terms of the Fair Insurance Code, represented different allegations from that pleaded.
[84] Mr Youl, who appeared as Vero’s representative, gave his evidence-in-chief based upon the claim pleaded by Mr Parkin and the content of Mr Parkin’s brief of evidence. Neither document referred to Mr Parkin’s misapprehension of his contractual rights, nor did they identify statements or representations made by Mr Youl which Mr Parkin considered, either expressly or implicitly, had misled him about his rights. Mr Parkin, in oral evidence, did not expand upon the matters canvassed in his written statement of evidence.
[85] It is not acceptable for these allegations to be made for the first time in the plaintiff’s closing address, and for the defendant to have to answer those new discrete allegations at that late point in the trial. For that reason alone, these belated allegations of breach would fail. But in any event, on the available material, notwithstanding these matters having not squarely been put in issue from the outset, I would not have found the alleged breaches established.
Cash settlement proposal
[86] Similar considerations arise in respect of Mr Parkin’s allegation that Vero was in breach of the terms of the policy when it failed to pay the indemnity costs of the reinstatement once an election had been made to pay the indemnity cost. This was not the basis upon which the claim was pleaded.
[87] In opening, Mr Parkin identified his claim as an entitlement under the policy for a declaration that he is entitled to follow the advice provided to him by various building professionals and need not be dictated to by the defendant’s experts, in whom he has no confidence. Alternatively, he sought an award of damages reflecting the amount of the cost of reinstatement. This is a clear reference to the first option under the policy for recovery of the cost of rebuilding or repairing the damage to the house. Vero denied that it had such an obligation in the absence of such costs being incurred.
[88] In closing, however, Mr Parkin identified a failure by Vero to pay the indemnity value after an election had been made by Vero to pay cash. The failure to do so and settle the claim was alleged to constitute a breach of the contract. The genesis of this argument was Mr Youl’s evidence about placing Mr Parkin on the “cash settlement list”. Although Mr Parkin makes no reference in his evidence to this event, he argued that the initiative proposed by Mr Youl constituted an election by Vero to pay Mr Parkin an indemnity value in accordance with the second option provided for in the insurance policy, available to Vero to exercise at its choice after the elapse of 12 months.
[89] Mr Parkin submitted that Vero took steps to pay the cash equivalent of the cost of repairs after placing his claim in the “cash settlement list” on 8 December
2011. Mr Parkin submitted that from that point the parties were working towards a cash settlement on the basis of the second option provided for in the policy. The subsequent assessments by MWHM were considered deficient to meet the reinstatement standard under the policy for the purpose of the cash settlement.
[204] Mr MacMillan’s scope of works raised more questions than provided answers. His 16 line, 11 point scope was vague and insufficient. It provided for removal of “all structural elements considered to be damaged – foundations, floor framing, bracing interior linings, bracing exterior cladding”. Mr MacMillan could not, however, presently be any more specific as to which part or how much of the “structural elements” he considered to be damaged. For example, when asked how much floor framing was required to be taken out and replaced for the purposes of his scope of works, he was unable to provide a definitive figure, as it was “still subject to what I find to be damaged or not damaged”. In relation to the amount of Colorsteel cladding required to be removed and replaced, Mr MacMillan acknowledged that it would only be a guess, which he acknowledged did not provide an adequate basis for the Court’s purposes.
[205] It was also apparent that Mr Harrison relied on Mr Mumford’s original engineering report, which itself did not purport to provide a scope of works. Significantly, Mr Harrison was unaware of the level of agreement subsequently reached by Messrs Spicer and Mumford as a result of their meeting to discuss Mr Spicer’s scope of works. Mr Harrison was not required to cost Mr Spicer’s scope.
[206] Mr Harrison referred to a level of license that he allowed himself in preparing his costings, arising out of his interpretation of the engineering advice. However, it became apparent in the evidence that such license led to considerable inaccuracies, as demonstrated by the inclusion in Mr Harrison’s costings of a retaining wall running in a north-south direction that did not form part of Mr Parkin’s house, and which no engineer had identified as damaged.
[207] Mr Harrison was not an engineer or architect. The license he allowed himself to interpret the material upon which he sought to base his costings led to an outdated and ultimately inaccurate presentation of the cost to repair Mr Parkin’s house. A further simple illustration is the inclusion by Mr Harrison of the cost to demolish and rebuild the garage as a means to allow foundation work to be undertaken under the upper level of the house. No engineer was recommending such a course.
[208] The costing evidence put forward by Mr Harrison was unsatisfactory. Counsel for Mr Parkin made the responsible acknowledgment that the Court would be unable to make any findings in respect of quantum. In any case, absent a finding of breach of the insurance contract, or of Vero having an obligation to pay Mr Parkin under the terms of the policy, the costing evidence becomes largely irrelevant.
Is an award of general damages appropriate?
[209] Mr Parkin has claimed general damages in the sum of $25,000. This pleaded remedy received little detailed consideration in the course of the trial. Mr Parkin, in closing his case, made the bare submission that it was appropriate in the circumstances to make an award of general damages, and that costs should be awarded to Mr Parkin.
[210] The claim for general damages is predicated on Vero’s alleged failure to adhere to the terms of the policy and the effect this has had on Mr Parkin. As to the latter, the extent of Mr Parkin’s evidence was as follows:
Dealing with Vero has had an enormous effect on me personally of the last three years. My life has been put on hold and it has created a huge amount of stress. It has been, and continues to be a huge financial burden. I have been forced to engage professional engineers, quantity surveyors, builders and legal advisors to simply try to obtain a fair outcome. Lodging a claim with the Court was my last resort.
[211] Vero submitted that it acted throughout reasonably and in good faith, and that it has not breached any obligation created by the policy expressly or impliedly. In the absence of any breach of the insurance contract no issue of damages arises.
[212] I have not found that Vero breached the insurance policy. I do not underestimate the personal stress and frustration Mr Parkin has experienced as a result of the earthquake damage to his house, however, in the circumstances of his case I have not found Vero to be in contractual breach of its obligations, or to have acted unreasonably in the circumstances. There is therefore no foundation upon which an award of general damages could be made.
Conclusions
[213] In the end this proceeding devolved to a resolution of disputed remedial strategies for discrete aspects of damage to the house. Much time and money has been expended in relation to issues in respect of which the parties ended in substantial agreement. In my view, Mr Parkin was driven to acknowledge that the evidence presented was unsatisfactory and it was not capable of providing a sound basis upon which to make findings as to quantum.
[214] This is not a case where it is appropriate to make any declarations. The claim as initially pursued by Mr Parkin has failed – I have not found Vero to be in breach of its policy obligations. The ultimate value of this judgment is therefore resolution of the factual and legal disputes, which I will formally record in the findings below:
(a) I have outlined the correct legal interpretation of damage above at [36]–[38]. In summary, if the physical state of an item has been altered in a negative way, there will be prima facie damage.
(b)The issue of control over reinstatement is addressed above at [39]– [47]. Under the terms of the policy it is apparent that Mr Parkin has control over reinstatement (including using his own contractors). However, he is required to incur the cost of reinstatement before Vero becomes liable to pay to him any sum of money. Incurring the cost includes incurring the legal liability to pay (such as by entering into a contract). Further, Mr Parkin is contractually obliged not to undertake any works without the prior consent of Vero, such consent is not able to be unreasonably withheld. The ordinary procedure would be that each party retains experts, who ultimately exchange scopes of work, with areas of dispute being resolved.
(c) There has been no breach of the duty of good faith, nor the incorporated terms of the Fair Insurance Code. I dismissed this on the facts, but would have also dismissed it on the basis it was raised only in closing submissions, with Vero not fairly on notice of this aspect of the claim. This is discussed above at [48]–[85].
(d)Vero was not in breach of its policy obligation by placing Mr Parkin on the “cash settlement list” but not immediately paying him the indemnity value of reinstatement. In this case, Mr Parkin’s placement on that list was a means to an end, and not a definitive election by Vero that it would cash settle the claim. This is discussed above at [86]–[101].
(e) Vero was under no obligation to continue to attempt to settle Mr Parkin’s claim after Mr Parkin had issued proceedings against it. This is discussed above at [102].
(f) The repair standard was in substantial disagreement between the parties. I have discussed this above at [105]–[121]. By way of summary, I have concluded that the “when new” standard depends on the purpose of an item. Broadly speaking, where an object is solely structural or functional, with no aesthetic purpose, restoration of that item such that it carries out that function as if it were new, discharges Vero’s obligations. Where there is also an aesthetic element, there is a need to account for that also. These two broad purposes are not mutually exclusive and whether a suggested repair strategy is sufficient will require assessment of the items proposed to be repaired, and the item itself, in light of the facts of each case.
(g)As to the damage and remedial solution, I first note that Mr Parkin conceded in closing that it was not possible for the Court to make any findings of quantum on the state of the evidence as presented (see above at [122] and [202]-[208]). Further, that by the conclusion of the evidence, the parties were in substantial agreement as to the damage suffered by the house, and the appropriate remedial strategy (see above at [124]). What follows are brief synopses of the required remedial strategy for each particular item:
(i) Lower level piles: the jack and pack methodology discharges
Vero’s obligations under the policy (see above at [127]–[145]).
(ii)Pile at extreme south east corner: this damage was not proved by Mr Parkin on the balance of probabilities (see above at [146]–[149]).
(iii)External cladding: there has been bulging which needs to be repaired, repairs to scratches are conditional upon manufacturers recommendations and visibility, further investigatory work is needed to check elongation of fixing holes, and the cladding is to remain in place while re-plumbing
the building, with all remedial work to the cladding occurring after this has occurred (see above at [150]–[167]).
(iv)Driveway: the parties are agreed that the driveway is to be replaced (see above at [169]).
(v)Rotation and cracking of front foundation wall under the garage: the parties are agreed as to the appropriate remedial strategy (see above at [170]).
(vi)Upper level subfloor support of garage: the parties are agreed as to the appropriate remedial strategy (see above at [171]).
(vii)Interior of the dwelling – linings, etc: Mr Parkin had not proved, on the balance of probabilities, that the western linings required replacement. This is subject to any further damage which may occur during the re-plumbing of the building (see above at [172]–[177]).
(viii)Rotation of the timber retaining wall and water seepage: Mr Parkin has been unable to prove, on the balance of probabilities, the extent of Vero’s potential financial liability for the retaining wall, largely due to a paucity of evidence regarding the EQC land settlement (see above at [178]–[200]).
(ix) Remaining aspects of damage: the remaining aspects of damage to the house (such as the roof and deck) were not in dispute, and are to proceed in accordance with the scope of works prepared by Mr Spicer (see above at [201]).
(h)I have concluded that no award of general damages is appropriate (see above at [209]-[212]).
Costs
[215] I reserve costs. If the parties are unable to agree on the issue of costs, they are to file and exchange submissions (not exceeding five pages). In the absence of either party indicating a wish to be heard, I will make a decision in relation to any outstanding matter of costs on the papers.
Solicitors:
Lane Neave, Christchurch
Jones Fee, Auckland
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