Canterbury Earthquakes Insurance Tribunal decision: H Trust v Southern Response

A recent decision of the Canterbury Earthquakes Insurance Tribunal, H Trust v Southern Response Earthquake Services Limited [2019] CEIT 0011, has provided further guidance on the approach to repairing earthquake damage to an “as new” standard.

Interestingly, the Tribunal also made an award of general damages on the basis that aggressive behaviour by a claims manager towards the policyholder amounted to a breach of the insurer’s obligation of good faith.

Background to the case

This case concerns a property which was insured by Southern Response under an AMI Premiere House Cover policy. The property was damaged in the 4 September 2010 and 22 February 2011 earthquakes and, under the policy, AMI (re-named Southern Response) was obliged to repair or rebuild the house to an “as new” standard.

There were two key issues before the Tribunal:

  1. was Southern Response’s proposed foundation repair strategy unreasonable; and
  2. had Southern Response breached its duty of utmost good faith, so as to warrant an award of general damages.

Was Southern Response’s repair proposal unreasonable?

The first issue concerned the appropriate strategy to repair the foundations of the house, which had differentially settled.

Southern Response contended that the foundations could be repaired through “jacking and packing”. For its part, the Trust submitted that the foundations must be repaired to meet the standard required of new foundations in 2020. The Trust said that a repair to that standard is not possible as the current building standards differ so significantly from those which applied when the house was built in 1960. The Trust said that the foundations needed to be rebuilt in order to meet the policy standard.

After reviewing the expert evidence, the Tribunal noted that the foundations had not failed structurally, the land had not been damaged, and there was no reason why the foundations, once re-levelled, would not continue to act as they had prior to the earthquakes. No structural repairs were required.

However, the Tribunal accepted that the foundation dislevelment had resulted in a loss of amenity, and that that damage should be repaired to the standard expected of new foundations in 2020. The parties’ engineers both agreed that the method of over-pinning proposed by Southern Response would meet the current Building Code and was likely to receive a building consent. Accordingly, the Tribunal concluded that Southern Response had proposed a foundation repair that meets the policy and compliance standard. It was not, therefore, acting unreasonably.

Were damages payable to the H family for an alleged breach of SR’s duty of utmost good faith?

The H Trust further sought general damages of $140,000 on the basis that Southern Response had breached its duty of good faith.  This claim was based on the High Court’s decision in Young v Tower Insurance Limited,[1] which held that there is an implied term in every insurance contract requiring insurers to act reasonably, fairly and transparently, and to process claims within a reasonable time.

The H Trust alleged two key breaches of this obligation.

First alleged breach – offensive attitude of claim’s manager

The first alleged breach relates to the actions of the H Trust’s claims manager, Mr W.

At a meeting in October 2012, Mr H and Mr W agreed that a contractor, Arrow, would re-scope a Detailed Repair/Rebuild Analysis that had previously been prepared, and that Arrow would manage the repair, arrange an engineer to look at the house and comment on whether it was safe to live in. At that meeting, Mr H was given a Memorandum of Understanding (MoU). The MoU indicated that contract works schedules would be sent to Mr H for review and approval, that Mr H would be consulted about the choice of builder that would be engaged and be given an opportunity to nominate an alternative builder, and that Arrow would go through the pricing and scope of the building work with him.  Arrow was also supposed to discuss the building contract with him, and Mr H was to be given a reasonable time to consider it.  However, none of these occurred.

Mr W telephoned Mr H after receiving a file note of a complaint that he had expected a re-scope which had not taken place. Mr H complained that SR had not followed the process outlined in the MoU and said that he wanted time to look through the contract. Mr H alleged that during this call, Mr W was aggressive and forceful and told him that if he did not sign the contract within five days he would “go to the back of the queue”.

According to evidence given on behalf of SR, Mr W had mistakenly believed that all the processes outlined in the MoU had been complied with by Arrow. The Tribunal said that the file note of Mr H’s complaint should have prompted Mr W to check the matter out before he rang him. Furthermore, from Mr W’s own notes it was clear that he had told Mr H that the processes set out in the MoU had not been followed.

The Tribunal considered that Mr W’s behaviour was inexcusable and constituted a breach of the implied term in the policy that required SR to act reasonably, fairly and transparently. It awarded $5,000 in general damages for this breach.

Second alleged breach – for the delay in having the Trust’s claim resolved

Mr H further claimed that his family were entitled to $125,000 in damages for the delay in having the Trust’s claim resolved, during which he and the H family lived in a damaged house. The damages were calculated at $25,000 per occupant which was in line with the damages awarded in North Shore City Council v Body Corporate 188529 [Sunset Terraces].[2]

Despite there being extensive delays in the resolution of the claim, the Tribunal considered that Mr H and Southern Response were equally at fault. The type of repair approved by the Tribunal had been offered to Mr H years earlier, but he had rejected it because he believed it did not meet the policy standard.

The Tribunal held that Southern Response had not breached its obligation to process the Trust’s claim in a reasonable time. No damages were awarded.

Comment

This case provides helpful guidance on the application of the policy standard in the context of foundation repairs. The decision to award general damages e also serves as a reminder to insurers to ensure that their staff maintain an appropriate level of professionalism in all their dealings with customers. A single aggressive interaction with a policyholder that causes upset or distress may result in an award of general damages.

Footnotes:

[1]Young v Tower Insurance Limited [2016] NZHC 2956, [2018] 2 NZLR 291.

[2] [2010] NZCA 64, [2010] 3 NZLR 486.

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