High Court transfers proceedings to the Canterbury Earthquakes Insurance Tribunal

Since the Canterbury Earthquakes Insurance Tribunal Act 2019 (the Act) came into force on 10 June 2019, two policyholders have successfully applied to transfer their earthquake insurance disputes from the High Court to the Tribunal. Busby v IAG New Zealand Ltd, and Kitchen v AA Insurance Ltd1 demonstrates that in general, a broad approach will be taken to applications for transfer.

In both Busby and Kitchen, the defendant insurers opposed a transfer of proceedings on the basis that the underlying claims raised complex and novel issues and should be heard in court. The insurer in Busby further argued that the Tribunal did not have jurisdiction over the claim. The High Court rejected these arguments in both cases, demonstrating that generally, a broad approach will be taken to applications to transfer disputes relating to earthquake damaged homes. A third application in Pinot v Vero Insurance New Zealand Ltd² was rejected however the insured property was simply outside of the tribunal’s jurisdiction being used for commercial purposes rather than residential.

Busby v IAG New Zealand Limited

In Busby, the insurer opposed the policyholders’ application for transfer on the basis that:

  1. the Tribunal did not have jurisdiction to hear the dispute; and
  2. the case involved a novel point of law, so the Tribunal would have to refer to the High Court under section 16 of the Act.

The insurer advanced its jurisdictional argument on the basis that the underlying claim alleged that the property had suffered global settlement of 100mm. The insurer said this constituted uninsured damage to  the  land, not the dwelling, relying on Earthquake Commission v Insurance Council of New Zealand Inc.3 As the Tribunal can only determine disputes relating  to  “physical loss or damage arising from the Canterbury earthquakes to a residential building or residential property”, the insurer argued that it did not have jurisdiction in this case.

Associate Judge Lester rejected this. The Judge commented that whether global settlement constituted damage to the land, or the foundations was one of the ‘ultimate issues between the parties’. The insurer’s jurisdictional argument assumed that global settlement is land damage, when there is really a dispute as to whether it is uninsured land damage, or insured property damage.

The Judge also rejected an argument that the case should not be transferred because the policyholders’ argument that global settlement amounted to property damage required

them to distinguish the Earthquake Commission v Insurance Council of New Zealand Inc case, and that this raised a   novel and complex point of law. The insurer said that the Tribunal would be required to refer this question to the High Court for determination under section 53 of the Act.

The Judge rejected this, noting that it is up to the Tribunal whether or not to refer a question of law to the Court. The Judge further commented that:

The reality is earthquake cases that have not been resolved by this stage may well involve complex factual expert or legal issues. The disputes that remain outstanding are the cases which Parliament intended to give policyholders the ability to seek that their dispute be dealt with in the Tribunal. That a case may be legally complex or factually involved is not of itself a reason not to transfer a case when complexity is likely to be a factor as to why resolution was not reached years ago. That Parliament passed s 53 as a means to resolve involved or complex legal issues of itself is consistent with such cases being able to be transferred to the Tribunal. Parliament anticipated that complex legal issues may arise in cases transferred to the Tribunal and created a mechanism to deal with such issues.

The Judge further considered that a transfer would meet the purposes of the Act. If transferred to the Tribunal, the case would benefit from the Tribunal’s flexible procedures, its ability to instruct independent experts, the absence of hearing fees, and the Tribunal’s ability to closely manage cases. These benefits outweighed the possibility that the Tribunal may refer the case back to the courts to determine a point of law.

Kitchen v AA Insurance Limited

In Kitchen v AA Insurance Limited, the insurer again argued that a transfer was inappropriate:

  1. First, the insurer argued that a transfer of the proceedings would result in delays, as a trial date had been allocated, and was just four months away. If the proceedings were transferred to the Tribunal, it would need to “head back to a case management stage and would need time to conduct its inquisitorial functions such as appointing any expert advisor and convening an experts’ conference”.
  2. Secondly, the insurer argued that a return to the case management stage may outweigh any cost savings to the plaintiffs, notwithstanding that they would not have to pay any setting down or hearing fees in the Tribunal.
  3. Thirdly, the insurer argued that transferring the proceedings would not be in the interests of justice because the claim is complex and novel. There was an issue as to whether the insurer could obtain a waiver from an aspect of the Building Code and still comply with its obligations under the policy.

These arguments were rejected. First, Gendall J did not accept that a transfer would result in significant delay.   While there may be some short delay associated with transferring the proceeding, the Tribunal would have regard to ‘the significant steps already taken in the High Court’ at the first case management conference. Furthermore, briefs of evidence had not yet been exchanged in the   High Court, and arrangements for the trial (such as flights and accommodation) had not yet been arranged.

Secondly, the Judge also had ‘no doubt’ that a transfer would not increase the parties’ costs. This was because:

  1. The proceedings had been set down for a 10-day trial, and if that trial went ahead, the plaintiffs would have to pay $32,000 in hearing fees and $1,600 for the scheduling fee. These fees would not be incurred before the Tribunal.
  2. The Tribunal would have regard to steps already taken in the Court and would not unnecessarily duplicate matters.
  3. The Act provides for a more flexible and informal process, that may result in cost savings.
  4. The Tribunal can direct the parties to mediation at no cost to the parties.
  5. The Tribunal has an inquisitorial function and can appoint its own expert, at its own cost, to facilitate a conferral. The Court considered that this could have significant advantages in this case.

 

Nor was the Judge persuaded that the case should not be transferred due to its complexity. Gendall J did not accept that the question as to whether the insurer could satisfy its policy obligations by obtaining a waiver from Building Code requirements was novel or complex.

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“That a case may be legally complex or factually involved is not of itself a reason to transfer a case.”

Pinot Properties Limited v Vero Insurance New Zealand Ltd

By contrast to the cases discussed above, the application for transfer in Pinot Properties was unsuccessful.

This dispute involved a building insured under a commercial material damage and business interruption policy. The insured building was leased to hospitality and office businesses. As the Tribunal only has jurisdiction over disputes relating to residential properties, this application for transfer was dismissed.

This decision did not adopt any narrower approach to that in Busby or Kitchen – the dispute simply did not fall within the Tribunal’s jurisdiction.

Key points

These decisions make it clear that the focus of the Tribunal is on the efficient resolution of disputes relating to damaged homes. While the courts will not refer cases involving commercial buildings which have the “potential” for residential use, they appear to otherwise favour the transfer of proceedings to the Tribunal. Complex legal issues and approaching trial dates did not, in these cases, preclude a transfer.

The impact of the establishment of the Tribunal on the number of matters before the courts is not yet clear, however, there have been a number of applications to the Tribunal since it was launched in June and it reportedly achieved its first settlement in August 2019.

As cases may increasingly be commenced or transferred to the Tribunal, insurers should keep a close eye on developments under the Act.

 

  1. Busby v IAG New Zealand Limited [2019] NZHC 1852; Kitchen v AA Insurance Limited [2019] NZHC
  2. Pinot Properties Ltd v Vero Insurance New Zealand Ltd [2019] NZHC 2244.
  3. Earthquake Commission v Insurance Council of New Zealand Inc [2014] NZHC 3138, [2015] 2 NZLR 381 at [87].

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