Ridgecrest NZ Limited v IAG New Zealand Limited (2013) 17 ANZ Insurance Cases ¶61-957
In the High Court: A policy of insurance between Ridgecrest NZ Ltd (Ridgecrest) and IAG New Zealand Ltd (IAG) provided replacement cover for sudden and accidental loss of, or damage to, the business assets of the insured with a limit of liability for each “happening”. Ridgecrest commenced proceedings against IAG, seeking the estimated costs of all repairs necessary to restore the building to its pre-earthquake condition, after each of the earthquakes.
Held: That the insurer was not obliged to pay any sums greater than necessary to effect the parts of repairs that were undertaken before an insured building became irreparable, plus the limit of its liability under the policy in respect of the “happening” in which damage occurred. The High Court Judge determined in a judgment delivered on 8 November 2012, Dobson J answered the preliminary question in favour of IAG.
Facts: Ridgecrest’s building sustained damage in the 4 September 2010 Christchurch earthquake and repairs had been commenced, but not completed. Then a second earthquake occurred on 26 December 2010 causing further and distinct damage, and repairs had been commenced, but not completed. Then a third earthquake occurred on 22 February 2011 causing further distinct damage. In IAG’s view, the building was damaged beyond repair as a result of the third earthquake, or the cost of repairs exceeded the sum insured. The building sustained further damage in a fourth earthquake on 13 June 2011 and was subsequently demolished.
Preliminary question: Where there had been four happenings within a period of insurance; each causing damage to Ridgecrest’s building; and subsequent to the first two happenings repairs were commenced but not completed by the time of the next happening; and following the third or fourth happening, the building was damaged so that the cost of repairs exceeded the sum insured; and where the building was damaged beyond repair as a result of either the third or fourth happening; was Ridgecrest entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case?
The High Court held that where repairs were underway but made impracticable or impossible by subsequent earthquakes, that brought to an end any further liability to indemnify the insured for repairs that would not be made. Once the building was irreparable, that triggered IAG’s liability to make a payment of the limit of its liability towards replacement of the whole building. That became the relevant measure of its liability. If the building had been fully insured, then that payment would have provided for the entire cost of a replacement building so that any additional payments to the insured for previous repairs would have been a windfall. Justice Dobson considered that limiting cover to circumstances where repairs were undertaken seemed commercially unrealistic, when the extent and circumstances of damage would not be known in advance when a policy was undertaken.
In the Court of Appeal: RIDGECREST NEW ZEALAND LTD V IAG NEW ZEALAND CA811/2012  NZCA 291 [10 July 2013]
Ridgecrest appealed and IAG cross-appealed against findings made in the judgment against it. The issues before the Court were essentially the same as those before Dobson J.
The principal issue for determination on the appeal is whether the policy, on a proper construction its terms, entitles Ridgecrest to payment of the aggregate value of the damage caused by each of the four earthquakes.
The issue for determination was, “Where:
1. There have been four happenings within a period of insurance;
2. Each happening caused damage to the Plaintiff’s building;
3. Subsequent to the first two happenings repairs were commenced but not completed by the time of the next happening;
4. Following the third or fourth happening, the building was damaged so that the cost of repair exceeded the sum insured;
5. The building has been damaged beyond repair as a result of either the third or fourth happening;
Then: Is the Plaintiff entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case?”
Held: ‘No’, which is the same answer reached by the High Court Judge. Ridgecrest to pay IAG costs.