Facts: the Jardens’ home was damaged by the Sept 4th 2010 and Feb 22nd 2011 earthquakes. The Jardens’ statement of claim sought a rebuild of their house on the basis that it was not economic to repair as the estimate cost of repair was more than 80% of the estimated cost of a rebuild. The Insurer, Lumley claimed that much of what the Jardens had claimed for was either pre-existing damage, or not damage at all. The property was insured under a Lumley Westpac home insurance policy for full replacement. The policy excludes damage caused by natural disaster except to the extent that it is covered by a natural disaster benefit. Cover is limited by the area insured not by the sum insured.
They built their home in 1998. It comprised a concrete slab foundation, brick veneer and a corregated steel roof and in each case over a wooden frame, as well as tongue and groove wooden ceilings. There were cracks in the concrete foundation, with the most dramatic damage being to the brick cladding. Some features of the house were built to a higher than standard quality. In 2004 complex weather-tightness issues arose which were resolved in 2009-2010. The vast majority of the damage done to the property occurred during the 2010 earthquake. Counsel and the Judge attended the damaged property. The Judge felt that on the balance of probabilities the Jardens had not established beyond the balance of probabilities that the cracks in the foundation were as a result of the earthquake damage or that the insureds had suffered an insured loss as a consequence. There was also an issue of voids, however no direct evidence of voids was produced, though evidence was given suggesting that hundreds of Canterbury properties have been found to have issues with voids. Lumley argued that the Jardens had failed to prove on the balance of probabilities that the slab contained voids but had proved that the brick ties had been damaged as a result of the earthquake.
The Issues: The claim against Lumley is that the house requires to be rebuilt on the basis that the cost of the repair is more than 80% of the cost of rebuilding the property. $50,000 was sought for distress, anguish and general damages. So the main question to be addressed is what is the evidential standard that policyholders must meet in order to prove an insured loss? The test for earthquake damage is that the policyholders must prove on the balance of probabilities that the damage is caused by the earthquakes. In this particular case the Judge did not consider that walls out of plumb or cracks in the foundation were as a direct result of the earthquake. He did acknowledge the damage to the brick ties, interior cracking and detached linings. Kós J found that there was not sufficient evidence to prove the Jardens’ claim, either in relation to the pre-earthquake condition or in relation to the current condition (no ground-penetrating radar was used to see whether there were voids underneath the slab).
Justice Kós stated that “the burden of proof in a claim under a policy of insurance lies in the plaintiff. In this case, the policy holder.” He went on to note: proof on a balance of probabilities must be applied with common sense. It required the trial judge to be satisfied on the evidence that an event or outcome is more likely to have occurred than not:
Other questions that arose included: How should the earthquake damage be apportioned to each earthquake? What reinstatement work is required to return the home to its pre earthquake condition? What is the cost to repair or alternatively to rebuild the property if a repair is not feasible? Is the insurer in breach of any of its obligations toward the insured?
What relief are the insured’s entitled to from the insurer? Lumley’s policy provides that they will “pay the costs actually incurred to repair or rebuild it”, Lumley is liable to pay the Jardens for the cost of repairs “once costs have been incurred and to the extent that they exceed EQC’s $179,163 payment”.
What effect does the EQC settlement have on the proceedings? Originally EQC was party to the proceedings but they settled 5 days prior to the hearing. The settlement agreement did not specify how the settlement amount was to be apportioned between the various claims.
Justice Kós went on to remark that its was noteable that the witness from EQC was not asked about the apportionment of these amounts and said: “Counsel for the Jardens later invited me to infer that the second tranche was for costs and disbursements only. The result would be that Lumley’s top-up liability begins at the lower $123,850 number. I decline that invitation. The inference cannot be drawn on the evidence. Tea leaves are no substitute for testimony. If the point was important, as it later proved to be, the witness should have been examined on it.”
NB. This is an important reminder to consider the apportionment of any settlement with EQC between each different event and any other amounts claimed : ensuring that this is recorded in the settlement agreement.
The Judge went on to note that any repair would be done to the ‘policy standard’.