PARKIN v VERO INSURANCE NEW ZEALAND LIMITED  NZHC 1675 [17 July]
Facts: Parkin owned a house in Lyttleton which was damaged somewhat in the September 4th earthquake and then more substantially in the Feb 22, 2011 earthquake. The house was subsequently red stickered. The property was insured by Vero, their contractors assessed the house as being repairable. Parkin received an EQC payments of $58,000 and $113,000 respectively for the two earthquakes. The house was in the ‘white zone’ and was awaiting further classification to determine whether it would become ‘green zoned’ or ‘red zoned’ but would remain in white zone until May 2012.
The house was a one year old town house situated on a moderately steep site overlooking Lyttelton Harbour. The house has three levels. The insurance policy states that the house is 135m2. Vero inspected the property in March 2011 and then engaged Mainzeal (MWHM) to assess damage and scope a reinstatement. Vero was told that Parkin’s house could be repaired for $185,479 (excl GST). In Nov 2011 another assessment was made and then Parkin was advised that a final scope would not be completed until the zoning decision had been made. Parkin was unhappy about the delay and as a result of this after a conversation with the Vero claims manager his claim was put on the “Cash settlement list” in order to expedite the full repair scope with pricing. Based on Parkin’s previous assessments he felt the house was a rebuild.
He then received a revised MWHM report which estimated the cost of repair at $157,514. A site meeting followed on 15 Feb 2012 resulting in another report and Vero again advised that the house could be repaired. In March 2012 the Vero claims manager emailed him to say that until zoning was complete the remediation and formal reinstatement report would not take place. Parkin was frustrated about the delays and believed that Vero was stalling the claim.
In May 2012 the claims manager suggested a joint inspection with EQC and MWHM & Parkin rejected that proposal. On 30 May 2012 Parkins broker suggested an engineer inspect the property & provide a preliminary report but the claims manager said until the house was in the preconstruction phase and the building consents were being applied for, this would not happen. The property had been inspected 3 times and found to be repairable. In July 2012 another independent builder was engaged to estimate the cost of the repair in order to resolve Parkin’s concerns but he advised that he had no confidence in MWHM providing him with an accurate reinstatement report and instead he commissioned his own reinstatement report. However no report was provided to Vero prior to Parkin issuing the proceedings on 10 Sept 2012.
In July 2011 EQC scope of works was significantly higher $318,213.46 -$331,986.60 (incl GST) but the EQC payments were ultimately based on the MWHM report.
Parkin claims that Vero failed to discharge its obligation under the insurance policy to pay him the cost of rebuilding or repairing the house and breached the contract of insurance. Parkin pleaded that Vero failed or refused to meet its obligations under the policy because it only offered to pay costs to repair part of the house, which it did not indemnify under the policy.
Parkin sought a declaration that Vero should pay the costs of rebuilding the house to the same standard, specification and condition as new. General damages were also claimed. He alleged that Vero had undervalued his loss and inappropriately sought to control the basis upon which the house was to be reinstated. Parkin disputed Vero’s view of the proper method of reinstatement of the damage. He submitted that Vero was liable to pay him the cost to rebuild the house and that Vero would pay the cash equivalent of the cost of reinstatement.
The alleged breaches of contract:
- Breach of obligation under terms of the policy, failing to pay indemnity cost of reinstatement once election was made to pay indemnity;
- Breach of express terms of the policy, Vero refused to accept the claim in respect of all earthquake damage;
- Breach of express terms of the policy, Vero refused to settle the claim on basis of reinstatement to the policy standard “rebuilding or repairing the damaged portion of the house using currently equivalent building materials and techniques to a standard of specification no more extensive, nor better than its condition when new “;
- Breach of the implied term of good faith, that Vero failed to draw his attention to his entitlements under the contract;
- Breach of the express terms of the Fair Insurance Code. (c and d were introduced during the proceedings for the first time).
Responsibility for conducting the reinstatement? Parkin submitted it was the policyholder’s responsibility, the cost of which the insurer was obliged to meet unless clearly outside the terms of the policy. Vero refuted this claiming that the damage could be repaired and that Vero had always been prepared to meet the actual costs Parkin incurred to repair his home. But that Parkin was not entitled to a cash payment based on an estimate of the repair cost but he was required to incur the costs of undertaking the remedial work before Vero’s obligation under the policy is triggered and that this is a precondition to Parkin receiving payment. But Vero accepted that it was obliged to pay whatever it ultimately cost to repair the property. They denied that election had been made by Vero to pay him indemnity cost of the reinstatement. Placing Parkin’s claim on the ‘cash settlement list’ did not have that effect. Vero claimed that he was only entitled to declaratory relief limited to clarification of the damage, how it is to be fixed and whether Vero’s remediation proposal discharges its policy obligations. Vero stated that Parkin was not entitled to damages in the absence of its breach. Vero also contested whether they had liability for retaining walls.
Parkin only raised breaches of good faith & Fair Insurance Code in closing submissions and these had not been pleaded in the statement of claim nor opening. Judge stated that Vero does not have to meet a different case from the one pleaded. In dealing with the issue of good faith and the Fair Insurance Code: Mander J did not find the express terms of the policy displaced and therefore the parties continue to be governed by the express terms of the policy.
- Correct interpretation of insurance policy in particular:
- Which party has responsibility & control for reinstatement strategy?
- Can Parkin rely on breaches of Good faith and Fair Insurance codes incorporated into Vero’s policy?
- Did placing Parkin’s claim on ’cash settlement list’ constitute an election by Vero to pay indemnity cost for reinstatement?
- What is damage under the policy?
- What is the standard of repair under the policy? I.e. what is earthquake damage and the remedial solution necessary to meet the policy standard? This involved assessment of piles, cladding, driveway, rotation and cracking of front foundation wall, loss of support to garage piles, interior linings, and rotation of timber retaining wall.
- In relation to retaining wall claim limited to $10,000, however can Parkin make a claim for this damage under his policy?
- Can cost of repairs be quantified and an accurate costing determined?
- Is Parkin entitled to general damages?
The Policy: what we will pay at our option…the cost incurred in rebuilding or repairing…. The indemnity value should you not rebuild or repair within 12 months unless we agree to extend the time period. Interpretation of insurance contract same as any other contract and must commence with ordinary meaning ascribed to individual words.
Definition of damage: Mander J. states the court must ask whether the item in question has suffered damage in the ordinary sense of the word. Whether the physical state has been ‘altered in a negative way’ – in which case the item is prima facie damaged.
Responsibility or control of reinstatement: The Vero policy was clear – Parkin must incur costs of remediating property before Vero is triggered to pay the replacement sum. No entitlement for Parkin to cash payment upon assessment and quantification of loss alone. The policy provides that Vero’s consent is required before proceeding with repairs and that the policyholder is required to have Vero’s written consent prior to incurring costs. But before Parkin can incur repair costs, consent for method of repair is required which cannot be unreasonably withheld by the insurer. Each party will need an independent assessment of the damage and the appropriate way to repair or replace to the standard required by the policy.
While Parkin must incur costs, that does not equate to a requirement that he expend his own money but rather simply a legal obligation to pay on his part is required. Incurring costs does not cap the insurer’s liability should more damage be uncovered. Vero submitted that it was inherent in the “costs incurred” precondition of its liability that it was for the insured to organize the repair. Vero disavowed any responsibility for it to drive the remedial work or of having any right to initiate or manage the remedial work. Parkin had provided no SOW or costing before issuing his proceedings. He claimed that Vero’s obligation to pay arose as a result of Vero failing to pay the indemnity cost of the re-instatement based upon an election made by Vero in placing Parkin’s claim on the ‘cash settlement list’. Parkin submitted that Vero had not told him that he had to incur costs before Vero was obliged to pay & this was because their claims manager was under the same misapprehension. He had proceeded in the belief that he had the right to make the election. Their failure to advise him led to him waiting for Vero to progress his claim. Parkin received no expert advice regarding the damage to his home though he has since instructed experts. He stated that Vero had applied its own internal management procedure which had resulted in the failure to apply the terms of his policy.
Parkin also submitted that MWHM (insurer’s PMO) engaged by Vero had been imposed upon him despite him never consenting to the process. Vero submitted that it has no right or obligation to drive the remedial work or manage the remedial process. Despite the fact that Vero suggested Parkin obtain his own engineering advice he did not do so. He also thought Vero had not obtained engineering advice. Judge did not feel there was any breach of good faith in the way that Vero treated his claim.
Cash Settlement: Mander J rejected Parkins argument that Vero was in breach by not paying him indemnity value after he was placed on the ‘cash settlement list’ by Vero.
The Repair Standard: “to a standard of specification no more extensive, nor better than its condition when new”. Parties had competing views particularly in relation to the subfloor area and lower level piles. Parkin submitted that this meant “is as good in all respects as it was when it was new” and that “reasonable”, “sound”, “good trade practice and the like” are not sufficient. He argued that the opposite of “new” is “used” or “second hand“. His house was new and therefore he felt it was incumbent upon Vero to restore to that “when new” condition and that a “jack and pack” solution is not enough as they are outside the new build tolerances. Vero argued that level of equivalence is not sustainable. Parkin argued that Vero wrongly applied equivalence to the present as Parkin’s house was new at the time it suffered earthquake damage.
Mander J finds that Vero’s obligation here is to pay for the cost to rebuild, repair or replace and the upper limit is “when new” and Vero is not obliged to go beyond that point. This is not absolute and will be tempered by the immediate context and the broader factual mix in which the insurance policy is required to be applied.