By Andrew Steele - 25 Jun 2015
This week the Supreme Court granted an insurer leave to appeal
in the case of Southern Response Earthquake Services Limited v
Avonside Holdings Limited. This litigation concerns
arguments around what costs can be included in estimating the full
replacement cost.
Avonside Holdings Limited (AHL) own a rental property in
Christchurch. The house was damaged in the earthquakes. As the
property is within the "red zone" AHL cannot rebuild on that site.
Fortunately for them their policy with Southern Response provides
that the insurer will cover the cost of purchasing another
property. The policy says that the insurer will not pay more than
the full replacement cost of the original house on its original
site.
The owner's position is that the costs of rebuilding the
property on its current site should be estimated in the usual way,
including a contingency for any unforeseen costs (10% on top of the
estimated rebuilding costs) and additional costs such as
architects' and engineers' fees. The insurer disagreed. The insurer
persuaded the High Court that this was a "notional rebuild" as the
house was not actually going to be rebuilt. Therefore, there was no
need to take into account things like contingencies and
professional fees which were categorised as additional costs under
the insurance policy. This left the homeowners with a much smaller
sum to go shopping for a new property.
In October last year the Court of Appeal overturned the High
Court's decision and ruled that the full replacement cost should
include professional fees such as architects' and engineers' fees
and a sum for contingencies. If the insurer had intended to limit
the estimate to exclude those items, then that could have been done
in the wording of the policy.
Sadly the dispute isn't over yet for the owners as the Supreme
Court will consider the insurer's appeal later this year.
We act for a number of clients in Christchurch who are still in
dispute with insurers and the EQC.
Please contact our litigation
team for assistance in relation to Christchurch claims or other
disputes with insurers.