Legal Update Chris Hlavac September 2013

1. Legal Update Chris Hlavac September 2013

2. IAG New Zealand Limited v Jackson[2013] NZCA 302

3. Exclusion E You are not insured for civil liability in connection with any dishonest, fraudulent, criminal or malicious acts or omissions by you…

4. Dishonesty • Both deliberate and underhand, or not straightforward • Need not be motivated by an intention to deceive • Objective, not subjective standard: was the conduct dishonest by normally accepted standards • Civil standard applies, but the Court recognises the seriousness of the allegation when assessing the proof

5. “in connection with” • Requires a causal or consequential relationship • Must be a nexus or relationship between the insured’s dishonest conduct and their civil liability • Doesn’t need to be the direct or proximate cause of the civil liability • Doesn’t need to precede the liability in time

6. Ridgecrest New Zealand Ltdv IAG New Zealand Limited[2013] NZCA 291

7. The Question: Where – • There have been four happenings within a period of insurance • Each happening caused damage to the plaintiff’s building • Subsequent to the first two happenings repairs were commenced but not completed by the time of the next happening • Following the third or fourth happening, the building was so damaged so that the cost of repair exceeded the sum insured • The building has been damaged beyond repair as a resulting of either the third or fourth happening

8. Then: • Is [the insured] entitled to be paid for the damage resulting from each happening up to the limit of the sum insured in each case?

9. THE AMOUNTS YOU CAN CLAIM 1. This insurance will pay the amount of loss or damage or the estimated cost of restoring your Business Assets as nearly as possible to the same condition they were in immediately before the loss or damage happened using current materials and methods. 2. Where Replacement cover has been agreed by us and specified in the Schedule and following loss or damage you restore or replace the lost or damaged Business Assets this insurance will pay (a) for Buildings (i) where repairable, the cost of restoration of damage to the same condition when new, or (ii) if unable to be repaired because of such damage, the cost of replacement by an equivalent building which meets your requirements at any site provided we shall not pay more than the cost of replacement at the Site stated in the Schedule.

10. C1: entitles the insured to the estimated cost of restoring the damaged asset C2: entitles the insured to the cost of repair or replacement, but only where the insured has repaired or replaced the damaged asset

11. Issues: • Was the claim to be considered under C1 or C2? • If C1: • Was Ridgecrest entitled to indemnity up to the sum insured for the estimated cost of repairing the damage incurred as a result of each earthquake? • Did the Doctrine of Merger apply? • Did the Doctrine of Frustration apply?

12. Doctrine of Merger • Marine insurance doctrine • where under the same insurance policy a partial loss which has not been repaired or otherwise made good is followed by a total loss, the insured can only recover in respect of the total loss.

13. Doctrine of Frustration • General common law doctrine • Where a person has a contractual duty which, though no fault of that person, they are unable to perform, they are excused for non-performance – that is, the performance has been frustrated.

14. Result: • Claim to be considered under C1 so that Ridgecrest is prima facie entitled to be paid for the estimated cost of repairing the damage resulting from each happening, up to the limit of the sum insured ($1.9M) in each case • Doctrine of Merger does not apply • Doctrine of Frustration does apply through an implied term in the insurance contract. When it became impossible or impracticable for the repairs which had commenced to be completed, the liability of IAG to indemnify Ridgecrest for the cost of further repairs ceased. • Ridgecrest entitled to indemnity for the cost of the partial repairs actually carried out ($125,000), plus the policy limit in respect of the total loss of the building ($1.9M)

15. Court of Appeal • Ridgecrest appealed against the High Court’s finding in respect of frustration • IAG cross-appealed in respect of the finding that C1 rather than C2 applied

16. Result: • Same result – different reason • Claim to be considered under C2, not C1. This meant that: • For claims relating to a damaged but repairable building, IAG was liable under Clause C2(a)(i) in respect of each happening for the cost of restoring the damage to the same condition as when new. However quantification of the liability depended on the repairs actually being carried out, with IAG only being liable in respect of repairs which had been carried out • Once the building became a total loss, IAG was liable under Clause C2(a)(ii) for the cost of a replacement building, subject to the maximum sum insured

17. Merger and Frustration not decided. • Court of Appeal said it would not have upheld the High Court’s decision in relation to frustration.