On 15 May 2013 the High Court delivered a judgment in respect of a body corporate's earthquake claim against its insurer Zurich: Body Corporate 398983 v Zurich Australian Insurance Limited  NZHC 1109. The issue for determination was whether the amount Zurich was to pay was in addition to the sums paid by the Earthquake Commission.
The Body Corporate of the Salisbury Apartment complex in Christchurch held a material damage policy with Zurich with a sum insured of $12.95m plus GST. The apartments were badly damaged in the February 2011 earthquake, with an estimated reinstatement cost of $25m plus GST. The Body Corporate had received $6.8m from the EQC ("the EQC sums").
The natural disaster damage clause of the policy provided:
"the Insurer's liability will be limited to the amount of loss in excess of the Natural Disaster Damage cover."
The Body Corporate and its insurance broker argued that the natural disaster damage clause postponed the point at which the policy first responded from the first dollar of loss to the point at which the EQC cover is exhausted. They argued Zurich's liability was the lesser of $12.95m or the actual amount of the Body Corporate's loss (over and above the EQC sums).
Conversely, Zurich argued that the sum insured was the overriding limit of cover for both the statutory and policy cover and the Body Corporate could not receive more than $12.95m in total. It said s 30(2) of the Earthquake Commission Act 1993 operated so the EQC responded first but also limited Zurich's liability to the difference between the EQC sums and the sum insured: $6.1m.
"Loss" in the relevant clause was held to be actual loss, whether insured or uninsured, not the amount of loss within the limitations of the sum insured.
It was held that the sum insured was exclusive of the EQC sums. Zurich therefore had to pay the sum insured of $12.95m in addition to the $6.8m paid by the EQC.
This decision is relevant for all residential policies with a sum insured. It is wording specific, however, so it will not benefit everyone. Many policies specifically limit the amount payable by the insurer under the policy to the difference between the sum insured and the statutory cover.
We expect Zurich will appeal this decision. We will keep you posted.
For advice on your insurance entitlements, contact the Insurance team at Wynn Williams.