The Court of Appeal has now addressed the interpretation of an insurance policy in response to multiple event claims, confirming that an insured is entitled to be indemnified for each loss resulting from insured events: Ridgecrest New Zealand Limited v IAG New Zealand  NZCA 291, on appeal from Dobson J's decision in the High Court in November 2012.
Ridgecrest was insured for replacement cover under a State "Businesspack" policy. As a result of the Canterbury earthquake sequence, Ridgecrest lodged four claims for earthquake damage, following earthquakes on 4 September 2010, 26 December 2010, 22 February 2011 and 13 June 2011. Each of those claims had been accepted by IAG.
The Court focussed on each claim individually, rather than treating them as a composite, and held that each claim should be dealt with under the replacement cover clause, clause C2. That clause stated that IAG would pay either the cost of restoration (ie repair) to the same condition when new, or replacement, where "… following loss or damage you restore or replace the lost or damaged Business Assets".
The policy did not contain a "reinstatement of cover" clause, but did allow for the insurer to cancel the policy if there was a change in circumstances material to the extent of risk. Here, IAG did not cancel the policy after any of the claims were made.
Ridgecrest argued that IAG were obliged to pay the estimated cost of repairs (whether carried out or not) required to restore the building after each event, up to the limit of the sum insured in each case.
The Court rejected that argument.
Instead, the Court held that where the building was damaged but repairable, IAG was liable under clause C2 for the cost of restoring the building to the same condition as when it was new. Quantification of that liability, however, depended on the repairs actually being carried out, and the amount of liability would be the actual cost of those repairs. That follows from the wording of clause C2 "… following loss or damage you restore or replace the lost or damaged Business Assets" (emphasis added).
Ridgecrest was therefore entitled to receive the cost of the repairs actually carried out after the first two earthquakes, even though the building had not been fully repaired before the next earthquake struck. Ridgecrest was also entitled to the cost to replace the building following the third earthquake, up to the sum insured, less any deductions. Whether the building was damaged beyond repair after the third or fourth earthquake was not material to the ultimate outcome, as no repairs had been costed or carried out after the third earthquake.
The Court of Appeal rejected the High Court's view, based on the doctrine of frustration, that IAG was relieved of its obligation to pay the cost of the remaining repairs to Ridgecrest as it was impossible for IAG to complete the September and December repairs. It reached the same conclusion applying the policy wording; as the remaining repairs had not been and would not be carried out, Ridgecrest could not recover those costs in addition to the replacement value of the building.
The Court of Appeal did not express a view on the doctrine of merger of liabilities, leaving that issue to be determined by the full hearing of TJK NZ Ltd v Mitsui Sumitomo Insurance Company.
This case did not deal with a policy renewal between events, with or without limitations or additional conditions imposed. Our view remains that an insured in that situation would be entitled to seek their loss, up to the sum insured, for each policy period.
The overarching principle that an insured can never recover more than the value of the loss, but may in some circumstances recover more than the sum insured, remains intact.