Supreme Court decides reinstatement benefits cannot be assigned
By: Emily Walton, Richard Hargreaves
Published: 10/07/2019
The Supreme Court has decided the case of Xu v IAG NZ Ltd [2019] NZSC 68 against the homeowners by a 3:2 majority.  Click here to read the full decision.

The homeowners (Xu and the Diamantina Trust Ltd) purchased a damaged property from the Barlows.  The Barlows assigned their IAG insurance claim to the new homeowners.

The Barlows’ insurance policy provided two options for damage:
  1. The actual costs of repairing the property to an as new condition, where the insured party reinstates the property (Reinstatement Benefits); or
  2. If the insured party does not reinstate, the economic loss suffered as a result of the damage (Indemnity Benefits).

Reinstatement Benefits often equate to a significantly greater pay out under an insurance claim than Indemnity Benefits.

The Supreme Court held that the wording of the policy in this case meant that Reinstatement Benefits are personal benefits to the original insured party only, and that they could not be assigned to a purchaser. The homeowners were entitled to Indemnity Benefits only.

It is possible that other policies may have different wording that allows Reinstatement Benefits to be assigned.  Some insurers may also allow assignment of Reinstatement Benefits, even if the wording of the policy does not allow it.

Purchasers of earthquake-damaged properties who are taking assignment of an insurance claim must review the policy wording to determine whether they are being assigned Reinstatement Benefits or Indemnity Benefits.

Those involved in sales of property (vendors and agents) must be careful not to misrepresent the benefits that the purchaser is being assigned under the insurance claim.

If you would like to understand more about what this decision means for your insurance claim, contact our insurance litigation team.
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