Assignment of claims
A recent decision by the High Court concerns the assignment of full replacement insurance claims.
Unusually, rather than the issue being whether the insured could assign the replacement value of the policy, the court was asked to consider whether, because of an insurer’s representations, the insurer was prevented from relying upon the principle in Bryant v Primary Industries Insurance Co Ltd.
The rule in Bryant is that an insured cannot assign an entitlement to reinstate property and be paid the cost of the reinstatement without the consent of the insurer. In contrast, an insured is normally entitled to assign a claim for indemnity value, as that is a straightforward money claim.
Facts
In 2012, Mr and Mrs Doig entered into a conditional agreement to purchase a property that had been damaged by the Christchurch earthquakes and was not repaired. The vendors were insured under a full replacement cover policy with Tower Insurance.
The Doigs’ solicitor, in anticipation of settlement, made inquiries with Tower as to the assignability of the full replacement cover that the vendors were entitled to claim. Tower sent two emails which were later relied upon by the Doigs. The first email stated that if an assignment was received “all settlement [of a claim over the statutory cap] is based on the previous owner’s policy details, as this is the policy which was in place at the time of the earthquakes”.
In the second email, Tower said that it would regain responsibility of the repair if the EQC cap was exceeded.
Following this, the vendors assigned their insurance claims to the Doigs. The property was subsequently declared over the EQC statutory cap. Tower determined that the property was not capable of economic repair and that it would have to be demolished and rebuilt. However, relying upon the Bryant principle, Tower asserted that it was only liable to pay to the Doigs indemnity value.
Decision
The Doigs asserted that, due to the representations made in the two emails by Tower, Tower was prevented or estopped from denying full replacement cover to the Doigs based on the rule in Bryant.
In order to succeed, the Doigs needed to prove the following elements:
(a) Tower had created or encouraged the expectation that the Doigs were entitled to full replacement value;
(b) Tower expressly and unequivocally made the representation that the full replacement value was available to the Doigs;
(c) the Doigs relied on this representation to their detriment; and
(d) it would be unconscionable for Tower to renege on the representation that the Doigs were entitled to full replacement value.
Other than establishing that Tower had encouraged the expectation (created by the marketing of the property) that the Doigs were entitled to full replacement value, the Doigs failed to prove any of the required elements.
The Doigs could not prove that they had relied on Tower’s representation to their detriment. Although the detriment need not be financial, it needs to be detriment that makes it unjust or inequitable to allow the representation by Tower to be disregarded- “mere disappointment from an unfulfilled promise” is insufficient. The Doigs could not prove reliance.
It was relevant that the sale and purchase agreement was signed before the communication with Tower. The fact that they entered into a sale and purchase agreement that was less valuable than the Doigs believed was not sufficient detriment.
In addition, although not making a formal decision on the point, Justice Mander doubted whether the representations were unequivocally made by Tower to the Doigs. While the statements were “open to misinterpretation” by a lay person, the representations were through the conduit of the Doig’s solicitors who could have read the representation as consistent with the Bryant principle.
Justice Mander’s decision may open doors for other insureds to succeed if representations were made to the insured personally and the insured clearly suffered detriment, such as financial detriment by entering into a building contract for the reinstatement of their property.
But what about Xu?
The above decision is premised on the basis that the Bryant correctly states the law. However, the recent Xu & Diamantina Trust Limited v IAG New Zealand [2017] NZHC 1964 decision was appealed and hasnow been heard in the Court of Appeal. The appeal is likely to consider whether assignment of an insurance claim can include an assignment of replacement or reinstatement value where the work must be done for the right to arise. The decision may affect a significant number of unresolved claims.
The case of the deceitful insured
In an unusual case, the High Court in England has made a finding that a car accident was staged by an insured and another person in order to obtain an insurance pay out.
The case is of particular interest because there was no direct evidence of deceit. The finding was based largely upon circumstantial evidence. The court relied primarily upon evidence that the insured and the claimant had failed to disclose to the insurer that they were friends before the accident, in finding that they had concocted the claim. The case demonstrates that the court will stand back and have regard to the all the evidence when deciding such a case.
However, the court must nevertheless have a high level of confidence before finding that an insurance claim is based upon deceit.
Background
The case arose out of a collision that occurred when a Mr Miller, who was driving a Peugeot, hit a Range Rover owned by a Mr Gentry. Mr Gentry and a passenger, Mr Voller, were in the Range Rover at the time.
Mr Miller was insured by UK Insurance Limited. Mr Miller reported the claim to UK Insurance, claiming that he had swerved to avoid hitting a deer and instead hit the Range Rover. UK Insurance wrote to Mr Gentry accepting that Mr Miller was at fault.
However, after conducting Facebook, Twitter, LinkedIn and Experian searches, UK Insurance became suspicious about the circumstances of the collision. The searches revealed that Mr Gentry and Mr Miller knew each other before the accident and had taken part in cross-country running events together.
When confronted with this, Mr Gentry’s answer was initially was that he had not known Mr Miller earlier.
He said that Mr Miller had told him at the scene of the collision that his son had died of Sudden Infant Death Syndrome, or SIDS. Mr Gentry claimed that they had subsequently become friends on Facebook and had participated in running events together to raise money for a charity supporting families affected by SIDS.
Contrary to this account, however, Facebook records showed that Mr Gentry had been aware of the death of Mr Miller’s son some years earlier and that they had taken part in a cross-country running event together the day before the collision. When this came to light, Mr Gentry belatedly acknowledged that he knew Mr Miller before the collision but said that he had not disclosed this as he did not want to “slow down the very genuine claim”.
UK Insurance did not accept this explanation and issued proceedings against Mr Gentry seeking damages in the tort of deceit. UK Insurance’s case was that if the collision did in fact occur (which was not admitted) it was staged and Mr Gentry’s claim was fraudulent.
The judgment
UK Insurance bore the burden of proving that Mr Gentry had dishonestly represented that his car had been struck by Mr Miller in a genuine accidental collision. Because the allegation against Mr Gentry was one of a criminal nature, while the civil standard of proof applied, cogent evidence was required before the Court could be satisfied on the balance of probabilities that the collision was staged.
There is rarely direct evidence of fraud. Often, it can only be inferred from circumstantial evidence. As a result, it is necessary for the court to have regard to all the relevant evidence and consider the circumstances as a whole.
Teare J found that there was cogent circumstantial evidence that the collision was staged:
(a) Mr Gentry and Mr Miller were friends at the time of the collision;
(b) neither of them informed UK Insurance of their friendship when the claim was made; and
(c) when UK Insurance discovered that they were friends Mr Gentry constructed a “particularly bold lie” in claiming that he became friends with Mr Miller only after the collision.
Teare J concluded that the only realistic explanation was that Mr Gentry and Mr Miller were privy to the plan to stage an accident and that admitting their friendship would undermine the claim. The fact that the drivers were friends and were reluctant to disclose that friendship strongly suggested that the collision was staged.
There was also evidence that Mr Gentry’s Range Rover had only travelled around 1300km between May 3, 2012, and June 11, 2013. This was consistent with it having been off road or used sparingly for a substantial period of time, as a result of damage. The fact that Mr Miller’s Peugeot was an old car and was worth very little was also consistent with a staged collision between an already damaged Range Rover and the Peugeot.
A plaintiff does not have to establish a motive for an alleged fraud if the facts are sufficiently unambiguous. However, if a motive were required, Teare J found that Mr Gentry wished to recover something in respect of the substantial damage already carried by his car (which had led to it being little used in the previous year) and, for whatever reason, was unable to recover from his own insurers in respect of that damage. Mr Miller was willing to assist his friend because his vehicle was very old and worth very little. It is likely that the passenger, Mr Voller, attended to be an “independent witness” to the collision.
The case is also a salutary lesson for users of social media who might be minded to mislead their insurers in circumstances where the true position is evident from their social media pages. Having found for UK Insurance, Teare J awarded damages in the sum that UK Insurance had paid to Mr Gentry as a result of his deceit.
Newer isn’t always better
This recent High Court decision discusses the liability of insurers under policies that provide an option to purchase a new house rather than rebuilding the existing one.
While the particular wording of each policy will be important, the case demonstrates that the courts will be mindful of established principles of insurance law when interpreting the scope of cover in these cases.
Background
The St Albans property at the centre of this case was insured at the time of the Canterbury earthquakes by AMI Insurance Ltd under an AMI Premier Rental Property Policy. Southern Response is responsible for settling earthquake claims lodged by AMI policyholders for damage which occurred in the Canterbury earthquakes before April 5, 2012.
The previous owner of the property made a claim under the policy for damage to the property.
In 2011, Southern Response informed the previous owner that it considered it uneconomic to repair the house. In 2013, the previous owner elected under the Policy to rebuild the house on the same site. Following a geotechnical investigation and assessment the land was categorised as “Technical Category 3” land. As a result, an enhanced foundation option would need to be used if the house were rebuilt in order to be code compliant.
Shirley Investments bought the property in 2014 and took an assignment of the rights under the policy. In 2015, Shirley Investments advised Southern Response that it wished to change the election under the Policy, instead choosing the “buy another house” option.
The policy provided “We will pay the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding your rental house on its present site”.
Southern Response disputed the amount it was required to pay to Shirley Investments under the “buy another house” option. Because Southern Response has a number of similar claims pending, it asked the Court to make two declarations:
(a) the amount payable under the “buy another house” option of the policy does not include either the notional cost of enhancing foundations for a new house on the same site and/or the cost of demolishing the existing house; and
(b) the amount payable under the “buy another house” option does not include the cost of buying the land on which that house is situated.
First declaration
Under the policy, Southern Response was obliged to pay for the cost of rebuilding the house on its current site to an “as new” condition. The Policy also allowed for the payment of specific additional costs where they were approved by Southern Response and incurred by the insured.
By way of example, additional costs include: demolition, contents removal, architects’ and surveyors’ fees and any reasonable and required additional work which ensures the rebuilt house is code compliant.
The issue for determination was whether these additional costs must be taken into account when calculating Southern Response’s liability under the “buy another house” option.
Thomas J observed that the Policy distinguishes between “the full replacement cost of rebuilding” and what is additional to that cost. The Policy acknowledges that additional costs are costs that Southern Response might have to have paid. Shirley Investments’ interpretation would require that, in the case of the rebuild option, additional costs would not be included unless actually incurred but, in the case of the “buy another house option”, they would be included regardless. Thomas J held that this could not be correct.
Furthermore, Thomas J found that the purpose of the Policy is to put the insured in the position they would have been in had the damage not occurred, with the house being put in an “as new” condition. If Shirley Investments’ interpretation of the Policy was correct, it would be entitled to buy a house on stable ground with standard foundations and use the notional cost of enhanced foundations it would incur if it rebuilt the house at the same site to buy a more expensive house.
This would result in a windfall which would not accord with the purpose of the policy. Accordingly, the Court made a declaration that the amount payable under the “buy another house” option of the policy does not include the additional costs of either the notional cost of enhancing foundations for a new house on the same site or the cost of demolishing the existing house.
Second declaration
This became a moot issue between the parties by the time of the hearing due to the value of the replacement house that Shirley Investments acquired. However, the parties agreed that it was a question of some importance which needed to be resolved.
Thomas J found that Southern Response’s liability under the “buy another house” option does not include the cost of buying the land on which the new house is situated. The policy makes it clear that land is not covered. Buying another house means exactly what it says: it does not include the land.
Thomas J noted, however, that it would be a shame if this declaration would stifle flexibility on the part of Southern Response, for example in distinguishing which legal fees related to the house purchase and which to the land, for the purposes of coverage.
