The Court of Appeal recently delivered judgment in Doig v Tower Insurance, the latest in a series of assigned material damage claims. We covered the High Court decision last year.
This decision is relevant to all material damage claims handlers. It provides reassurance, and a note of caution, when dealing with insureds and their representatives where there is a sale of damaged property.
Recap of the facts
In 2012, the Doigs entered into a conditional agreement to purchase a property which had been damaged in the Christchurch earthquakes but not yet repaired. The vendors were insured under a full replacement cover policy with Tower. It contained the usual clause that Tower was not bound to: “Pay more than the present day value if you have full replacement value until the cost of replacement or repair is actually incurred. If you choose not to rebuild or repair your house we will only pay the present day value.” “You” was defined as the person named in the policy.
In anticipation of settlement, the Doigs’ legal executive asked Tower how the property damage claims would be dealt with, in particular:
If the above scenario were to occur [i.e. if the repairs ended up over the EQC statutory cap], would Tower cover the damage under its existing full replacement cover, i.e. any repair work required over and above the EQC caps would be covered fully by Tower as per the current full replacement policy held by the vendor.
The Court of Appeal described this question as hitting “the bull’s-eye”. The Doigs relied on the following particular words from Tower’s response:
… if the EQC repairs are deemed over cap, it is TOWER’s liability to repair the dwelling. The new owners would not be required to lodge an additional claim as the damages to the property were incurred under the previous owners policy and these claims will remain open until the damages in relation to those earthquake events are rectified. … All settlement will be based on the previous owners policy including their policy cover and excess.
The vendors assigned their insurance claims to the Doigs shortly prior to settlement. In March 2014, Tower advised the Doigs that, as assignees, “its liability was limited to the pre-loss indemnity value of the house, rather than the cost to replace or rebuild.” In 2016, the property damage was declared over the EQC statutory cap. Tower then determined that the property was not capable of economic repair and that it would need to be demolished and rebuilt. However, relying upon the Bryant principle, Tower asserted that it was only liable to pay indemnity value to the Doigs, because they were assignees – their original insureds had, in selling, chosen not to repair. Tower paid its assessment of indemnity value.
The Doigs sued Tower on the basis that they had relied on the statements Tower made prior to settlement to their detriment, by confirming the agreement for sale and purchase for the property. In the alternative, they sought compound interest on their indemnity entitlement. The High Court held that the Doigs had not established that they had acted to their detriment in reliance upon Tower’s statements. It dismissed the Doigs’ interest claim on the basis that Tower’s liability to pay was only triggered when EQC declared the claim over cap.
The Court of Appeal dealt with three issues:
a. Was a clear and unequivocal representation made by Tower?
b. Had the Doigs changed their position adversely in reliance on the representation?
c. Did the Judge err in his conclusion on interest? That is, were the Doigs entitled to compound interest on indemnity value, if that was the extent of their entitlement against Tower?
The Court proceeded on the basis that the law on the assignability of reinstatement insurance claims was as stated in by the Court of Appeal in Xu v IAG and previously in Bryant. This meant, in summary, that a person cannot assign a claim to full replacement under an insurance policy; an assignee is limited to indemnity value.
Issue 1: Did Tower make a clear and unequivocal representation?
The Court held that Tower had not made a clear and unequivocal representation that the Doigs would be able to claim the full replacement cost for repairs or replacement, post purchase. There were four reasons for this:
a. Tower’s response to the Doigs’ legal executive’s question above was no more than a generic and indicative discussion of the insurer’ responsibility. Critically, Tower said it “cannot agree to the claims being transferred to your client until we receive a deed of assignment” and that a discussion as to specifics was necessary. The Court went on to say that “Assignment was by law in the gift of the insurer, and for the time being that gift was withheld. A deed, and a discussion, were needed”;
b. The relevant emails were with the Doigs’ legal executive, who was taken to understand the reservations in Tower’s statements. She had asked a clear question, and received a “cloudy answer”. This is a potentially important point for claims handlers;
c. Tower said that its decision, including as to approving any transfer of the vendors’ rights, was contingent on production of a deed of assignment. Matters were not discussed further with Tower, nor was the deed of assignment signed, until after the Doigs were irrevocably committed to the purchase; and
d. Care was needed in commercial relations before enquiries made of third parties (e.g. insurers) should be permitted to shift risk to, in this case an insurer, from the parties to the contract.
Issue 2: Had the Doigs changed their position adversely in reliance on the representation?
This issue was moot given the answer to Issue 1 above. However, the Court expressed the view that the Doigs had not suffered qualifying detriment for the purposes of an estoppel arising, for two key reasons:
a. The Doigs asserted that they would not have settled if Tower had not provided “confirmation” regarding the relevant claims. However, the Court said that there was no evidence, or legal support, for a right to cancel – the contract was not conditional on assignment and the vendors did not appear to have made an actionable representation as to the assignability of claims; and
b. The Doigs had suffered no further detriment than the non fulfilment of departure from the belief or expectation created by Tower’s email. There was no relevant change of position.
Issue 3: Did the Judge err in his conclusion on interest?
The Doigs ultimately conceded that Tower could not be liable for compound interest under the Judicature Act which was in force at the time. They maintained that Tower’s obligation to pay arose a short time after the event giving rise to the loss i.e. 22 February 2011.
However, the Court found that Tower’s obligation to pay was only triggered by EQC “making payment”, which was implicit in the policy. EQC declared the claim over cap in July 2016 and Tower made payment in November 2016, which was insufficient to constitute an unlawful delay in breach of the insurer’s obligations. Consequently, even if the Doigs’ claim was viewed as a claim for interest as damages, there was no breach to found such a claim. The claim for statutory interest failed for want of a money judgment.
We see this case as reassuring for insurers. It demonstrates that the courts are willing to take a fairly strict approach to statements made to third parties in the claims management context. However, we view the Court’s reliance on the fact that Tower’s emails were exchanged with the Doigs’ law firm as significant. The position, and result, may have been different if the emails were with the Doigs themselves. Insurers ought to take care to set out their position on issues such as assignment clearly.
This case is also a reminder that, at least at the time of publication of this issue, we await the Supreme Court’s decision in Xu v IAG. That may of course change the position with respect to the assignability of reinstatement benefits under material damage policies. If so, the Doigs would not, at least in theory, have needed to rely upon Tower’s emails.
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