A Supreme Court decision in the IAG v Xu case has affirmed long-held legal principles regarding assignment law, the Insurance Council says.

It involved a house sold on an “as is” basis with an assignment of the original owner’s rights under their insurance policy to the new owner.

In most cases of “as is” sales the rights are no assigned because the original owners will have settled their insurance claim for the earthquake damage. They keep the cash settlement and the sale price is reduced.

In the Xu case, Natalie Hall-Barlow and Matthew Barlow had a policy with IAG. Their home was damaged in the Christchurch earthquakes and they claimed on their insurance for the damage.

After three years, the claim was unresolved and they decided to sell the property to Ruiren Xu  and Diamantina Trust.

They assigned their rights in respect of their claim to the purchasers.

At that point, they had not incurred any costs of repairing the house.

IAG agreed that the purchasers were entitled to an indemnity-based payment but rejected the claim that they should receive the replacement benefits in the policy.

The High Court and Court of Appeal backed IAG.

The Supreme Court affirmed that decision. It held that the wording of the policy in this case made recovery of the replacement benefits subject to reinstatement by the insured. 

It said that references to the insured in the policy could not be interpreted as extending to assignees of the insured. Accordingly, the majority concluded that reinstatement by the assignees would not give them the right to recover the cost of reinstatement effected by them.

The Insurance Council said the decision provided definitive confirmation that an insurer must consent to a deed of assignment to an earthquake-damaged property before its customer could pass that claim on to a third party. 

"Insurers strive to act with integrity and fairness in all their dealings," said chief executive Tim Grafton. "In this case, the purchaser did not seek the insurer’s consent to a deed of assignment. Therefore, one could not legally be provided by the property owner."

He said the Supreme Court had also confirmed a principle of assignment law: that an assignee could only assign a loss they have actually suffered.

"Selling a property instead of repairing it means the policyholder has avoided the financial cost of the repair work, which in essence means they have not suffered a loss," he said.

"Claimants cannot assign a claim to recover costs they have chosen not to incur.

"The ability of insurers to choose whether to take on assignments is fundamental in their ability to adequately manage the risks they choose to hold," said Grafton. "Insurers ability to look after their customers and help them recover from adverse events is dependent on management of their existing portfolio and ongoing reinsurance support. If the Supreme Court had chosen to negate this long-held principle, it could have had far-reaching and very damaging consequences for the insurance market in
New Zealand."

He said the Insurance Council sympathises with Cantabrians who had purchased earthquake damaged properties with what they thought were valid assignments, especially where they’ve been unaware that those assignments needed insurer consent to be valid," said Grafton.

The Insurance Council urged consumers who had invalid deeds of assignment to seek advice and support from the Greater Christchurch Claims Resolution Service (GCCRS).

It recommmended anyone looking to purchase a property with a deed of assignment in future first speak to the insurer in question and ensured they had received confirmation the insurer consented to the assignment in writing before proceeding.