Vero Successful at the Supreme Court -- Prattley appeal dismissed
/Prattley Enterprises Limited v Vero Insurance New Zealand Limited [2016] NZSC 158
The Supreme Court has today dismissed an appeal by Prattley Enterprises Limited, in a decision that will be well received by insurers who have been following this proceeding, in which an insured sought to re-open the settlement agreement for an earthquake claim for a commercial building held for investment purposes.
Prattley owned a three-story commercial building which was damaged during the Christchurch earthquake sequence, and ultimately demolished in September 2011. The building was insured with Vero on an indemnity basis for $1,605,000. In August 2011, the parties reached an agreement by which Prattley was paid $1,050,000 plus GST in "full and final settlement" of its insurance claim. The sum paid reflected an assessment of the market value of the building before the earthquakes.
Prattley challenged the settlement on the basis that the parties were operating under a common mistake as to the correct measure of indemnity under the policy. Prattley argued that the correct measure was not the market value of the buildings, but rather the cumulative costs of repairs following the first two earthquakes, and the costs of reinstatement following the third.
The Supreme Court has rejected Prattley's argument that the policy entitlement was more than market value. On that basis, it did not need to reach a final decision on the issue of mistake. It held that the policy contained terms standard for indemnity policies, which "would have been understood by any sensible person engaged in commercial building insurance." Further, the policy contained an extension for reinstatement cover, which Prattley had not taken out.
The Court's decision was based on orthodox principles of insurance law in relation to indemnity and betterment, namely, that an insured cannot recover more than it had relevantly lost. Had Prattley succeeded, it would have been left in a better position than before the earthquake damage, and may also have been left in a better position than if it had purchased reinstatement cover, as it would not have needed to use the insurance proceeds to rebuild. The Court confirmed the importance of assessing the intentions of the insured in relation to repair or rebuilding. Prattley was not entitled to be paid repair costs which it would never incur, and given that Prattley had no settled intention to rebuild the building, rebuilding costs were the wrong starting point for measuring indemnity value.
