Insurer’s duty not to mislead: The Court of Appeal’s decision in Dodds

Southern Response v Dodds [2020] NZCA 395

The Court of Appeal has recently delivered its judgment in the appeal from the High Court decision. The Court upheld the High Court’s finding that Southern Response was liable for misrepresentation, misleading and deceptive conduct, and breach of an implied duty of good faith.[1]

Background

The Dodds’ house was damaged beyond economic repair by the 2010/2011 Christchurch earthquakes. The Dodds insured their house on a replacement basis with Southern Response. Under the insurance policy, the Dodds had several options to settle their claim and they chose the option of buying another house. The policy provided that if they chose this option, Southern Response would pay the cost of buying that other house, capped at the cost of “rebuilding your house on its present site”.

To quantify that cap, Southern Response obtained two different reports: a “complete” report and an “abridged” report. The Dodds were only provided the abridged report which stated that the estimated rebuild cost was $895,000. This was a lower figure than the complete report, since it had excluded certain costs which would only be incurred if the rebuild on the existing site took place. Southern Response did not disclose the complete report.

The Dodds brought proceedings against Southern Response, claiming they entered into the settlement agreement as a result of misrepresentation by Southern Response under the Contract and Commercial Law Act (CCLA), misleading and deceptive conduct under the Fair Trading Act (FTA), and a breach of a duty of good faith.

The Dodds sought to recover the $205,000 difference between the figure they were paid on settlement and the estimated figures in the complete report, as well as general damages for inconvenience and stress.

High Court judgment

The Dodds succeeded in their claim to recover the difference between the two figures. The High Court found that the representation in the abridged report was false. Southern Response had also made an implicit representation to the Dodds that the abridged report was the only report available. Together, these misrepresentations induced the Dodds to enter into the settlement agreement. The Court also found Southern Response had engaged in misleading and deceptive conduct in breach of the FTA.

The Judge awarded approximately $205,000 in damages, being the difference between the two figures. However, the claim for general damages was unsuccessful.

Court of Appeal judgment

Southern Response appealed to the Court of Appeal on the issues of misrepresentation and for breach of the FTA. The Dodds cross-appealed on the issue of general damages. The Court of Appeal allowed Southern Response’s appeal, lowering the damages to be paid due to a calculation error, but otherwise upheld the High Court judgment on the other issues.  

In so doing, the Court considered what Southern Response’s communications to the Dodds would have conveyed to a reasonable person in the Dodds’ position. The Court agreed with the High Court Judge that the communications “conveyed an irresistible inference” to a reasonable person reading the communications that the estimated cost of the rebuild was $895,000. The Court also agreed that these misrepresentations materially induced the Dodds to enter into the settlement agreement.

As to the FTA issue, the Court agreed that if the communications were found to be misrepresentations under the CCLA, this would also constitute misleading and deceptive conduct under the FTA. Incorrect statements about the effect of an insurance policy have been held to establish liability under the FTA.

Comment (Philippa Fee)

Southern Response has indicated that it will not appeal the Court of Appeal’s decision.  So, this is the last word on the particular dispute at issue. It underscores how careful insurers must be in communications with insured not to mislead the insured into accepting a settlement by any factual misrepresentation.    

Philippa Fee is a Partner at Fee Langstone

[1] The allegations in the Dodds case are similar to the claims made in the class action of Ross v Southern Response (see Fee Langstone blog for November 2019).