Recently, the Court of Appeal delivered its judgment in an appeal brought by the owner of a group of industrial commercial buildings damaged in the Canterbury earthquakes.

The owner (Moorhouse) appealed the High Court’s finding dismissing its claim for breach of contract against Vero. That appeal was dismissed. Fee Langstone’s Cecily Brick and Ali Cornwell appeared for Vero.

Important comments made regarding proof of damage/onus of proof

Moorhouse claimed that the buildings suffered greater damage than what Vero had assessed. This meant the buildings were not able to be restored to the policy standard (“substantially the same as new”) by the methodology proposed by Vero.

Moorhouse argued that the onus was on Vero to show that its proposed repair method met the policy standard. The Court of Appeal did not accept this. It held that Moorhouse had to show the claimed damage had occurred, on the balance of probabilities, and needed repairing. The burden of proof had not shifted to Vero, as contended by Moorhouse. In the Court’s view, the case should be resolved by the application of the burden of proof.

The Court of Appeal pointed out that an insurance policy is a contract. A plaintiff alleging that the contract has not been performed must prove that breach. It is not the insurer’s burden to prove that suggested damage did not arise. So, in Moorhouse, it was not sufficient for Moorhouse to point to the undisputed fact that earthquake damage had been occasioned to the buildings, or to establish that it was possible that greater damage may have occurred. It needed to show, on the balance of probabilities, that greater damage was actually caused or materially contributed to by the earthquakes.

This approach is to be applauded.

Insured’s agreement to repairs informs insurer’s repair obligations

The Court was also required to consider whether Vero was required to pay again for repairs previously undertaken to some discrete areas of damage. Moorhouse argued that those repairs were temporary and had not discharged Vero’s repair obligations under the policy.

The Court of Appeal made a number of comments about the importance of the parties agreeing a repair process. It said that the engagement between the parties, in the context of what was meant to be a final repair, informs whether the repair meets the “substantially as new” repair standard or not. It noted that in discussing repairs, it may well be that the parties agree to vary the policy. A policyholder may not be able to claim that particular work did not meet the policy standard when it had agreed to that work.

The Court said an agreement between insurer and insured as to the repair process may well be good evidence that the relevant policy standard has been met.

The engagements between Vero and Moorhouse over precisely what repair work was to be undertaken were relevant to assessing whether the “substantially the same as new” standard had been met. The repair had been undertaken using modern materials. Any argument that could be mounted about this now was not advanced at the time, and may just amount to a matter of perspective. The Court did not accept that Moorhouse had established that the policy standard had not been met when the earlier work had been agreed by the parties.

Comment by Craig Langstone

Although the Canterbury earthquake cases are coming to an end, the Court of Appeal’s comments are nonetheless of importance to all property claims in the future. The Court’s position regarding the burden of proof determining such cases is of particular practical significance. Often, possible damage is suspected or alleged in cases such as this. But a suspicion is not enough – insurers only need respond to damage that can be proved on the balance of probabilities. So, from an insurer’s perspective, this makes the obligation to repair much clearer.

The Court’s comments regarding the parties agreeing a particular repair process are also helpful, and accord with common sense. Such agreements as to repairs inform what the parties intended to meet the policy standard of repair. The parties proceeding down a particular repair path will be good evidence that the parties had agreed the policy repair standard would be met by these repairs. At a practical level, this is very helpful for insurers.

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Court of Appeal clarifies burden of proof in earthquake cases

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