Southern Response Earthquake Services Limited v Dodds [2020] NZCA 395 (7 September 2020)

This judgment is a recent decision of the Court of Appeal.

Background

The Dodds’ house sustained damage beyond economic repair in the February 2011 earthquake in Christchurch. [1] The Dodds’ had insured this house on a replacement basis with Southern Response Earthquake Services Ltd (SRES), previously known as AMI Insurance Ltd. [2] The insurance policy offered the Dodds’ several options to settle their claim. Of the options, the Dodds’ chose to buy another house. Under the policy, SRES were to pay the cost of buying that other house capped at the cost of “rebuilding your house on its present site” [3] This cost was to be determined by an estimate of what the cost would be to rebuild the house on the present site.

Arrow International (Arrow) provided the Dodds’ with an Abridged Detailed Repair/Rebuild analysis (Abridged DRA), which stated a total figure of $895,937.78 for House & Outside EQC Scope (including GST). [4] SRES advised the Dodds that if they exercised the option to buy another house, the maximum amount available to them was $894,937. [6]

The Dodds discovered that a more comprehensive DRA (Complete DRA) had been prepared by Arrow and provided to SRES. [6] The Complete DRA indicated that SRES would incur additional costs of $205,000. [7] SRES did not disclose three things to the Dodds before settlement. One, the Complete DRA. Two, that the amount in the Abridged DRA excluded certain costs that SRES would incur if the house was rebuilt on its existing site. [8] And three, why SRES considered that those items were irrelevant when determining the maximum payable under the settlement option the Dodds chose. [9]

Litigation

The Dodds and St Martins Trustee Services Ltd sued SRES successfully in the High Court, recovering the difference of approximately $205,000. [10] SRES were found to have been misleading and deceptive in settling the claim with the Dodds. [11]

SRES appealed the latter finding to the Court of Appeal. [12]

The issues on appeal were: [13]

Misrepresentation

(a)   What representations (if any) did SRES make to the Dodds?

(b)   Were those representations false?

(c)    Were the Dodds induced to enter into the Settlement Agreement by those representations?

(d)   What damages are the Dodds entitled to under s 35 of the Contract and Commercial Law Act 2017 (CCLA)? Can the Dodds recover general damages for inconvenience and stress?

Fair Trading Act 1986 (FTA)

(e)    Did SRES engage in misleading and deceptive conduct in breach of s 9 of the FTA?

(f)     Did the Dodds suffer loss or damage because of any misleading conduct on the part of SRES?

(g)    What remedy should be awarded under s 43 of the FTA?

Breach of duty of good faith

(h)   Did SRES owe a duty of good faith to the Dodds in connection with the settling their claim?

(i)     If SRES owed a duty of good faith to the Dodds, was that duty breached?

(j)     What is the appropriate remedy in respect of any such breach?

In summary, although the Court of Appeal allowed SRES’s appeal in part and the damages awarded to the Dodds in the High Court were reduced, the Court found that SRES made misrepresentations to the Dodds about two things. One, its estimate of the cost of rebuilding the house. And two, the absence of any other report from Arrow that stipulated a different rebuild cost. [14] The Court affirmed that the Dodds’ loss was the difference between the true value of their rights under the policy and the sum they were persuaded to accept in exchange for surrendering these rights; a loss recoverable under both the CCLA and the FTA. [15]

Lessons

There are a few important lessons to be learnt from this case.

One, a reasonably held honest opinion by an insurer regarding the insured’s entitlement under a policy does not necessarily make the insurer liable for a claim in dishonesty or bad faith. If SRES had shown the Complete DRA to the Dodds, it would be unlikely for the Dodds to have a legal claim.

Two, the extent of the insurer’s duty to disclose information must be limited to the disclosure of material facts. This duty is not boundary-less.

Three, in terms of the duty of good faith, the Court commented that it is likely more productive to consider what obligations are implied by law or that can be implied in fact in the context of particular dealings between the insurer and the insured. [16] The Court had recently affirmed this approach in Taylor v Asteron Life Ltd. [17]. The Court of Appeal did not engage in an indepth considering of this interesting topic: seemingly to be left for another occasion.

Copyright Steve Keall, all rights reserved, 2020

[1] Southern Response Earthquake Services Limited v Dodds [2020] NZCA 395 (7 September 2020) at [1].

[2] At [1].

[3] At [1].

[4] At [2].

[5] At [2].

[6] At [4].

[7] At [4].

[8] At [4].

[9] At [4].

[10] At [6].

[11] At [6].

[12] At [8].

[13] At [107].

[14] At [9].

[15] At [10].

[16] At [194].

[16] Taylor v Asteron Life Ltd [2020] NZCA 354.