Change of Position by an insurer. Is it allowed? 06 Jun 2015
If your insurer has suggested it will settle your claim by cash payment, can it then do something different, such as carrying out an actual repair/rebuild or vice versa?
This issue was considered in the Canterbury earthquake related case of Domenico Trustee Limited v Tower Insurance Limited (and on appeal in the Court of Appeal subsequently). The homeowner argued that the insurer (Tower) had elected to settle in cash and could not go back on that position. Tower argued that it had not made a binding choice.
In the High Court, the Court largely agreed with Tower, holding that Tower had not, by what it had said or done, made a definite choice (election) to either make payment or rebuild. It found however that, due to unreasonable delay, Tower was deemed to have chosen to settle by paying the homeowner cash at “market value”. However, should the homeowner rebuild or purchase another home, Tower would then be required to also cover those additional costs.
The case was then appealed to the Court of Appeal who agreed with the High Court that Tower had not made an unequivocal choice to either made payment or rebuild. However, the Court of Appeal referred the case back to the High Court for a rehearing on the issue on whether Tower had unreasonably delayed in making a decision and, if so, whether the Court could therefore make one for it.
The homeowner owned a house which was deemed a “rebuild” as a result of the Christchurch earthquakes. The house was insured for replacement value by Tower under a “Provider House Policy Maxi Protection” policy.
In the course of settlement discussions, Tower provided the homeowner with a “settlement pack” which included FAQ addressing a settlement option outside of the policy, namely to cash settle on the basis of the “full rebuild cost” as opposed to “market value” (a lesser amount). Payment at “market value” was the only cash settlement option under the policy and applied until the homeowner actually rebuilt or replaced the damaged home.
There were also separate emails and discussions between Tower and the homeowner offering the homeowner the same “outside the policy” option (a cash payment based on the estimated rebuild cost of the home).
The homeowner and Tower could not reach agreement on the rebuild cost. The homeowner then filed legal proceedings seeking that Tower be ordered to cash settle on the basis of an agreed rebuild amount without the homeowner being required to rebuild.
- The High Court held that Tower had not made a binding choice to cash settle at “rebuild” value. This was on that basis that all discussions between the parties had been qualified by Tower and indicated that Tower had not made a final decision but instead remained willing to settle the homeowner’s claim by any of the options under the policy. In addition, that option was not contained in the policy and was therefore not available for Tower to actually elect.
- The Court of Appeal agreed, holding that the offers to settle in cash were just that, offers, and no more. Tower’s actions demonstrated that it was pursuing its preference for a cash settlement while reserving the option to carry out the reinstatement works itself. All communications show it continued to keep its options open.
- The High Court indicated that, in certain circumstances, it might be possible to argue that an insurer, by its words and actions, has made a choice to repair/rebuild coupled with a waiver (effectively a “giving up of”) of the requirement that the homeowner actually repair or rebuild. This would enable the homeowner to receive the full rebuild amount in cash without rebuilding. In the case however, the homeowner had not sought to rely on this argument so the Court could not make a decision on it.
- The High Court also held however that, as a result of Tower failing to make a final decision for a substantial period of time, Tower was deemed therefore to have in fact made a choice to settle by paying cash at “market value” (which is less than full replacement value) as a starting position. However, should the homeowner rebuild or purchase another home, Tower would then be required to also cover those additional costs. This was on the basis that a party entitled to elect has only a reasonable time in which to do so before the law will make it for that party. In addition, there is a requirement to settle claims under insurance contracts with reasonable speed.
- On this point the Court of Appeal disagreed. This was partly on the basis that it was not apparent that previous cases actually supported the idea that the Court could make a decision for an insurer if they had delayed unreasonably in doing so. However, more significantly, the Court of Appeal decided that the documents filed in Court by the homeowner had not raised this issue before the original hearing. Consequently, Tower had been disadvantaged by this omission and the case was referred back to the High Court for a rehearing on this issue. To date the rehearing has not yet been decided.
The case indicates that, as a starting point, in order for your insurer to be bound to a particular method of settlement:
- There must have been an unequivocal and unqualified choice communicated to you by the insurer. This can be either by words or actions;
- The insurer must have first been aware of all relevant facts and information so that it is in a position to make an informed choice;
- There must be a choice between one of the options in the policy and not some option outside of the policy (i.e. an insurer cannot be held to have made a binding choice in respect of an option not contained in the insurance policy). In this respect the Court held that the FAQ provided by Tower did not form part of the policy options – it was simply an explanatory document.
- A mere offer to settle a claim without more will not ordinarily amount to a binding choice, nor usually will the making of inquiries by the insurer (i.e. looking into a cash settlement), even where it creates expectations for you.
These indications set a reasonably high threshold to cross before an insurer will be found to have irrevocably elected a specific option. However, if an insurer has unreasonably delayed in making a choice, a choice (in accordance with one of your policy options) may be made for them. This issue remains to be determined by the Court.
The case also indicates that the issue of whether an election has been made is fundamentally a factual inquiry (i.e. will be influenced by the facts of each case).
If you are concerned that your insurer has changed their position, please contact us to discuss further. We can then assess the specific facts of your case to advise whether it appears your insurer has made a binding election or not and whether it might also be possible to argue that they have waived some requirement under the policy.
If we can assist in any way with your insurance claim, please do not hesitate to contact Paul Cowey at email@example.com.