Interpreting Insurance Policies – Ramifications of the Ridgecrest decision 19 Jan 2015

In August 2014, the Supreme Court released its unanimous decision in the case of Ridgecrest NZ Limited v IAG in respect of a preliminary question put to it based on agreed facts.  Paul Cowey was assisting counsel in the case.

While the case dealt with a preliminary question, the reasoning of the Court is instructive in three key respects:

(a) The Court’s approach to policy interpretation.

(b) The Court’s approach to the doctrine of merger – are losses resulting from earlier earthquakes “swallowed up” in losses caused by a later earthquake?

(c) The Court’s approach to the principle of indemnity, namely if an insured recovers for later losses, does it breach this principle?

This article considers the first issue – policy interpretation. We consider the second and third issues in separate following articles.


Interpreting the insurance policy

The Supreme Court construed Ridgecrest’s policy with IAG in the following way:

While the result of the Court’s analysis means insurers can be liable for more than the insured sum in any policy year, the Court imposed clear limits.

The Court’s reasoning provided helpful clarification to both insurers and insureds. As with most insurance issues however, much turns on the actual wording of the policy. It is therefore important to carefully read and understand your policy terms, both before loss occurs and afterwards.

If you would like any insurance advice please do not hesitate to contact Paul Cowey at