The Court of Appeal has recently confirmed that damage caused to a home by earthquakes in February 2011 and June 2011 was not a “series of losses” for the purposes of an aggregation clause in an IAG policy held by a home owner.
Background
Mr Moore owned a substantial, architecturally-designed home on Scarborough Hill, above Sumner in Christchurch. Mr Moore’s house was not damaged in the September 2010 earthquake. It was however damaged by the February 2011 and June 2011 earthquakes.
The costs to reinstate Mr Moore’s house at trial were estimated to be approximately $2.08 million for the damage caused by the February 2011 earthquake and an additional $2.77 million for the damage caused by the June 2011 earthquake.
Mr Moore insured his house with IAG for accidental loss during the period of 13 November 2010 to 13 November 2011.
Aggregation clause
The IAG Policy included an aggregation clause. It said:
“The most that we pay for any loss (or any series of losses caused by oneevent) is the sum insured shown in the schedule.”
The sum insured under the policy was $2.5million.
The question the Court of Appeal was required to determine was whether Mr Moore had cover up to $2.5 million for each loss (February and June 2011) individually, or whether $2.5 million was the total cover available for both losses, even though they occurred four months apart.
High Court judgment
In the High Court Dunningham J found in favour of IAG. Her Honour considered that the losses caused by the February and June 2011 earthquakes were a “series of losses” caused by “a series of events” which had the same cause, being the September 2010 earthquake.
This meant that even though the September 2010 earthquake caused no damage to the house and occurred outside the policy period, IAG’s liability under the policy was capped at $2.5 million for all losses caused by both the February and June 2011 earthquakes.
Court of Appeal judgment
The Court of Appeal disagreed. It found that the High Court had not properly considered or given effect to the words “series of”.
The Court of Appeal found that the word “series” in the aggregation clause meant losses that were linked in some way and temporally related, not simply any two or more losses occurring at any time during the 12 month policy period.
In order for losses to be part of a “series” for the purposes of the Aggregation clause, the Court of Appeal considered the losses must have a common cause which was the proximate cause of the loss. The proximate cause of any given loss is a question of fact to be determined in accordance with common sense principles. The test to be applied is the same test as tort law.
Having considered the meaning of the aggregation clause, the Court of Appeal then determined that the February 2011 and June 2011 earthquakes were caused by separate events.
The damage caused by the February 2011 earthquake was caused by that earthquake which was due to the rupture of three fault lines including the Port Hills fault. The damage caused by February 2011 earthquake then ceased.
The damage caused by the June 2011 earthquake was caused by that earthquake alone, which was due to the rupture of two other faults to the east of Christchurch. No part of this damage was caused by the February 2011 earthquake.
The losses suffered in February 2011 and June 2011 did not, in the Court of Appeal’s view, form a “series of events”. The losses were caused by quite separate events.
Although not required to consider the question, the Court of Appeal also found that the losses suffered in the February 2011 and June 2011 earthquakes did not have a “common cause”.
Accordingly the Court of Appeal determined that IAG was liable to pay Mr Moore the sum insured ($2.5 million) for the damage caused by the February 2011 earthquake and the June 2011 earthquake, separately.
Our comment
The Court of Appeal’s decision in this case is a further example of the need to carefully and correctly interpret the wording of an insurance policy and apply that interpretation to the specific facts of the situation. The outcome is one which home owners are likely to welcome and consider to be a “common sense” approach, albeit an approach which was supported by the expert evidence in this case.
[1] Moore v IAG [2020] NZCA 319
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