Measure of indemnity: relevance of notional costs

Some buildings policies confer upon the assured a range of options in the event of damage to the property. Where the property is damaged beyond repair, the assured may have the right to a cash settlement or the right to purchase an equivalent building.

In Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2014] NZCA 483 the assured chose to purchase an equivalent building, but the amount recoverable was capped at the cost of rebuilding on the original site. The question for the Court of Appeal was whether the cap included notional rebuilding costs on the original site which could never actually be incurred.