Property insurance: successive losses

The Supreme Court of New Zealand in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158 has again addressed the problem of successive losses in the same period of insurance. In Ridgecrest New Zealand Ltd v IAG New Zealand Ltd [2014] NZSC 129 the Supreme Court rejected the marine insurance concept of “merger”, whereby unrepaired partial losses merge into a subsequent total loss in the same policy year, and held that the assured was entitled to recover for damage inflicted by each successive earthquake even though that damage had not been repaired for which no expenditure had been incurred.

Subsequently, in QBE Insurance (International) Ltd v Wild South Holdings Ltd [2014] NZCA 447, the Court of Appeal confined Ridgecrest to the situation where the policy provided for indemnity based upon depreciation rather than repair costs: because each earthquake in Ridgecrest inflicted further loss, a separate sum was recoverable for each. Wild South confirmed that, although the merger principle had no application, the indemnity principle remained the governing rule. The assured could not be better off than he was before the loss, and a policy which provided for repair costs could not therefore pay for repair costs no longer possible to be incurred.