Jarden v Lumley General Insurance (NZ) Limited [2015] NZHC 1427 (23 June 2015)

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BETWEEN	DAVID JOHN JARDEN AND JOANNE JARDEN Plaintiffs
AND	LUMLEY GENERAL INSURANCE (NZ) LIMITED _Defendant

Hearing:	23-27 February and 10 March 2015
Counsel:	A J D Ferguson with J S Morriss for Plaintiffs P J L Hunt with K J Rowe for Second Defendant
_Judgment:	_{23 June 2015}

Background [3] The house the Jardens built [3] Two earthquakes [6] A site visit [8] The policy of insurance [12] EQC settles [19] What the Jardens want [22]

The slab floor [30] The external brick veneer walls [55] The internal walls [61] The roof and ceiling [93] Other fittings and the garage [103] Declarations [107]

Issue 2: How should the natural disaster damage be apportioned to each earthquake? [108] Issue 3: What reinstatement work is required to restore the

JARDEN & ANOR v LUMLEY GENERAL INSURANCE (NZ) LIMITED [2015] NZHC 1427 [23 June 2015]

of insurance by which the second defendant insured the plaintiffs? [114] Brick exterior walls (house and garage) [116] Lounge floor [119] Lounge doors and windows [120] Interior linings cracked and detached [121]

Issue 5: Is the second defendant in breach of any of its obligations to the plaintiffs? [127] Issue 6: What relief (if any) are the plaintiffs entitled to from the second defendant? [130] Issue 7: What is the effect of the EQC settlement? [133] Result [137]

2011 Canterbury earthquakes. There is no doubt about that. But their insurer says much of what the Jardens claim for is pre-existing damage, or just not damage at all.

[2] The overriding issue in this case is what evidential standard policy holders must meet to prove an insured loss.

[3] The Jardens live in a lifestyle property just north of Rolleston. They built their house in 1998. A labour-only builder was engaged and Mr Jarden, a former police officer, worked on the site as the “gopher”. Mrs Jarden project-managed.

[4] The house is 228m²in area,¹built on a concrete slab foundation. It has brick veneer cladding and a corrugated steel roof, in each case over a timber frame. The form of construction is relatively conventional. But there are some features of the house built to a higher than average specification. The brick veneer cladding uses recycled bricks from the former Rolleston prison. Their replacement now is

_{difficult. The family room is octagonal with a pitched chapel ceiling.
Both it and}

the kitchen have tongue and groove wooden ceilings. The sitting room has a timber floor over the concrete slab.

[5] In about 2004 weathertightness issues were identified. A claim was made against the Selwyn District Council. The claim was resolved in 2009 or 2010. No claim was brought against the labour-only builder. He was bankrupt. Repairs were done in 2010. They related to incorrectly fitted window flashings on the north side of the house. Brick cladding and rotten timber framing had to be removed and replaced. New windows were installed.

[6] Mr Jarden estimates that 99 per cent of the damage was done in the first earthquake, on 4 September 2010. It is common ground that this seismic event did far more damage to the Jardens’ house than the 22 February 2011 event. The September 2010 event occurred at about 4.00 am. Mr Jarden described the matrimonial bed sliding half way across the room, and then sliding back again:

It, it was so bad that ah, yeah, you couldn’t stand up. There’s just no physical way that you could stand up. I thought I was going to die to be honest. My wife was screaming.

[7] Expert evidence before me was that the first event caused a scaled peak ground acceleration of 0.37g, whereas the second event caused a scaled peak ground acceleration of 0.12g. It was common ground amongst experts that a scaled peak ground acceleration calculation is an indication of the intensity of shaking that the house was exposed to. It was also common ground amongst the experts that the majority of the damage would have been done by the first event. I will revert to this method of assessment when considering Issue 2: the apportionment of the damage as between earthquake events.

[8] On the first morning of trial, counsel and I attended the Jardens’ property. The following damage was apparent, although it remains to be determined whether it was all attributable to the earthquake events.

[9] In a number of places (both in the house and the detached garage) the brick cladding had come loose from the internal timber framing. There was a distinct give in the brickwork in a number of places. This was particularly apparent on the north- east face of the house (near where the weathertightness repairs had been undertaken), on the northern exterior wall of the lounge, and on one of the walls of the garage.

[10] The carpets between the family room and the dining room had been rolled back. There was a dramatic crack in the slab, running from the entry area through to the lounge. There were similar but smaller cracks in the master bedroom and hallway. The office door would close slowly under its own weight. The internal walls appeared, to a lay eye at least, to be intact and essentially true.

[11] The most dramatic damage was to the brick cladding. We were told that the floor cracking was of little significance, and readily repairable. There was, however, a concern as to the existence of voids below the concrete slab. Such voids could not be seen. There was also some limited evidence of leaking visible in the garage roof framing which, unlike the house, was exposed to view.

[12] The property is insured under a Lumley Westpac Home Policy. It is insured for full replacement value based on an area of 204 m²for the living area and 54 m²for other non-living areas. The house therefore appears to have been uninsured by some 24 m². But that did not assume great significance in the argument before me.

[13] The policy provides cover for “sudden accidental loss to your home during the period of insurance”. But loss caused by natural disasters is excluded except to the extent covered by a “natural disaster benefit”. That benefit:

will cover any loss under those Sections during the period of insurance that occurs:

• As a direct result of measures taken under proper authority to avoid the spread, or otherwise mitigate the consequences, of a natural disaster.

For the home and contents insured under Sections 1 or 2, we will pay the difference between the EQ Cover and the cover under this Policy, on the condition that we do not pay:

Additional cover is given for walls (other than retaining walls), gates, fences, paths, driveways and swimming pools or spa pools which are permanently fixed.

[15] “Loss” means “sudden physical loss, or damage or destruction”. And “EQ Cover” is defined as:

The insurance of the home provided by Section 18 and/or the insurance of the contents provided by Section 20 of the Earthquake Commission Act

[16] What is paid in the event of proven loss depends on the insured electing to repair or rebuild. If the insured elect to repair or rebuild:

We pay the costs actually incurred to repair or rebuild it to substantially the same condition and extent as when it was new, or at our option the cash equivalent, subject to the following...

Cover is limited in the Jardens’ case by area insured, not sum insured. Cover extends to any additional costs required solely to comply with current legal requirements, architects’, engineers’, and surveyors’ fees (if they have been authorised by the insurer) and actual demolition costs.

[P]ayment of its present day value at the date of the loss. If your home is mortgaged, we may make payment to the mortgagee up to the extent of its interest. This payment discharges our liability to you to that extent, together with demolition costs.

[18] In short, the policy provides top-up cover over and above EQC’s liability. It will not be payable until EQC has agreed to make its payment. Cover is per event, so damage attributable to each seismic event is accounted for separately. Nothing is payable unless: (1) EQC has agreed to pay the insured; and (2) there is an insurance liability in excess of EQ cover. If the insured has made the election described at [16], to repair or rebuild, payments are made against costs incurred unless the insurer elects otherwise.

[19] EQC was initially the first defendant in these proceedings. The claim against it was for $113,850 (being the full cap amount of $115,000 less excess) in respect of the first event, and $7,239 in respect of the second.²A claim for those amounts, together with general damages of $50,000, was mounted against EQC in this proceeding.

[20] On 18 February 2015, five days before trial, EQC settled with the Jardens. The settlement agreement was put before me. It is entered on the basis that no party admits fault or liability. It is in full settlement of the Jardens’ earthquake claims, for three earthquake events: those in September 2010 and February 2011, and

23 December 2011.³It covers any claims which the Jardens may have had in respect

of those three events. The agreement is made in express contemplation that it might be produced in these proceedings, and would be disclosed to Lumley.

[21] At the working end of the agreement EQC agrees to pay $123,850 to the Jardens’ mortgagee, and $55,313 to the Jardens. Apart from apportionment as between recipient, the total $179,163 paid by EQC is not apportioned either as between events, or as between special damages, general damages and costs. Although a witness from EQC was called to give evidence, his evidence did not enlighten the Court on those at all. He was not asked about them at all. Counsel for the Jardens later invited me to infer that the second tranche was for costs and

_{disbursements only. The result would be that Lumley’s top-up
liability begins at the}

²_{Based on the plaintiffs’ apportionment of 99:1 per
cent as between the two events.}

lower $123,850 number. I decline that invitation. The inference cannot be drawn on the evidence. Tea leaves are no substitute for testimony. If the point was important, as it later proved to be, the witness should have been examined on it.

[22] The claim against Lumley, in a second amended statement of claim tendered on day two of trial,⁴is that the house requires to be rebuilt. That is contended on the basis that the cost of repair (said to be $886,089) is more than 80 per cent of the cost of rebuild (said to be $1,044,272). The Jardens seek judgment for $918,579 calculated on the basis of rebuild costs less EQC payments and excess. As pleaded, this amount is wholly attributable to the first earthquake event. In addition $50,000 general damages are sought for distress, inconvenience and mental anguish.

[23] The claim appears to be one for damages based on alleged repudiation or breach of the insurance obligation. There is no pleading of cancellation of the policy for repudiation or fundamental breach.⁵Nor is there any evidence of cancellation in fact.

[24] Alternatively the Jardens seek declarations that Lumley is liable to pay up to

[25] Under cross-examination, however, Mr Jarden presented a slightly different position:

_{A. I’ve always said it and, ah, and I’ll keep saying it
right from day one.}

We just want our house put back the way it was, prior to the 4^thof September 2010. We don’t want anything else. We want it returned to the, to the condition that it was in prior to the earthquake.

A. – there’s a bit more I need to say. When we leave, or possibly if we did consider selling at, in a future date I want to be able to walk away from that property with the confidence that the new owners that are going into that property are, are not going to suffer any

⁴_{Against Lumley’s objection, I gave leave for that
revised pleading to be filed.}

difficulty or any, anything, any difficulty with the property because of inadequate repair. I want to make sure that if that does occur that we, that the house has been repaired to a standard that we’re not likely to be faced with this.

Q. At a time, do you accept that the pleading that is what you sought in this statement of claim issued in July 2013, was a rebuild?

A. I’m, I don’t know the dates of all the reports but, um, because of having to do what we’ve done to try and get some form of, um result, um, we’ve had experts through the house, whether it was before or after to me I just now that we’ve got a clearer picture as to what’s wrong, um, as I said before, it’s about putting our house back the way it was.

[26] A joint experts’ report to the Court was directed. The report is dated 17 April

2014 and was authored by Robert Davey (of Opus), Phillip Cook (of Cook Costello) and Michael Fletcher (of Buchanan & Fletcher, the firm then instructed by the Jardens).⁶The experts were in agreement that the damage to the house was repairable. They were in agreement that the earthquake had caused cosmetic damage to wall linings, loosening of wall linings, and in particular loosening of the exterior brick veneer. They also agreed that it had widened cracks in the floor which

otherwise were caused by shrinkage or early age thermal contraction, pre- earthquake. They were unable to agree on other items of damage, or a repair strategy for those items.

[27] Counsel eventually agreed the following as the issues for my determination:

(b) Issue 2: How should the natural disaster damage be apportioned to each earthquake?

(c) Issue 3: What reinstatement work is required to restore the home/residential building to the standard required by the written policy of insurance by which the second defendant insured the plaintiffs?

(d) Issue 4: What is the cost to repair the natural disaster damage or alternatively rebuild the property if repair is not economic?

(e) Issue 5: Is the second defendant in breach of any of its obligations to the plaintiffs?

(f) Issue 6: What relief (if any) are the plaintiffs entitled to from the second defendant?

Issue 1: What natural disaster damage to the home (as defined in the Lumley Policy) or residential building (as defined in the EQC Act) was caused by the earthquakes on 4 September 2010 and 22 February 2011?

[28] The Jardens say there was severe and prolonged shaking from the earthquake of 4 September 2010. They say that this caused significant damage to their house. Lumley’s position, on the other hand, is that the house performed well during the earthquakes, that damage to the concrete slabs pre-existed the earthquake (although was exacerbated), and that internal walls’ variance from true merely reflected its original state of construction. Lumley does accept, however, that there was earthquake damage to the external brick veneer walls, to the interior wall linings, and to the lounge doors and windows on the wall beside the patio.

[29] Topics I need to address under this issue are the slab floor, external brick veneer walls, internal walls, the roof and ceiling, other fittings and the garage.

[30] Three aspects of the concrete slab floor command attention: cracks, levels, and voids.

[31] Cracks: I will start with what was visible. Three distinctive cracks were visible in the concrete slab floor. One in the dining room area, another in the master bedroom and a third in the hallway. On the case originally advanced, the cracks assumed some importance. That was because an earlier pleading by the Jardens sought replacement of the slab with an “enhanced foundation”.

[32] Some of the controversy around the cracks appears to have come from an impression Lumley appears to have gained that the Jardens had themselves worsened the crack in the dining room. This proposition was never put directly to Mr Jarden in evidence. I find as a fact that there is no basis on the evidence to conclude anything of the sort. It may well be that actions taken by Mr Jarden in January 2011, using a machine to remove ceramic tiles on the dining room floor, enlarged the crack. But I do not find there was any deliberate attempt to enlarge the apparent damage.

[33] By the time of trial, the slab cracks had faded from prominence, no matter how visible they remained. That was because it was now accepted by the Jardens that the slab need not be replaced to meet the policy standard. The cracks can simply be filled. A new slab is not needed. Mr Ferguson’s closing submission was that the cracks were caused by the earthquakes and were natural disaster damage. But the Jardens accepted that a remediation strategy allowing for the cracks to be filled and repaired would be satisfactory.

[34] That still leaves the question whether the cracks were earthquake damage at all. On this point the Jardens’ evidence was equivocal. Mr Jarden’s evidence was that they had not seen the cracks prior to the earthquake, and that during the first three or four years of their occupation of the house, there were no floor coverings. Mr Jarden said in evidence that during this time he did not see any cracks in the

floor. There was no evidence from Mrs Jarden on the slab cracks (other than to some peripheral evidence in relation to the bedroom crack). Their expert engineering witness, Mr Scarry, said:

The linear nature of two of these cracks (dining room and master bedroom) means they may have initiated prior to the earthquake of 4 September 2010 and increased in width as a result of that earthquake, or they could have been caused by the earthquake. In and of themselves, they constitute relatively minor damage that can be easily repaired.

[35] Lumley’s experts’ assessment was that the cracks probably pre-existed the September 2010 earthquake event, or they would have been exacerbated by it. The cracks would have been the subject of a natural drying process while the concrete hardened in sunny, breezy conditions. In more recent construction such cracks have been avoided by inserting expansion joints in slab floors.

[36] In the end, it is unnecessary for me to go beyond the conclusion reached by Mr Scarry quoted at [34] above. The burden of the expert evidence was that the cracks are, or may well be, the consequence of natural, non-seismic shrinkage. The only counter-evidence is anecdotal, from Mr Jarden alone. In those circumstances, the plaintiffs have not discharged the onus of showing that the cracks are more likely caused by earthquakes than not.

[38] Levels: The second particular alleged of damage to the slab concerns levels. As Mr Ferguson put it in closing:

The floor of the house is out of level. The total height variation is 26 mm, with 17 per cent of the floor sloping steeper than 1 in 200.

He submitted that the higher areas tended to occur within the centres of rooms – clear from the exterior and interior load-bearing walls – and that the perimeter footing had dropped. Beyond that, Mr Ferguson said little about this topic in closing. The focus was very much on voids, rather than cracks or level differentials.

[39] Lumley spent some time attacking Mr Cowie, the surveyor who gave evidence for the plaintiffs. I do not think the attack, concerning his impartiality and

alleged penchant for advocacy, can be sustained. It is true that Mr Cowie expresses himself in vigorous terms. It would have been better had he not done so. It is also true that he has certain views based on his perception of the settlement strategies of EQC and insurers in addressing their statutory and contractual responsibilities. But at the end of the day the hallmarks of an expert witness are two: the objective accuracy of their assessments, and their willingness to consider alternative perspectives. In the case of the former, Mr Cowie’s measurements (if not all his conclusions) were accepted by all other experts as accurate. As to the latter, he made appropriate concessions under cross-examination. I was left with no concerns about Mr Cowie’s compliance with schedule 4 of the High Court Rules, the code of conduct for expert witnesses.

[40] The broad allegation made is that the floor of the house is out of level, with a total height variation of 26 mm, and 17 per cent of the floor area sloping steeper than

1 in 200. However a key element in that calculation is inclusion of the entry area. The entry area was formerly an outside porch, later incorporated into the interior of the house. It is apparent from plans produced that this entry area had a substantial floor slope befitting an outside area exposed to weather. The renovation would appear to have partially relevelled that slope, but its inclusion is unsatisfactory as a matter of proof without further information. If this small and discrete area is excluded, as I consider it should be, then the total differential is 12 mm, and within normal construction tolerances for a new build. I find, on the preponderance of the expert evidence, that this differential is likely to be an original feature of construction, perhaps exacerbated slightly by natural settlement.

[41] The reality in relation to floor slopes is that the issue is “relatively trivial”. Those are the words used by the Jardens own expert engineer, Mr Scarry. He considered anything in relation to the slab apart from the voids to be relatively trivial. He said, “it appears as if the foundations have settled maybe 10 mm in the earthquake but there is no damage and I am not worried about that”.

[42] I do not find the Jardens have proved on the balance of probabilities that irregularities to the slab levels caused by the earthquake events, or that they have suffered any insured loss as a consequence.

[43] Voids: I turn now to the invisible. The concrete slab was poured on tailings, stones sized between 20 and 60 mm in diameter. Mr Scarry’s evidence was that slabs using tailings as hard fill have, in some situations, been left with voids as a result of the earthquake sequence. As he put it:

Whereas the gravel stones could form a stable matrix under static conditions, to support the weight of workmen and plant during construction and the weight of the floor and structure above an everyday service, the shaking induced by the earthquakes caused the gravel stones to compact, forming a denser matrix. The result was voids under the slabs.

He suggested that hundreds of houses in Christchurch have been found to suffer from this problem.

[44] No direct evidence of these voids occurring under the Jardens’ slab was produced, apart from anecdotal evidence from Mr Jarden and Mr Cowie as to “hollow sounds” heard when tapping the floor in the slab in some places. Neither ground-penetrating radar nor core holes has been used to confirm the presence of voids. Mr Cowie conceded that “tapping the concrete slab is an imprecise method of determining the presence, or absence, of slab voids”. He went on:

I consider it good practice to carry out both ground penetrating radar and intrusive coring to determine accurately the presence or absence of slab voids. To rely solely on floor level variations and/or slab cracking is, in my experience, a very imprecise method to determine voids.

He opined that given the number of earthquakes the house had been through, along with the known issue of voids in many homes, “the presence or absence of slab voids should be determined conclusively”. Evidence from Mr Cook indicated that it would cost approximately $3,000 to test for voids using ground-penetrating radar.

[45] The only geotechnical engineer to give evidence before me was Mr Cook. He was called by Lumley. His view was that voids usually occurred beneath slab on grade where there was liquefaction. There had been no liquefaction in this case, and he had not seen any houses with voids in the geotechnical category the Jardens’ home is included in. Mr Cook’s evidence was that it was “very unlikely, very, very unlikely” that there would have been significant settlement of the tailings from shaking. The only conclusive way of determining the existence of voids would be to

carry out intrusive testing; ground penetrating-radar would not be conclusive as to the existence of voids. But in his view there was no justification for undertaking that work. The defendant’s civil engineer, Mr Davey, also disagreed with Mr Scarry’s conclusion that voids may exist beneath the slab.

[46] Lumley submits that the Jardens cannot prove on the balance of probabilities that their house has voids beneath it as a result of the earthquake.

[47] It is unclear why the good practice Mr Cowie endorsed – ground-penetrating radar and intrusive coring – has not been done here.⁷The burden of proof in a claim under a policy of insurance lies in the plaintiff. In this case, the policy holder. In Rhesa Shipping SA v Edmunds⁸Lord Brandon explained the burden of proof in insurance claims thus:

... the burden of proving, on a balance of probabilities, that the ship was lost by perils of the sea, is and remains throughout on the shipowners. Although it is open to underwriters to suggest and seek to prove some other cause of loss, against which the ship was not insured, there is no obligation on them to do so. Moreover, if they chose to do so, there is no obligation on them to prove, even on a balance of probabilities, the truth of their alternative case.

The second matter is that it is always open to a court, even after the kind of prolonged inquiry with a mass of expert evidence which took place in this case, to conclude, at the end of the day, that the proximate cause of the ship’s loss, even on a balance of probabilities, remains in doubt, with the consequence that the shipowners have failed to discharge the burden of proof which lay upon them.

[48] In Rhesa a ship had been lost in the Mediterranean, off the coast of Algeria. The vessel was old and in poor condition. It sank in fine weather, but in very deep water. Inspection of the hull post-loss was impossible. The owner had to establish that the vessel was lost by perils of the sea. The insurer said it had simply opened up through disrepair. The owner, casting about for a cause for the catastrophe given the benign weather conditions, suggested the vessel had collided with an unidentified submarine. The trial Judge (Bingham J) accepted this explanation on the balance of

[49] Lord Brandon referred to the dictum of Sherlock Holmes that when one has eliminated the impossible, whatever remains, however improbable, must be the truth.⁹His Lordship went on:¹⁰

It is, no doubt, on the basis of this well-known but unjudicial dictum that Bingham J decided to accept the shipowners’ submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable.

[50] His Lordship identified three reasons why it is inappropriate to apply that dictum to the process of fact-finding by a trial Judge. The first reason was that a Judge was not bound always to make a finding one way or other with regard to a party’s theory of fact. There was a third alternative: that the party on whom the burden of proof lay had failed to discharge that burden:¹¹

No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.

[51] The second reason was that the dictum could only apply when all relevant facts were known, so that all other possible explanations could properly be eliminated. That was not the case in Rhesa. The vessel could not be inspected to see if, as the insurers contended, it had simply fallen apart through disrepair.

[52] The third reason was that proof on a balance of probabilities must be applied with common sense. It required the trial judge to be satisfied on the evidence that an event or outcome is more likely to have occurred than not:¹²

If ... a judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred that not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such burden.

_{observations in Rhesa, I find that the Jardens have not proved,
on the balance of}

probabilities, that their house has voids beneath the slab, that the earthquake events caused such voids, or that they have suffered any insured loss in consequence.

[54] The Jardens’ evidence on this is inadequate and unpersuasive. The fact that better evidence might perhaps have been obtained with more effort is neither here nor there. This was the occasion for the Jardens to put their best evidence forward, as plaintiffs, and they have not done so. They have not shown that such damage is more likely than not. There is therefore no basis to order further testing as part of an interim judgment only.

[55] I have described, at [9], the damage to the exterior brick veneer wall apparent on the site visit. EQC had identified exterior mortar damage at the time of its inspection on 8 December 2010. It follows that the exterior walls were certainly damaged by the 4 September 2010 earthquake.

[56] Mr Scarry gave evidence that the ties would have been loosened in the earthquake because of movement of the timber framing to which the ties were attached. He accepted in cross-examination that it was likely there would have been more movement of the timber framing higher up, with more displacement of the ties at the top of the veneer walls. But he still considered there was likely to be some displacement at the bottom. Destructive testing of the veneer in the lower metre and a half or so of the wall had not been undertaken.

[57] Mr Cook had initially considered a possibility the veneer was loose because insufficient ties had been applied. By the time an inspection occurred in November

2014, however, he was clearer on this point. Some of the top layers of the bricks had been removed. It was clear adequate ties were present. He went on to say:

Having ruled out a lack of brick ties as a cause for this damage, I believe the ties had pulled out from the mortar in places during the earthquake. In other words, the brick work was damaged during the earthquake.

[58] Mr Davey reached a similar conclusion. In his view the ties had become loose in the mortar joints probably as a result of the more flexible timber framed

walls displacing in-plane, during the earthquakes, relative to the rigid brick veneer. This working of the ties within the mortar destroyed their bonding, crushed the mortar, and allowed the bricks to move without restraint from the ties. He considered that the tie damage would be located mainly in the upper parts of the wall where the displacements were largest. Under cross-examination, however, he accepted the possibility that the lower ties had also loosened. He accepted that would need to be checked in the process of repair.

[59] In closing Lumley accepted that the brick cladding had separated from the top of the wall studs. The disagreement was whether the entire cladding needed to be replaced or whether it needed just to be removed to half height.

[60] I am satisfied that the Jardens have established on the balance of probabilities that the damage to the brick veneer wall was caused by the earthquake events, and in particular the September 2010 event. The exact extent of the damage is not yet known. It probably will not be known until repair work is undertaken and the brick veneer wall is demolished down to the point at which the remaining ties can be said to be properly bonded to both frame and mortar. I will revert to this topic under

[61] Mr Cowie undertook verticality measurements using a PLS5 vertical laser plumb. This device is said to have a high degree of accuracy: over a wall height of

2.4 m (a typical house wall height), instrument error should be no greater than 0.24 mm. Mr Cowie’s raw measurements are not contested by Lumley. What is contested is his analysis of cause.

(a) Entry area: internal wall leans of up to 9 mm/2.4 m in the enclosed entry porch area were measured. The lean directions are inconsistent.

The northern wall leans are generally in a southward direction. The same may be said of the southern wall.

(e) Laundry, WC, bathroom, bedroom 4, bedroom 2: leans of up to 12 mm/2.2 m. These leans tend to be in an eastward direction.

(f) Office: Mr Cowie has measured a 9 mm differential gap in relation to the door frame when the door is closed. As noted earlier this door closes slowly of its own accord.¹⁴

(g) Bedroom 2: this bedroom which is in the southeast corner of the house has a lean of up to 11 mm/2.2 m. The leans in this room are not consistent.

(h) Bedroom 3 and en suite: the external walls in these two rooms are leaning inwards by up to 7 mm/2.2 mm. Other walls lean in quite different directions.

[63] These variations from true sound dramatic. Three cautions are needed, however, to put them into context. The first is that visually at least, on the site visit, the internal walls appeared essentially true to the lay eye. Secondly, the maximum variation from true, 18 mm over 2.4 m, is less than 1 per cent (0.75 per cent). Thirdly, walls are not built to an absolute standard of true vertical. Rather, at the

time of construction the NZS 3604 standard had a tolerance of 8 mm over 2.4 m. So the maximum variation from standard was less than half a per cent (0.42 per cent). It is little wonder the walls appeared true to the lay eye.

[65] First, a point of context favourable to the Jardens. It must not be lost sight of that there was a very severe earthquake in September 2010. It was severe enough to pull ties attached to the timber framing away from the mortar in the brick veneer. There can be little doubt that the internal walls were shaken severely. The question is what damage did they incur as a consequence?

[66] Secondly, it is also clear, however, that even violent shaking may not result in significant superstructure damage. Before me in evidence was a thesis by Duncan Henderson submitted for a Master of Engineering (Civil) degree at Canterbury University.¹⁵That thesis studied approximately 500 houses following the 4

areas of the houses and properties were studied. The properties studied were in Avonside, Bexley and Kaiapoi. Not Rolleston. Only 19 were on land that did not liquefy. The study found a direct connection between the degree of liquefaction damage and the extent of superstructure damage. Mr Henderson noted:¹⁶

When no liquefaction damage is visible, there were no houses that suffered more than minor superstructure damage, and even at low levels of liquefaction there were very low numbers of houses with moderate and high superstructure damage.

Superstructure damage was far less likely where foundations were slab on grade (as here), as opposed to concrete perimeter foundations. Almost 80 per cent of “post- standard” slab on grade foundation houses suffered either low or no superstructure

_damage.¹⁷_{“Post-standard” for slab
on grade foundations describes a cut-off
of}

1981.¹⁸Mr Cook’s inference from this research was that superstructure performance

[67] Thirdly, I should note that there was no evidence before me that the variation from standard actually impaired the structural integrity of the internal walls in the Jardens’ house. In particular, Mr Scarry, the Jardens’ engineering expert, did not suggest it. Mr Cook considered the bracing in the house remained sound.

[68] It was however accepted by Mr Hunt (in closing for Lumley) that to the extent it is shown on the balance of probabilities that an earthquake event has caused internal walling to diverge from standard, that is damage for which the Jardens are insured.¹⁹It is then another question as to what must be done to fix it, particularly given the point made in the preceding paragraph.

[69] One difficulty confronted by the Jardens in claiming that these apparently true, but actually curiously divergent, internal walls have gone out of standard as a result of earthquake events is that the original pre-earthquake measurements are unknown.

[70] Mr Jarden’s evidence was that the windows and doors of the house were in alignment prior to the earthquake. That is based on observation rather than any formal measurement by Mr Jarden.

[71] In support of a within-standard baseline Mr Scarry’s evidence was that the house had been constructed in accordance with the building code and good trade practice. He accepted in his evidence-in-chief that the drawings for the house construction appear to have been done by the builder, and were relatively simplistic. But then the house, he said, was simplistic. It conformed closely to simple forms and details of house construction covered by NZS 3604. A good builder, he said, could be expected to produce a code-compliant house without the need for detailed

_{architectural and engineering drawings. The house received building
consent from}

the Selwyn District Council. It also received a code compliance certificate from the same council.

[72] Against that regulatory reality, however, the building expert called by Lumley, Mr Turner, made the point that in all the buildings he had built he had never had a building inspector check verticality of walls against standard.

[73] In further support of their argument that the walls cannot have been out of standard at the time of construction, the Jardens suggested it would have been impractical for a builder to fix gib sheets to timber frames so out of true. Mr Williams, the Jardens’ building expert, said that if the wall framing had leaned so much during construction “the installation of the gib board sheets and the hanging of doors would have been impractical”.

[74] But Mr Turner, one of the building experts called by Lumley, had a different view. He described the process used by builders to install timber framing in typical homes of this sort. He noted it was not and never had been necessary to have wall framing 100 per cent vertical. Indeed that was impractical given gauging issues with timber. Builders in 1998 did not use lasers. Whether a wall was “plumb or not” was normally determined by a combination of naked eye and spirit level. Using a spirit level, a builder would still consider the walls in this house “plumb”. Suggestions that the leans evident would cause difficulty in fixing gib sheets to walls were met by Mr Turner with the observation that the recommended practice was to fix sheets horizontally, along the entire length of the wall. If gib sheets were fixed in this fashion, the difficulty referred to would be substantially allayed. (I note that although there was some invasive testing undertaken, the evidence did not demonstrate whether the gib sheets in this house had been fixed vertically or horizontally.)

[75] I should note that there was little cross-examination of either Mr Williams or Mr Turner on the issue of practicality. I should note also that Mr Thompson, the second building expert called by Lumley, also considered that the walls were presently “plumb” to a builder using a spirit level, albeit not using a laser (as Mr Cowie had).

[76] Mr Jarden gave evidence that a number of doors in the house stuck, which had not occurred prior to the earthquake. I accept that that is an indication of some degree of movement. The difficulty is, how much? It does not follow that simply because a door is sticking, the wall to which it is affixed was within standard before the earthquake, and not after. There are also difficulties with some of this evidence. As Mr Cook observed, if some of the walls had moved 15 to 18 mm as a result of the earthquake, the doors within them would be unopenable, jammed on the bottom. A second example may be cited: Mr Jarden had given evidence that the door to bedroom 2 had stuck on the carpet after the earthquake. The door was hinged on the northern jamb, and Mr Cowie’s diagram showed a northward lean of some 4 to 5 mm. The effect of such a lean would have been to lift the door clear from the carpet, not drop it into it. The expert evidence was therefore inconsistent with the anecdotal evidence.

[77] At the end of the day it is difficult to make anything in particular of the evidence of the doors jamming. I can place little weight in the evidence relating to sticking doors.

[78] A particular issue raised by Lumley was the lack of evident damage to the walls, other than their vertical misalignments demonstrated by Mr Cowie’s measurements (but which were difficult to detect with the naked eye).

[79] Mr Jarden gave evidence that after the September earthquake he patched up some of the internal damage. He did this work with his son Tyler (a builder) and another builder friend of his. His evidence was that he patched up wall cracks, knocked popped nails back in, plastered fine cracks, nail holes and planed doors. Specifically, the doors to the office and the other four bedrooms were removed, planed and reinstated. Similar work was done to the doors to the kitchen, bathroom and storage room. Where gib sheets met and had cracked, they were raked, stopped and painted. This work, he said, was done in all the bedrooms, the hallway passage, the office, the kitchen and the dining rooms. He also repaired cracks at the wall ceiling junction in the hallway. He said in evidence that the cracks were not wide. There were some long horizontal cracks in the hallway, some cracks “emanating out from the corners of the ceilings”, and on one side of the hallway some cracks “going

straight across”. Asked if they were “hairline cracks” he agreed they were visible, affecting the paint finish, but not with a measurable gap. Mrs Jarden described the cracks as “quite fine”.

[80] On 8 December 2010 an EQC inspector visited the property. He produced a note of apparent damage to both exterior and interior aspects of the house. Although the notation of the family room shows “door jamming” there is no other reference to the damage which Mr Jarden referred to. What is more, Mrs Jarden countersigned the report. She said that her husband was sick in bed (in the master bedroom) and she signed the report in a hurry. Cross-examined in the point, Mr Jarden accepted that the damage would still have been present at the time of the EQC inspection in December 2010. It was repaired later. No photographs were taken of the pre-repair state of the walls. No evidence was called from Mr Jarden junior or his builder colleague. Mr Hunt put to Mr Jarden that the reason no record was taken was because Mr Jarden considered the damage minimal at the time and not earthquake- related. Mr Jarden denied that. He said he did not appreciate how potentially serious the damage to the walls might have been.

[81] On the basis of the evidence above I find as a fact that such cracks as appeared in the fabric of the internal walls and ceiling must have been fine, probably less than 2-3 mm in width.

[82] Lumley placed weight on the absence of significant cracks in the internal walls and ceiling as indicative that major realignments of the interior walls had not occurred. As Mr Cook put it in evidence:

I've gone through these verticality measurements of Mr Cowie’s on, on his plan and I also struggle to explain that they are earthquake, or related. If we look at the, I think the 18 millimetre down the main passage, the movement in the north-east direction we start from the sort of dining room external wall on the west side, the actual external wall is vertical or almost leaning outwards to the west. We then come across the ceiling and there is no damage around the beam, it goes across that ceiling at either end showing that it’s slipped or moved and there’s nothing in the ceiling that identifies movement. There's no movement in the ceiling lining itself, so the ceiling has not pulled apart in-between, and yet we still have an 18 millimetre movement on the, sort of, dining room, lounge, passage wall. The main wall between the lounge and the passage is a well braced wall. We've inspected that wall and did not identify around any cracks, sort of, or combination of

cracks that would indicate possibly 10 millimetres of movement along that wall indicating shearing or, or pull, or slip of nails or crushing movement in the GIB itself and we come to the storage room. We've looked in the storage room as well, there’s movement again to the east. We've looked in the storage room. There is no damage evident that there’s movement in the corner of the lounge in the storage room and travel and keep going to the passage. We look at the passage that goes across into bedroom 2 and bedroom 3 and we see in those braced walls within that bedroom 5 again, the lean is, is near vertical potentially leaning to the west indicating there should, if there was damage it would be compression and there would be movement. I don’t believe the ceiling GIB there was that level of movement,

12 millimetres off the storage room there over, sort of, 2.3 metres I think that

GIB would’ve popped or moved, there’d be something in the ceiling so, there, we came back to the conclusion that this was as constructed, or close, as close to as constructed subsequent to the earthquakes.

Under cross-examination he made a similar point when it was put to him that earthquake damage would be essentially unidirectional. He said that for the variations claimed he would expect gaps of 10 mm in the wall linings, movement in the ceiling or the roof, the opening up of trusses, and a pulling apart of the ceiling. None of that had been seen, despite thorough inspection.

[83] Mr Davey referred in particular to a 1993 report by the Building Research Association of New Zealand.²⁰Racking tests there indicated lining damage in the form of fine cracks after displacement of 6 to 8 mm, with large cracks forming in linings, typically at door and window openings, sheet edges and at wall junctions, at about 12 mm displacements. Displacements in the Jardens’ house exceeded that, yet did not produce large cracks at all.

[84] This expert analysis for Lumley was really not answered by the Jardens. Mr Scarry accepted that the repairs undertaken by Mr Jarden could be described as cosmetic. He suggested that gib linings could be remarkably resilient. He tended to place more weight on the doors jamming, but I am unable to share that view.

[85] Direction of the leans assumed some potential significance. Mr Scarry noted Mr Cowie’s measurements indicated that the leans in walls tended to be in the same direction, consistent with earthquake damage, rather than random construction

_{misalignment. He also took the view that the fact that the different
areas leaned in}

²⁰Report on Racking resistance of Long-sheathed Timber-framed Walls with Openings (Building

different directions was consistent with earthquake damage – tortional response being one reason for that. Mr Scarry’s evidence was that the fact that all walls in the house were not pushed over to the same permanent displacement was due to variability in the individual strength and stiffness of walls, and the effect of the semi- rigid ceiling diaphragm.

[86] Mr Scarry focused on a “pattern of movement” in what he called a “clouded area” – fundamentally the walls around the lounge in the centre of the house. That is, the east wall of the kitchen, the passage wall, all the walls of the lounge apart from the west wall, the inner wall of the office and store room, and the outer wall of the store room. He identified 15 walls. All, he noted, show lean exceeding the construction tolerance in NZS 3604. The greatest misalignment, in two places, was

18 mm. The leans were generally towards the east. He accepted, however, that within the same clouded area were a number of leans in different directions, in particular to the south. These were particularly evident on the south wall of the lounge. He accepted that within the clouded area the direction of lean was predominant rather than consistent.

[87] Mr Davey was particularly critical of this analysis. He noted that the walls in the house were linked together by a semi-rigid roof and ceiling structure (i.e. a diaphragm). He said that the walls when subjected to horizontal earthquake actions were forced to displace together, rather than independently. The ceiling diaphragm would need to break into separate parts if the walls were displaced in different directions. The ceiling diaphragm was, however, intact. He gave a number of examples of multi-directional leans in close proximity. For instance, the wall on the eastern side of the kitchen was leaning 15 mm to the east, while the wall on the western side was leaning slightly to the west. The wall between the toilet and the bathroom was leaning 12 mm towards the north east, while an external wall one metre away had no lean whatever. He concluded that the differences could not have occurred if the leans were caused by earthquakes.

directions could be explained by tortional response. Given the layout of the bracing

walls, he considered the building response was translational rather than tortional. The measured wall leans did not indicate a tortional response.²¹

[89] Mr Davey stuck to these opinions under cross-examination, and on balance, on this topic, I accept his analysis over the “pattern of movement” analysis offered by Mr Scarry.

[90] To conclude, on the balance of the evidence I find it unlikely that the internal walls have moved from their original position to anything like the degree that Mr Cowie’s measurements might suggest. First, I cannot assume on the evidence that the walls were true originally. Secondly, I cannot assume, either, that the internal walls were within the NZS 3604 8 mm standard. Thirdly, I am unable to find that any particular wall has moved from within to without standard as a result of either earthquake event.

[91] I therefore reject the Jardens’ claim regarding the present alignment of the

[92] Finally however, there is agreement on a related aspect of damage. Paragraph 8(11) of the statement of claim identifies “cracking to internal wall linings”. This item has been covered to some extent in the discussion of the interior walls. Although Lumley does not accept that the alignments are a consequence of the earthquake, it does accept that cracking to the internal wall linings was a consequence of the earthquake and should be fixed. I will take it that the same applies to paragraph 8(12) of the statement of claim, “detachment of wall linings from supporting studs”.

[93] Mr Jarden’s evidence was that the roof started to leak after the earthquakes. First he noticed water running along the joins in the kitchen ceiling, and dripping

_{onto tiles. Then, in the dining room one rainy evening water started
running down}

²¹Mr Davey explained that in a transitional response the building deflects back and forth with all parts moving the same direction. In a tortional response, it twists back and forth with the building parts moving rotationally.

the edge of a light onto the floor. Two lights failed – “went bang”. This seems to have been around 9 May 2011. On that date Mr Jarden called EQC. As EQC’s report of the call notes:

Claimant called to notify us that the roof is leaking and it has been leaking for the last couple of days. It has been raining tremendously and now the roof is severely filled with water. It has caused an electrical hazard and it is dangerous for the roof will collapse.

Other leaks were identified by Mr Jarden later. These were in the hallway and in the ceilings of the master bedroom and bedroom 2. EQC’s contractor subsequently removed the roof from the south west side of the house and replaced it, using silicon along the ridging and valleys to stop leaking.

[94] The Jardens’ building expert, Mr Williams, does not appear to have inspected the roof at all. He gave no evidence on that topic. I regard that as unfortunate.

[95] Mr Scarry did give evidence about the roof. However it was prefaced by his acknowledgement that he had not been up on the roof himself. He made a brief inspection inside the roof for about half an hour. He said he went around about a quarter of the internal roof area. He also acknowledged that he had not reached a definitive conclusion on the cause of the leaking. He said it was “not inconsistent with the earthquake damage”. That is hardly likely to discharge an onus to establish that the earthquakes have caused the damage, on the balance of probability. He was also critical of the quality of the roof repairs carried out by EQC’s contractor.

[96] Under cross-examination Mr Scarry was very much reliant on Mr Jarden’s evidence, and the coincidence that the water ingress followed reasonably soon after the first earthquake. He accepted there were no obvious signs of damage to the ceiling. He also accepted that it would not be necessary for the entire roof to be replaced, but for proper inspection, removal and replacement of what was shown to be damaged.

[97] For Lumley, Mr Cook’s evidence was that it was unlikely that the roof had suffered earthquake damage. He inspected the roof twice. First, during the experts’ joint meeting on 21 February 2014 and again on 10 November 2014. He noted that

the trusses appeared level and dry. Nails rather than screws had been used to fix the roof to purlins, and a number of the nails had missed the purlins. He considered wind to be a more likely cause of any roof damage.²²Some photographs were shown indicating raised flashings, consistent with wind damage. In particular he noted that the more brittle and fragile ceiling linings, which would have sustained similar strains to the roof cladding, were undamaged.

[98] Mr Davey’s opinion was it was unlikely the roof had been subjected to strains in the earthquake large enough to cause leaking. If it had been, then other parts of the structure – in particular the ceiling linings – would have been subjected to similar strains. Being less tolerant of strains than the roofing, they would have sustained considerable cracking damage. That was not seen. Mr Davey did not, however, go into the roof.

[99] Mr Turner, however, spent more than two hours in the roof area. He noted, particularly, the absence of stretching around nail holes. That would be evidence the roof had undergone movement. The roof was, he considered, poorly installed. Nails were not in a straight line, and screws had not been used. He also noted nails having missed purlins. During Mr Turner’s inspection he could not locate any significant water damage or evidence of water having recently entered the ceiling space or dripping by the lights. I accept that his inspection was a thorough one.

[100] Mr Thompson, the other defence building expert, inspected the roof on two occasions, in May 2012 and November 2014. In both he walked around within the roof. He did not see evidence of leaking or water damage to the extent described by Mr Scarry. He observed what he described as “very minor water staining around roofing nails”. He considered the defects he saw were unrelated to earthquakes, and instead caused by defective construction. He was particularly critical of the nailing of the roof, where the method of nailing had caused tearing of some of the roof covering, and movement of nails (which remained raised). The roof was he considered in general in reasonably good condition for its age. It did not need to be replaced. Any repair work required could be achieved by the replacement of some

[101] Considering the evidence as a whole, I do not consider that the Jardens have established on the balance of probabilities that the leaks they complain of were caused by the earthquake. There are essentially three reasons for my conclusion. The first is the period of time that passed between the most damaging earthquake, 4

September 2010, and 9 May 2011 which is evidently the date (or very close to the date) on which the major leak was identified. Secondly, there is the lack of evident damage to the more brittle ceiling linings. Thirdly, the balance of the expert evidence is strongly against a conclusion that the burden has been discharged by the Jardens. Mr Williams did not inspect the roof. Mr Scarry’s inspection was cursory. The more thorough examinations undertaken by Messrs Cook, Turner and Thompson are in this instance persuasive.

[102] Finally, I note a related claim that ceiling beams in the kitchen and dining room are sagging, by 20 and 15 mm respectively. Mr Scarry opined that this was caused by the earthquakes. I accept, however, the evidence of the defence experts (and Mr Davey in particular) that the beams are purely decorative, not structural, and that the variation is a consequence of construction combined with the normal deflections of a structure under gravity force.

[104] First, paragraph 8(9) of the statement of claim identifies as earthquake damage “doors and windows jamming and out of square”. Mr Scarry’s evidence identified these as part of the exterior wall of the lounge beside the patio. Lumley in closing accepted that these items were damaged in the earthquake and should be fixed.

[105] Secondly, the Jardens claimed that the wooden floor to their lounge (which is fixed to the concrete slab) was damaged when alcohol bottles spilled from a fridge and cabinet in that room during the September 2010 earthquake event. The floor has buckled and bulged. Lumley’s expert, Mr Turner, had not seen that damage when he inspected the site, although that was in January 2014. He viewed the damage as more consistent with sun damage. At the closing of the case on 10 March 2015 I

indicated that I accepted the evidence of Mr and Mrs Jarden on this damage. I therefore accept that they have shown on the balance of probabilities that the damage to the timber floor was caused by the September 2010 earthquake.

[106] Finally, there is the garage. Mr Scarry’s observation of damage includes the walls being out of plumb, distortion to the garage door frames, significant sections of the brick veneer being loose, and cracks in the garage concrete slab floor. Forensically, the garage is the house in miniature. The evidence is, however, even less adequate. Consistent with my findings in relation to the house (and accepted indeed by Lumley) I find that the earthquakes damaged the brick veneer exterior wall. That item alone within the garage has been established on the balance of probabilities to have been caused by the earthquakes.

[107] I declare the following to have been natural disaster damage for the purposes of the policy:

Issue 2: How should the natural disaster damage be apportioned to each earthquake?

[108] Apportionment is an issue of fact for the Court to determine. Initially, taking a global view, EQC apportioned the damage 35 per cent for September 2010 and 65

per cent for February 2011. Neither the Jardens, Lumley nor any of the experts agree with that apportionment. And nor do I, after hearing the evidence at trial.

[109] Mr Jarden’s lay assessment was that the September earthquake did 99 per cent of the damage to the house, and that only 1 per cent could be attributed to February 2011.

[110] In [7] above I referred to the peak ground accelerations experienced by the house in each of the two earthquake events. The ratio between the two accelerations is very close to 3 to 1. I asked each of the engineering experts whether that might be an appropriate alternative global approach.

[111] Mr Scarry was not entirely attracted to the idea. He certainly thought the EQC apportionment was incorrect. He was unwilling to express a view other than that the clear majority of the damage would have been done during the first September 2010 earthquake. Mr Cook took the view that a 70/30 ratio would “feel right”. Mr Davey shared that view, with the exception of the brick exterior walls. He felt that a 90/10 ratio “or something like that” was appropriate there.

[112] Apportionment may be looked on an item by item basis. On that basis I have formed a clear view:

Damaged item	September 2010 percentage	February 2011 percentage
Brick exterior wall (house)	90	10
Lounge floor	100	0
Lounge doors and windows out of square	70	30
Interior linings cracked and detached	70	30
Brick exterior wall (garage)	90	10

[113] If a single global calculation is needed (as to which see [136]) then it should be 90:10. That reflects the overall earthquake damage loading in this case, with the exterior walls and lounge floor likely to be the most costly to repair.

Issue 3: What reinstatement work is required to restore the home/residential building to the standard required by the written policy of insurance by which the second defendant insured the plaintiffs?

[114] I turn now to the question of what reinstatement work is required to meet the policy in respect of the natural disaster damage found.

[115] The policy standard for repairs is to repair to “substantially the same condition and extent as when it was new”. In Turvey Trustee Ltd v Southern Response Earthquake Services Ltd Dobson J said:²³

The insurer’s obligation under this policy is not an absolute one to pay for replacement of the existing structure. The primary constraint on that obligation is that the insurer is obliged to pay for building materials and construction methods that are in common use at the time of rebuilding. That constraint, together with the comparative connotation of “as new” conveys the sense that the structure being the equivalent of the old, rather than a replication of the original. Adopting the approach to equivalence in the Full Court decision in D’Aloia²⁴it would be measured by size, functionality, relative quality and reasonably addressing the recreation of character and appearance.

[116] The Jardens say that the brick exterior walls will need to be demolished to ground level for two reasons. First, because the extent of the damage caused by the earthquake. Secondly, because the bricks cannot be re-used (being second hand having previously been used in the Rolleston Prison). Mr Scarry’s evidence was that it was unlikely that sufficient bricks could be salvaged during remediation.

[117] Lumley’s experts say the bricks all should be checked once the bricks are removed to half height. They accept it may be necessary to go beyond that level of demolition if brick ties below that level have failed. Bricks would be cleaned and replaced using new mortar matching the old.

²³Turvey Trustee Ltd v Southern Response Earthquake Services Ltd [2012] NZHC 3344, (2013) 17

ANZ Insurance Cases 61–965 at [24]. See also Medical Assurance Society of NZ Ltd v East

²⁴D’Aloia v Colonial Mutual Insurance Co Ltd (1990) 6 ANZ Insurance Cases 61–009 (VCA).

(a) The bricks must be removed to the extent required to ensure that the walls are correctly tied to the timber framing in accordance with current standards. This may require demolition below half height.

(b) The existing bricks may be re-used, if there are sufficient, post- cleaning, to complete reconstruction.

(c) If there are insufficient bricks for this purpose, consideration will have to be given to replacing the bricks entirely. Consistent with Turvey, the existing aesthetic of the house and garage must be maintained. It is characterful, but broadly consistent. The defendant is not entitled to substitute new unmatching bricks in parts of either the house or the garage.

[119] Mr Turner’s proposed remediation strategy for the lounge floor, if earthquake damage (as I have found), is that the timber be lifted, and a new timber floor laid, sanded and polyurethane coated. The Jardens agree. I approve that strategy.

[120] I cannot identify in the evidence a remediation strategy for this work, which Lumley accepts must be done. I reserve leave to the parties to apply for directions if necessary. I do not expect it will be.

[121] Mr Turner’s strategy is for cracked linings (walls and ceilings) to be raked, plastered and repainted where required. That will require rescrewing the linings, plastering and painting the entire wall and ceilings. The remediation is to conform to Winstone Wallboards’ Guidelines for Repairing Gib Plaster Board Linings in Earthquake-damaged Properties issued in November 2011, a copy of which was in evidence before me and which Mr Turner expressly referenced. The Jardens agree. I approve that strategy.

Issue 4: What is the cost to repair the natural disaster damage or alternatively rebuild the property if repair is not economic?

[122] I set out at [18] above the nature of Lumley’s liability under the policy. The Jardens are entitled to payment once EQC has agreed to pay the insured (which is the case here), and there is an insurance liability in excess of EQC cover. Payments are then made against costs incurred unless the insurer elects otherwise.

[123] This issue is relevant in assessing whether there is an insurance liability in excess of EQC cover. Scopes of works and costings were presented by both sides. None, of course, accords with the exact analysis in this judgment. In particular, my analysis as to what natural disaster damage is covered by the policy and what particular reinstatement work is required to restore the house and garage to policy standards.

[124] It is unrealistic to expect the Court to attempt to re-evaluate and cost the scope of works itself. Only one outcome of such an attempt is certain, and that is that it will be wrong.

[125] I therefore reserve leave to the parties, if necessary, to seek separate and subsequent determination of this issue. I would expect, however, that the parties will be able to reach agreement on cost, given this judgment’s definition of scope.

[126] I note, however, that I accept the evidence of Mr Bishop that a 10 per cent contingency sum should be included in preparatory costing. That allowance reflects the market for remediation works of this kind.

Issue 5: Is the second defendant in breach of any of its obligations to the plaintiffs?

[127] Lumley has not breached its obligations under the policy. As explained at [13]–[18] above, its policy obligations are triggered once EQC has paid or agreed to pay cover. And even then, Lumley’s obligations are still conditional on actual repair costs being incurred by the policy holder and exceeding the amounts paid by EQC.

[128] Regardless of the fact that quantum remains uncertain, costs to repair the damage the subject of this judgment have not yet been incurred. There cannot be breach of obligation in that context. Moreover, Lumley cannot be criticised for resisting the Jardens’ claim, one which in large measure could not be sustained on the evidence.

[129] General damages plainly are not payable to the Jardens in the absence of breach.²⁵

Issue 6: What relief (if any) are the plaintiffs entitled to from the second defendant?

[130] The second amended statement of claim filed by the Jardens during the trial sought judgment for the sum of $918,579. That amount was based on the cost to remediate (being an alleged $1,033,829, less EQC’s liability for $113,875). That claim is misconceived. To the extent the claim is based on breach of obligation by Lumley, there has been no breach of obligation.

[131] Alternatively, the Jardens seek a declaration that Lumley is “liable to pay them up to $918,579 on the incurring of costs in relation to remediating the house”.

[132] Lumley accepts that the Court has jurisdiction to make an amended declaration as to the scope of works to repair the damage and that Lumley is to pay for that work once the costs are incurred and exceed EQC’s statutory liability. For various reasons Lumley urges me to resist from making such a declaration, but none of the reasons offered impresses me. The Jardens are entitled to a limited declaration, in the form recorded at [137] below.

[133] The EQC settlement with the Jardens is discussed at [19] to [21] above. As indicated there, I am not prepared to infer from the evidence available that any part of the total $179,163 paid by EQC was for other than the statutory cover which it

[134] The more difficult question is what apportionment might apply as between the two relevant events. EQC’s position was that it had originally apportioned the damage between the two events 35:65. Factually that cannot be correct. I was advised EQC is considering reapportioning in light of the conclusions reached in this judgment.

[135] This judgment makes factual findings as to apportionment which must apply both to EQC cover and insurance cover. The events and damage are the same.

[136] As between the Jardens and Lumley, therefore, the EQC payment should be treated as apportioned in accordance with the global apportionment analysis in this judgment at [113]. That is, apportioned 90 per cent to the September 2010 event and

(a) The Jardens’ house and garage was damaged by the September 2010 and February 2011 earthquake events in the respects identified in [107] above.

(b) Damage is to be apportioned as between the two earthquake events on the basis set out in [112] and [113].

(c) Reinstatement repairs required to restore the house and garage to the policy standard are as set out in [118] to [121].

(d) Lumley is liable to pay the Jardens for those repairs, once costs have been incurred and to the extent they exceed EQC’s $179,163 payment (which shall be apportioned for each event in accordance with [136]).

High Court of New Zealand Decisions

Jarden v Lumley General Insurance (NZ) Limited [2015] NZHC 1427 (23 June 2015)