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High Court of New Zealand Decisions |
Last Updated: 26 April 2018
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IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
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CIV-2016-409-000344
[2018] NZHC 704 |
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BETWEEN
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ELIZABETH MARY KILDUFF AND VERITAS (2012) LIMITED
Plaintiffs
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AND
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TOWER INSURANCE LIMITED
Defendant
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Hearing:
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6 – 10 November 2017
Further Submissions: 28 November 2017 and 8 December 2017
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Appearances:
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C R Johnstone and H Bowering-Scott for Plaintiffs M C Smith and S S
McMullan for Defendants
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Judgment:
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17 April 2018
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JUDGMENT OF GENDALL J
KILDUFF v TOWER INSURANCE LIMITED [2018] NZHC 704 [17 April 2018]
Table of Contents
Para No
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Introduction
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Factual background and history of the claim
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The Tower insurance policy
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Preliminary issue of admissibility issues
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Issues
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A. Scope of works required
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Extent of foundation remediation
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B. Cost of repairs
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Cost of underpinning
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Costing of agreed foundations/subfloor work
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Electrical and heating
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Plumbing and drainage
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Preliminary and general (P & G) allowance
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Professional fees estimate
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Other minor items
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Conclusion on quantum
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C. General damages
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An implied duty of good faith
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Alleged breach through inadequate offers
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Alleged breach through delay of election
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Relief sought
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Orders
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Costs
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Introduction
[1] The plaintiffs are trustees of the Emosh Family Trust, a family trust established in 2004 by the first named plaintiff (Ms Kilduff). The plaintiffs own a residential property at 101 Clifton Terrace, Sumner, the property having previously been owned by Ms Kilduff since 1990. The house on the property is occupied by Ms Kilduff and her partner as their home. The house stands on a steep slope on the eastern side of the ridge leading up to Clifton Hill. It has dramatic views overlooking Sumner beach and township and out to Pegasus Bay. The house was damaged during the Christchurch earthquake sequence in 2010/2011 and, in particular, by the 22 February 2011 earthquake. This was exacerbated by a further earthquake on 13 June 2011.
[2] The plaintiffs hold insurance cover over the house and adjacent garage with the defendant, Tower Insurance Limited (Tower). It is common ground now that the house is practically and economically repairable. The plaintiffs have stated they intend to carry out repairs to the house and garage. Under its terms, their insurance policy entitles them to be indemnified by Tower for the reasonable cost of repairing the insured damage. Disputes arose between the parties relating to the plaintiffs’ insurance policy and later as to what their entitlement entailed. In the meantime, these proceedings were filed in May 2016.
[3] The issues between the parties have narrowed since these proceedings were initiated. The issues still in dispute are:
(a) the scope of works required, in particular, what is needed to sufficiently support two internal walls of the house;
(b) whether Tower’s costing of the necessary repairs is reasonable; and
(c) whether general damages should be awarded for an alleged breach of the insurance contract by Tower.
[4] There is also a question over where the burden of proof lies when establishing what sum is required to meet the policy standard.
[5] Although the parties’ experts still disagree on the costing of various aspects of
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the repair, the overall disparity has also narrowed. The presented by the
parties’ respective quantity surveyors are:
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final
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adjusted costings1
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(a) Mr Eggleton (for Tower) “A” costing:2
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$770,698
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(b) Mr Eggleton “B” costing:
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$800,524
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(c) Mr Major (for the plaintiffs):
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$980,703
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Factual background and history of the claim
[6] The plaintiffs’ house, as I have noted, is built on a steep sloping site so access to and on the site is difficult. The loess-dominant soil structure of the site dictated a specifically engineered foundation and architectural design for the house. Built in the early 1980s, the house is an architect-designed multi-storied dwelling, tiered because of the slope. It was designed by Stewart Ross and has many unique architectural features. Above the house is the driveway and garage. Ms Kilduff says she has enjoyed living at the property as her home for over 20 years. Her stated emotional attachment to the house has made the earthquake damage and subsequent insurance issues particularly difficult for her to deal with.
[7] The house and garage were significantly damaged by the 22 February 2011 Christchurch earthquake. Ms Kilduff, who was alone in the house at the time, says she was thrown to the ground by the earthquake forces. It seems to be accepted that the house moved downhill and twisted, putting the floors and foundations out of level. There was visible cracking throughout the interior, and gaps formed around the skylights and windows. On 13 June 2011, the house and garage were further damaged and some of the temporary repairs to the house undertaken previously were undone.
[8] The plaintiffs lodged their initial claim with Tower in September 2011. An initial report in October 2011 put the house repair costs then at around $188,000.
[9] The Earthquake Commission (EQC) made various payments in 2012. This was after it had determined that the building claims were over cap and that there had been land damage. Those payments for the various earthquake events came to
$242,526.13 for the house and $74,400 for the land.
[10] Meanwhile, Tower arranged for various assessments and received quotes as to the cost to repair. After some dispute over whether damage to carpets was covered, the house contents policy claim was settled in September 2012.
[11] Tower then sent Ms Kilduff a proposed scope of works for discussion in October 2012. A meeting was arranged between the parties for May 2013. After that, Ms Kilduff was sent an updated scope of works. A further update was sent in September 2013. Tower comments that the preparation of these scopes of work took longer than expected because of the level of input required from external specialists.
[12] In December 2013, Ms Kilduff advised Tower that she had feedback on the scope of works and wished to meet to present it. This meeting occurred in March 2014. Tower then sent Ms Kilduff an updated scope of works in May 2014. After reviewing this, Ms Kilduff emailed Tower on 2 June 2014 asking to meet again “to discuss the process from here, in particular to gain a better understanding of the ‘cash settlement’ process”. Tower responded on 3 June 2014 explaining the three basic settlement options available to the plaintiffs. These were: 1) a Tower managed repair; 2) a customer managed repair; and 3) a full and final cash settlement. The email quantified the cash settlement, based on the current scope of works, as $317,600.47, less EQC payments, plus temporary accommodation costs.
[13] Ms Kilduff replied on 10 June 2014 seeking further information about the different options and asking whether Tower had a detailed structural solution. Tower explained that it did not but would obtain one if it managed the repair. Alternatively, the cost of obtaining one would be included in a cash settlement.
[14] At this point, the plaintiffs claim to have lost faith in Tower’s investigation and felt compelled to obtain their own reports. However, it seems they did not inform Tower of this at the time. On 15 July 2014, Ms Kilduff asked Tower to give her some “breathing space” to deal with a recent illness her aging mother was suffering. Tower offered to proceed with obtaining further engineering reports but seems received no reply.
[15] On 14 October 2014, Tower sent an email informing Ms Kilduff that it was winding down its managed repair programme. She was advised that if the plaintiffs wanted Tower to manage the repairs, Tower would need to be informed soon. Ms Kilduff replied saying that her mother was unwell and she required a further month. Tower said it was happy to wait, but reiterated its concerns about her being disadvantaged by delaying.
[16] On 17 December 2014, Ms Kilduff advised Tower she was now able to discuss settlement options. A meeting was organised for 23 February 2015. At the meeting, the plaintiffs disclosed that they had obtained their own reports. They supplied these to Tower on 10 March 2015.
[17] Tower reviewed the reports. On 31 March 2015, it emailed Ms Kilduff advising that the engineering documentation seemed consistent with its own. However, the one page repair estimate summary from Honeybone Builders was not detailed enough for Tower to use. It suggested that it have an engineer and architect complete final designs and consent documentation. Ms Kilduff replied on 17 April 2015 that “it is perhaps a little early for this” and requested a meeting. Tower agreed to a meeting but noted it needed to get back out to the site to update its scope. Until then its ability to negotiate a settlement would be limited.
[18] The meeting took place on 9 June 2015. Tower emailed Ms Kilduff confirming that it wanted to engage Stream accredited experts to finalise plans. Tower wished to consult with the plaintiffs over the appointments. A list was provided in June 2015 and Ms Kilduff was followed up in July 2015.
[19] In the meantime, the plaintiffs instructed Wynn Williams solicitors in Christchurch on the matter. Wynn Williams notified Tower on 24 July 2015 that the plaintiffs did not agree with Tower’s approach and were appointing their own experts. In light of the letter, Tower appointed experts and asked the plaintiffs to co-operate with them. The Tower experts conducted an initial site visit in October 2015. Although they required further access, Wynn Williams informed Tower that it would not be able to access the property until the plaintiffs’ experts’ reports were available. The plaintiffs disclosed these to Tower on 24 March 2016. Wynn Williams’ letter to Tower advised that the plaintiffs had resolved that a repair was not viable. This was the first time anyone had suggested that. Tower was advised its experts could visit in early April 2016. The plaintiffs sought a meeting to resolve the claim in late April 2016, as Ms Kilduff would be overseas in May.
[20] Tower’s experts visited the site but were unable to finish their reports for the meeting given the tight timeframe. The plaintiffs then filed these proceedings on 12 May 2016. Tower’s expert reports were disclosed to the plaintiffs in July 2016. After conferral, the parties’ engineers finalised their joint report in December 2016. The parties then obtained quantity surveyor costings. After considering the costings, Tower elected to settle the claim by making payment.
[21] As noted above, the plaintiffs now agree that the house is repairable which is a change from their earlier position that this was a rebuild situation. The parties have also agreed on a number of other disputed issues since these proceedings began.
The Tower insurance policy
[22] The plaintiffs’ insurance policy with Tower is described as a Tower Provider House (Maxi Protection) policy. This provides cover up to full replacement cost. The interpretation of this policy has been the subject of a number of recent decisions.3
[23] Relevantly, the policy states:
Natural Disaster Damage Benefit [page 4]
The house is covered for sudden and unforeseen accidental physical loss or damage.
Definitions
The definition of house excludes retaining walls.
Full replacement value means the costs actually incurred to rebuild, replace or repair your house to the same condition and extent as when new and up to the same area as shown in the certificate of insurance, pus any decks, undeveloped basements, carports and detached domestic outbuildings, with no limit to the sum insured.
Present-day value means the cost at the time of the loss or damage or rebuilding, replacing or repairing your house to a condition no better than new and up to the same area as shown in the certificate of insurance, plus any decks, undeveloped basements, carports and detached domestic outbuildings, less an appropriate allowance for depreciation and deferred maintenance, but limited to the market value of the property less the value of the land as an occupied site.
Basis of Settlement [page 12] (paraphrasing for economy)
Tower will arrange for the repair, replacement or payment for the loss once your claim has been accepted: clause 1.
Tower will pay either full replacement value or present-day value: clause 2.
Tower will pay the present-day value if the policyholder chooses not to rebuild or repair the house; it is only bound to pay full replacement value once the cost of replacement or repair is actually incurred: clause 4.
Tower will also pay:
Tower will use building material and construction methods commonly used at the time of loss or damage.
Tower is not bound to repair or reinstate the house exactly to its previous condition.
Tower is not bound to pay the cost of replacement or repair beyond what is reasonable, practical or comparable with the original.
[24] As both parties accept now that the house is practically and economically repairable, the insurance policy provides Tower with a choice of fulfilling its indemnity obligations by managing the repair/reinstatement work itself or by making an indemnity payment to the insured, who will then carry out the repairs.4 It is common ground, as I have noted, that Tower has elected to settle this claim by making payment, rather than by itself arranging for and carrying out the repairs.
[25] The Court of Appeal recently held in Myall v Tower Insurance Ltd, which dealt with the same policy terms as here, that the insurer’s election does not shift the burden of proof.5 The Court found that once “Tower had accepted liability... it need only pay the minimum sum required to meet the policy standard”.6 In that case, as here, Tower had proposed a sum that it deemed sufficient and “[t]he question for decision was whether Tower’s proposal met the policy standard”.7 The Court dismissed an argument by the plaintiff on appeal that Tower’s promise to pay full replacement value was not limited in the same way as its promise to reinstate. The Court considered that it would be surprising if the content of Tower’s obligation to indemnify varied depending on their election.8
[26] This approach also applies to the present case. Tower has accepted liability and proposed a costing which it claims meets the policy standard. The issue before me is whether Tower’s costing does meet the policy standard or whether it is insufficient for the work required. The burden is on the plaintiffs to show the latter.
[27] Here, the plaintiffs have indicated they intend to have the house repaired themselves and for this purpose to instruct experts, builders and contractors to achieve this.
[28] The policy standard where the house is to be repaired by the policyholder, requires Tower to:
4 Skyward Aviation (2008) Ltd v Tower Insurance Ltd, [2014] NZSC 185.
5 Myall v Tower Insurance Ltd [2017] NZCA 561.
6 At [22].
7 At [22].
8 At [14].
(a) Pay to repair the insured property to the same condition and extent as when new up to the full replacement value;
(b) Pay the costs of demolition and removal of debris;
(c) Use building materials and construction methods commonly used;
(d) Pay costs for additional works to comply with changes in government or local body bylaws;
(e) Pay reasonable architects, engineers and surveyors’ fees, where authorised by Tower; and
(f) Pay for the repair or replacement provided it is reasonable, practicable, or comparable with the original.
[29] Application of the requirement noted in (f) above imports a notion of reasonableness as to the specification and scope of the work to be carried out (and its cost) which is to be commensurate with design and construction features of the existing house.
Preliminary issue of admissibility
[30] Tower has raised an issue regarding the admissibility of a section of Ms Kilduff’s brief of evidence. This relates to paragraphs [97] to [103] which concerned certain privacy issues relating to the plaintiffs’ claim and their Tower file. In my view, the paragraphs in question are not generally relevant to any issue before me. The plaintiffs have not put them forward to support their claim for general damages but merely to bring the issue to Tower’s attention. That has occurred. Therefore, in accordance with s 7 Evidence Act 2006, I find that those paragraphs are inadmissible.
Issues
[31] As I note at para [3] above, the issues still in dispute between the parties are:
- (a) The scope of works required; and
(b) Whether Tower’s costing of the necessary repairs is reasonable; and
(c) Whether general damages should be awarded for an alleged breach of the insurance contract by Tower.
[32] I will now consider each of these issues in turn.
A. Scope of works required
[33] After conferencing, the parties’ experts were largely agreed on the scope of works required to repair the house to the standard required by the policy. Two issues remained, however, when the hearing before me opened:
(a) How should the two blockwork foundation walls in the house which have settled be remediated?
(b) How should the garage floor relevelling be carried out?
[34] The latter question would also require this Court to determine whether one of the retaining walls (RW2), which supported the garage, was covered by the policy and, if so, the relevance of the EQC land payment to that remediation.
[35] Helpfully, after the hearing, the parties resolved this latter dispute between themselves. They agreed that the base cost of the insured scope of works should be
$57,907.9 The overall costings used in this judgment reflect this agreement.
[36] That leaves only the first question as to scope to be determined by this Court.
Extent of foundation remediation
[37] The parties’ engineers disagree over whether there needs to be additional underpinning under the two internal walls in question (A and B). The walls are located
9 Excluding GST and the quantity surveyors’ respective on-costs.
on the western, upslope side of the house. They have both settled relative to the eastern, downslope side.
[38] Mr Tait, the plaintiffs’ structural engineer, agrees with Tower’s engineers that the walls have settled 43 mm across level 1. However, Mr Tait also argues that there was a further 20 mm of settlement across level 2, bringing the total settlement to 63 mm. Tower’s experts maintain that adding settlements across levels was not a valid measurement. Nonetheless, they accepted that the difference between the calculations would not affect their repair strategy.
[39] The southern ends of the walls have settled relative to the northern ends. Surveys show this drop, along the length of the blockwork walls, as 23 mm. There is a further 19 mm drop along the length of the in situ concrete wall further to the south.
[40] It is agreed that internal walls A and B must be releveled to correct this settlement. The parties disagree, however, over which method is properly required to do so.
[41] Mr Polson and Mr Maurer, Tower’s structural and geotechnical engineers, propose to do so by the simpler solution of leaving the foundation of the walls in place and jacking and packing above. Mr Tait accepted to a degree that this would address the settlement and be a structurally acceptable solution, but this was entirely subject to his concerns about the subgrade below the walls.
[42] These concerns about the stability of the subgrade prompted Mr Tait and Mr Sillitoe, the plaintiffs’ geotechnical engineer, to suggest that underpinning would be required beneath both walls A and B to ensure they are supported appropriately. They propose that the walls should be jacked from below once this underpinning has been installed, using the underpinning pads as jacking pads. Mr Polson and Mr Maurer, however, do not agree that any additional underpinning is required.
[43] It seems to be agreed, however, that the subgrade cannot be tested until the repairs occur. Because of this, the experts’ opinions on whether the subgrade is
suitably stable appears generally to be based on nothing more than whether or not they consider it performed well during the earthquakes.
[44] For Tower, Mr Polson and Mr Maurer consider that the walls have performed well given the forces they were subjected to. They state that at the level of shaking the walls were exposed to, the design criterion is that the structure not collapse and create a life safety risk. The structure met this test. They believe the walls performed well and that the observed settlement was nominal in all the circumstances. This indicates, Mr Maurer said, that the walls are already founded on soils with adequate bearing capacity. However, he does accept that this should be confirmed through testing at the time of construction.
[45] In response, Mr Tait, however, considers that the settlement was significant, particularly for a hillside. He is concerned that the dislevelment indicates “variable founding conditions”. He does not believe that the level of shaking alone explains what has happened. The responsible decision, he says, is to put in additional underpinning works to ensure that the house’s foundations are stable for the future. He considers that it is “money worth spending to address the potential risk”, especially when most of the preparatory work will be carried out anyway.
[46] Tower suggests that the Court should prefer the opinions of Mr Maurer and Mr Polson, chartered professional engineers. With respect, and given the nature of the site here and the position all parties appear to agree that this is not an easy repair, I disagree.
[47] I consider that the additional underpinning proposed by the plaintiffs’ experts is likely to be necessary to ensure that the house is repaired to the policy standard. The risk that the foundation soils do not have adequate load bearing capacity seems to be accepted by all the experts as a real potential. And, in any event, the cost of taking this further step to ensure that the house and its foundations (which are obviously critical for any house) are stable is relatively minor in the overall scheme of things (being some $20,000 to $30,000 amounting to approximately 2.5 per cent to 3.8 per cent of the total assessed repair cost). Accordingly, as I see it, the cost of this additional work is reasonable and practical given the other repair work that will be carried out by
the plaintiffs at some stage in the future, long after Tower has cash-settled this claim and passed responsibility for the repair work to them.
B. Cost of repairs
[48] The quantity surveyors, Mr Eggleton, for Tower, and Mr Major, for the plaintiffs, have both presented full costings. As I have determined that it is appropriate to take the plaintiffs’ approach of underpinning the house, the costings I have to consider are:10
(a) Mr Eggleton’s “B” costing: $800,524
(b) Mr Major’s costing: $980,703
[49] In essence, the quantum for repair costs in dispute here amounts to some
$180,000.
[50] Mr Eggleton’s costing was completed in an elemental format, while Mr Major’s calculation was trade by trade. Both are acceptable practice but it did make comparison between the two costings difficult at times. In particular, Mr Major costed the labour allowance as a separate item. Tower alleges that Mr Major’s failure to provide any breakdown of his labour allowance, which forms a substantial part of the overall quote, limits the Court’s ability to assess or rely on his quote.
[51] The plaintiffs’ response is that it is inappropriate to single out this component of the costing. Mr Eggleton and Mr Major, it seems, had not discussed that component, given their different formats, so the plaintiffs claim that Mr Major did not expect to discuss that component when giving evidence.
[52] Tower goes further and contends that Mr Major’s estimate cannot be trusted as a true market price estimate because he generally acts as a builder’s quantity surveyor. In particular, he has worked with Mr Honeybone (a builder who also gave evidence here for the plaintiffs) for many years. Tower suggests that Mr Major has prepared his
10 These are the final costs including the builder’s margin, contingency and GST.
estimate as a builder’s price, especially given the input from Mr Honeybone. Therefore, Tower claims it is not a competitive rate. In contrast, Tower says Mr Eggleton prepared a market price estimate for the works. It maintains too that both Mr Major and Mr Honeybone accepted in cross-examination that their labour allocation was a “conservative” one with significant contingencies built in.
[53] Having heard the evidence in this case I accept that in all the circumstances here there may well be an element of Mr Major settling his costings (in particular for labour) at a reasonably high level. Therefore, where there is a disparity that cannot be otherwise justified, I prefer the approach taken by Mr Eggleton. I say that noting too that Mr Eggleton is a highly experienced and well regarded quantity surveyor whose evidence has been relied upon by this Court in the past, especially in Christchurch earthquake claim cases. Notwithstanding this, as I discuss below, there are some small areas where I find Mr Major’s costings to be preferable and in those instances I adopt these over costings outlined by Mr Eggleton.
Cost of underpinning
[54] Tower suggests that the parties are more or less agreed on the cost of the additional underpinning work. Mr Major’s base cost is $20,543 and Mr Eggleton’s
$19,138.11
[55] Given the similarity of the prices, the plaintiffs have not discharged the onus on them to demonstrate that the amount proposed by Tower is unreasonable. I will therefore make an order based upon the costing provided by Mr Eggleton of $19,138.12
Costing of agreed foundations/subfloor work
[56] The experts’ costings for this category are:
(a) Mr Eggleton: $171,090
[57] The work included for this aspect of the repair substantially comprises:
(a) The works to the storage room;
(b) The works in the area of existing entry to re-profile the ground and construct a new upslope retaining wall;
(c) The replacement of the existing slab to the entry/bathroom area;
(d) The excavation and replacement of the backfill and drainage/waterproofing systems along the west side of the house; and
(e) The re-levelling and realignment of the existing structure.
[58] Mr Major has priced this on the basis that Mr Honeybone, who has experience and knowledge of this type of job, and his men will carry out the works themselves. Mr Major and Mr Honeybone have estimated the labour that will be involved, taking into account various factors such as access difficulties, technical difficulties and the scope of the work.
[59] A major reason for the price divergence between the experts is the labour component. Mr Eggleton considers Mr Major’s allowance (1,043 hours for the foundation works and 745 hours for the revelling works) is excessive. Tower suggests that when Mr Honeybone was taken through specific excavation works in cross- examination, his estimates for each element did not come anywhere near to Mr Major’s total allowance. Tower says Mr Major was not able to justify why his labour component was so high but accepted he had priced it conservatively. Tower submits that Mr Major’s higher estimate is not reasonable.
[60] In response, the plaintiffs argue that Tower cannot dictate who the plaintiffs engage to do the work and that Mr Major’s estimate and choice of using Mr Honeybone is reasonable and practical. It is true that the choice of a builder here is one for the plaintiffs to make. However, for present purposes, the onus is on the
plaintiffs to show that Tower’s proposed costing is not reasonable. Given that Mr Eggleton has based his costings on a quote from a relevelling subcontractor said to be reputable, his costing appears to be reasonable. Mr Major expressed a number of concerns about the use of subcontractors in general. These, however, do not go so far as to show that the quote before the Court from Canterbury House Levelling and Repiling was not a reasonable market price for the works.
[61] Therefore, I find that Mr Eggleton’s costing of $171,090 for the agreed foundation and subfloor work has not been shown to be unreasonable here.
Electrical and heating
[62] The experts’ costings for this area of the repair are:
(a) Mr Eggleton: $9,740
(b) Mr Major: $14,805
[63] With regard to heating, Mr Major has included an allowance to remove, store and reinstall two heat pumps; to remove and replace two night-store heaters; and to install the agreed under-floor heating. Mr Eggleton has allowed installation of only one new night-store heater, and the removal and reinstatement of the other night-store heater and two heat pumps. He has also provided for the installation of the under-floor heating.
[64] Mr Major’s costing includes replacement of the two night-store heaters which were damaged. Tower submits that as it has already replaced one with a heat pump, as requested by the plaintiffs, the costing should only cover one. I find that it is appropriate to only replace one night-store heater, given that the other has already been replaced with a heat pump. To include both would put the plaintiffs in a better position than before the damage.
[65] The main difference in the costings for electrical work is the labour allocation. Mr Eggleton allocated 35 hours ($3,000), which he considers a high estimate. He finds
Mr Major’s allocation of 70 hours ($6,000) is grossly excessive for the work, given the number of light fittings in the house.
[66] Mr Major defends his labour allowance as reasonable given the work that should be carried out. Mr Major has allowed in his scope for an upgrade of wiring and new electrical fittings to achieve compliance with the current electrical code. Mr Major explained that the removal and replacement of interior linings often requires the electrical fittings to be reinstalled. If a hole is drilled into new gib board lining for a downlight or plug, it is considered a new installation. An old fitting, which would not be compliant with the new standards, would therefore have to be replaced.
[67] Mr Major also pointed out that the entry of significant water and the presence of interior moisture throughout the house would put the electrician on notice to check every fitting. This would take more time than Mr Eggleton has provided for.
[68] I consider that Mr Major’s explanation for his larger labour allocation is reasonable. Tower, under the policy, has to cover the additional cost of meeting current building requirements. The need to check, and replace if necessary, the wiring in the house is also reasonable. Given that Mr Eggleton’s labour costing does not adequately take these things into account, I find that it is insufficient. An award is to be made based on Mr Eggleton’s costing, plus an additional $3,000 for the further labour costs. The total for electrical and heating is therefore $12,740.
Plumbing and drainage
[69] The experts’ costings for this area of the repair are:
(a) Mr Eggleton: $1,500
(b) Mr Major: $9,900
[70] CCTV inspection has been carried out for almost all of the pipes. This indicated that there were, at present, no issues with them. The only pipe not able to be inspected was the storm water pipe.
[71] Mr Eggleton’s costing is based on his position that the only work required is disconnecting and reconnecting the plumbing to facilitate the sub-floor repair works.
[72] Mr Major has allowed $800 for a further CCTV inspection of the uninspected pipe. Furthermore, he has allowed a substantial amount for repair of all of the current pipes, which he considers will be affected by the excavations of the foundations and other repairs.
[73] Mr Eggleton’s costing assumes that most of the drainage pipes on the property will not be affected by the works. The plaintiffs submit that this is because Mr Eggleton was misinformed on the actual path taken by the pipes. When this was put to him in cross-examination he admitted that further replacement would be required than he had allowed if the pipes were in the locations specified on the original plans by Stewart Ross Designs. Mr Eggleton could not conclusively say whether the pipes were or were not in this location.
[74] Therefore, the plaintiffs argue that Mr Eggleton’s estimate is insufficient to take into account all the plumbing work potentially required.
[75] The original plans highlighted by the plaintiffs do appear to indicate that much of the drainage on the site runs close to areas that will be affected by the remediation works. This creates a real risk that there will be damage to the existing pipes, requiring replacement. Mr Eggleton’s estimate does not take this factor into account. Therefore, I consider it is insufficient and that Mr Major’s allowance is the reasonable assessment.
Preliminary and general (P&G) allowance
[76] The experts’ respective costings for this allowance are:
(a) Mr Eggleton: $62,577
(b) Mr Major: $98,858
[77] The parties agree that $21,450 is a reasonable allowance for scaffolding costs. The disagreement results from the amount for the contractors’ P&G allowance.
[78] Mr Major has allocated a total of $77,137.50 for the contractor’s overheads. Mr Major costed these items using a full breakdown based on his experience of what a builder will require to complete the repairs. This includes $15,000 for contract management, $10,000 for administration and $5,000 for general expenses.
[79] Mr Eggleton has made an allowance of 12 percent for contractors’ general and preliminary items. This allowance takes into account the difficulty of the site as a typical allowance for a flat site would be eight percent. Tower submits that Mr Major’s allowance is excessive and appears to double count various factors. Mr Eggleton considers that the relatively high agreed labour rate of $60 per hour ought to have already provided a measure of overhead recovery.
[80] Mr Major defended his allowances, stating that they were about normal for architectural work which required the builder to get the details right. These considerations are not built into a builder’s labour rate. He also considered that an itemised breakdown was appropriate rather than a bare percentage as it focused on the real cost. A percentage allowance is always adjusted if the base construction cost moved, regardless of whether that change affects the contract management.
[81] I find that Mr Eggleton’s allowance of 12 percent is reasonable for a job of this difficulty and reflects the market standard. To a degree, I am persuaded by his evidence that the builder’s labour rate of $60 an hour should include aspects of contract management and attendance on sub-contractors, which were given separate allowances by Mr Major.
[82] I therefore conclude that the appropriate amount to award for the contractor’s P&G allowance is 12 percent of the total construction cost. Given my findings on other aspects of the build, this will be higher, however, than that given in Mr Eggleton’s costing.
Professional fee estimates
[83] The experts’ costings for this category are:
(a) Mr Eggleton: $61,750
(b) Mr Major: $97,000
[84] There are two areas of disagreement on this matter:
(a) the design and observation of the project; and
(b) project management and quantity surveyor fees.
[85] Mr Eggleton has allocated $48,450 for engineering and architectural fees to cover any further design of the house and observation of the construction. Mr Major has costed this at $59,000. In particular, the experts’ costings are different on the allowance for architectural design, with Mr Eggleton allowing only $7,200 compared to Mr Major’s $20,000. This difference is somewhat offset by Mr Eggleton’s higher allowance for engineering fees.
[86] Mr Eggleton considered that his quote was reasonable because he claimed there was not a lot of work remaining. Bespoke Architecture has already prepared some drawings it seems and Mr Eggleton said that the remaining work is only producing specific details, not re-drawing the house.
[87] Mr Major critiques Mr Eggleton’s allowance as insufficient. He points to the fact that the quote that Mr Eggleton relies on is from the firm, Bespoke Architecture, which he says has no registered architects. Tower disputes the relevance of this point.
[88] The plaintiffs submit that as the house was originally built to an architectural design with a high standard of specifications and finishing, the involvement of a registered architect here must be appropriate. The repairs will involve certain elements that need detailed design and advice, such as the barrel windows, skylights, curved roof and flat roof areas.
[89] I agree with the plaintiff’s contention here. I am persuaded by Mr Major’s argument that it is appropriate for a registered architect to be used in producing the drawings for the remediation. The house has a unique architectural design, and that forms a key component of its character and value. As Mr Eggleton’s costing is not based on the involvement of a registered architect, I consider it to be insufficient.
[90] Mr Eggleton, however, did allow for higher engineering fees than Mr Major. It appears therefore there is some crossover between the roles which the two quantity surveyors allocated differently. It would therefore be inappropriate to adopt Mr Major’s architectural fee quote alongside Mr Eggleton’s engineering fee quote. The resulting amount would be excessive for the work required. Therefore, I find that Mr Major’s allocation for both engineering and architectural fees should be adopted.
[91] With regard to project management and quantity surveyor fees, Mr Eggleton has allowed $13,300, while Mr Major has recommended $38,000.
[92] Mr Major has allowed $30,000 for project management on the basis that the lead role in this will be taken by an architect. He also allows $8,000 for further quantity surveyor costs to help the owner during the design process and to ensure that everything is completed properly on a costing basis. Mr Major explained that this allowance would cover the situation where a scope or variation issue arises which requires the architect to get costing input. Mr Major considers this to be a likely professional fee, independent of the building cost.
[93] Mr Eggleton does not see any further role for a quantity surveyor given the completion of Mr Major’s estimate. Furthermore, the only further role for an architect would be as a project manager. He considers that there is no need to provide both architect fees (as discussed above) and project management fees.
[94] Mr Eggleton stated that his $13,300 allowance was a reasonable market allowance for project management and that Mr Major’s figure was excessive. The commercial reality he said was that most clients will not pay architects at that level these days. Tower submits that Mr Honeybone’s anecdotal evidence supports this view too. Mr Honeybone had recently had a $17,000 fee proposal from an architect for a
$1.8 million job.
[95] Overall here, I consider that the plaintiffs have not sufficiently demonstrated that Tower’s costing for this component is inadequate, particularly given the amount I have already found reasonable to provide for much of the architectural and engineering
involvement. I will therefore make an order based on Mr Eggleton’s costing of $13,300 for project management.
Other minor items
[96] There are a number of other minor differences between the two costings which the quantity surveyors highlighted in the schedule to their joint report.
[97] Mr Major has allowed $700 for the disconnection and reconnection of the gas. Mr Eggleton does not appear to have included this cost. The plaintiffs submit that this amount should be awarded as the parties agreed that issues with the gas would be left out of the contents claim and included in the house claim. Mr Eggleton has failed to include it in his costing so I take Mr Major’s allowance as a reasonable amount and will award accordingly.
[98] Mr Major also allocated $1,800 for repairing the security system. Mr Eggleton did not allocate a specific amount for this job but included it as one of the matters covered by his allocation for electrical work. Given the increased allocation I have made for electrical work, I consider that the repair of the security system is appropriately allocated for without a further award.
[99] There is also a minor difference between Mr Eggleton and Mr Major’s estimates for building consent fees of $777.88. The plaintiffs have given no real evidence to indicate that Mr Eggleton’s amount is unreasonable. Therefore, I accept Tower’s proposed amount of $8,800 is appropriate.
Conclusion on quantum
[100] These awards, along with the agreed quantum, result in a base construction cost of $489,077.26. To this is added the 12 per cent P&G allowance, the 10 per cent margin, and the fees of $61,750. I then add the further contingency of 10 per cent.
[101] This results in an award of $730,722.50 (excluding GST). The figure including GST is $840,330.88.
C. General damages
[102] The plaintiffs claim:
(a) $24,339.13 for consultants’ fees (incurred prior to April 2015) to assess what are said to be the grossly inadequate scopes of work and price estimates provided by Tower and Stream at the time; and
(b) $10,000 for Ms Kilduff’s emotional harm relating to alleged breaches by Tower of the implied insurance term that it would act in good faith, make claim decisions promptly and fairly, and settle the plaintiffs’ claim within a reasonable time.
[103] Counsel for the plaintiffs say that Ms Kilduff and her partner have been totally frustrated, stressed and emotionally wrung out after years of living in a damaged house and trying to finalise the insurance issues. The plaintiffs consider that Tower’s poor management of their claim and unreasonable delay contributed to this emotional distress. They maintain that general damages are appropriate to compensate for that.
[104] The plaintiffs also claim costs incurred to obtain external consultant advice from experts. It is accepted that the particular experts in question were not subsequently involved with the proceeding itself. But the plaintiffs say they had no choice but to engage these consultants from mid 2014 to early 2015 in response to the complete inadequacy of Tower’s reports and its misleading responses up to that time. The plaintiffs claim that it was only once they had obtained and disclosed their own expert reports that any fair and realistic progress was made in their claim.
[105] The plaintiffs’ final claim essentially relies on two alleged breaches of Tower’s implied duty of good faith:
(a) The 3 June 2014 and 14 October 2014 settlement offers which they say were inadequate and unreasonably presented; and
(b) Tower’s unreasonable delays in electing whether it would settle the claim by carrying out works or making payment.
[106] Tower disputes the alleged breaches of contract and submits that no general damages are warranted. It queries too how it could be liable for the plaintiffs’ costs in seeking expert consultants’ advice that they have now abandoned.
An implied duty of good faith
[107] In insurance contracts of the type at issue here there is an implied duty of good faith on the insurer. This requires, as a bare minimum, the insurer to:13
(a) disclose all material information that the insurer knows or ought to have known, including, but not limited to, the initial formation of the contract and during and after the lodgement of a claim;
(b) act reasonably, fairly and transparently, including but not limited to the initial formation of the contract, and during and after the lodgement of a claim; and
(c) process the claim in a reasonable time.
[108] And, as to all this, the requirement that the insurer process a claim within a “reasonable time”:14
... must take into account the time required to properly investigate and assess all aspects of the claim. What is “reasonable” will depend on all the relevant circumstances. Factors that may need to be taken into account include the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance, and factors outside an insurer's control. Further, if the insurer shows that reasonable grounds exist for disputing the claim (whether as to the amount of any sum payable or as to whether anything at all is payable), the insurer does not breach the implied term merely by failing to pay the claim (or the affected part of it) while the dispute is continuing. But the conduct of the insurer in handling a claim may be a relevant factor in deciding whether that good faith duty was breached and, if so, when.
13 Young v Tower Insurance Ltd, above n 3 [163].
14 Young v Tower Insurance Ltd, above n 3, at [164].
Alleged breach through inadequate offers
[109] Before me, the plaintiffs submitted that Tower’s offer on 3 June 2014 (based on an estimated repair cost of $317,600.47) was wholly inadequate. By this point, the plaintiffs say it should have had a full and proper investigation completed. If the plaintiffs had taken either of the presented repair options, they say they would have been left with a sub-standard repair because Tower would only indemnify them to the extent of the (inadequate) Stream scope of works. There was no suggestion by Tower in its communications at the time that consultants would be engaged to fully investigate the house and formulate a comprehensive scope of works. If the plaintiffs had accepted the pay out, they say they would have ended up with a sum substantially below Tower’s true liability.
[110] In response, Tower argues that the 3 June 2014 offer was reasonable, based on the information known to it at the time. Tower submits that presenting such an offer does not breach the policy. It says there is no evidence to suggest that the offer was presented other than in good faith based on the available information, although the offer is now known to be inadequate. The plaintiffs’ case, according to Tower, must rely on the proposition that an insurer can only present an offer once its process is complete. Tower suggests that this cannot be correct.
[111] Tower also submits that the cash settlement figure proposed in the first email was not stipulated to be a final figure and the plaintiffs were put under no pressure to accept it. The plaintiffs respond, however, that this does not fully accord with correspondence at the time as Tower sent Ms Kilduff a number of emails emphasising that time was running out on her ability to choose a Tower managed repair. Tower explains that it says it only reminded Ms Kilduff of this as it did not want her to be disadvantaged.
[112] Tower submits too that, as it is not obliged to offer a full and final cash settlement under the policy, its decision to do so cannot be in breach of its policy obligations, provided the offer is made in good faith.
[113] It is not clear here that if the plaintiffs had chosen either the Tower or plaintiff managed repair they would have been necessarily left with a sub-standard repair.
Although Tower made its initial offers based on the insufficient Stream scope, when further earthquake damage was uncovered during the repair, it is likely that Tower’s contractual obligations would require it to meet the surplus costs necessary to repair that damage too.15
[114] The standard for an award of general damages for breaching a duty of good faith in insurance contracts is a high one. There has been only one such award in the context of insurance litigation regarding the Christchurch earthquakes – Young v Tower Insurance Ltd. There, the award was made because the insurer, also Tower, had withheld a brief report from one expert that recommended a rebuild. This breached the insurer’s obligation of full and continuing disclosure. Only damages described as “nominal” amounting to $5,000, however, were awarded. 16
[115] Key in that determination was the fact that the information was deliberately withheld, albeit it by an agent for Tower and not Tower itself. In contrast, however, it has not been established in the present case that there was any such deliberate breach. Although with hindsight it is clear that the earlier offers made by Tower were seriously inadequate, it has not been shown here that Tower made them other than in good faith on the basis of the information available to it at the time. Tower was entitled to make such offers. It was not required to do so under the policy, and although there must be some real questions over what occurred, it took this approach as an alternative means of settling the insurance claim.
[116] Therefore, I find that Tower did not breach its duty of good faith in presenting its settlement offers to the plaintiffs such that a specific award of general damages (as opposed to a reimbursement of experts’ fees incurred by the plaintiffs at the time) is justified.
Alleged breach through delay of election
[117] On this aspect, Tower submits that it did not breach its obligations in the manner or length of time taken to investigate the claim. It notes that both parties’
15 Parkin v Vero Insurance [2015] NZHC 1675 at [46].
16 Young v Tower Insurance Ltd, above n 3, at [166].
engineering strategies changed throughout the dispute and points to Mr Tait’s acceptance that the house presented “a complex scenario”.
[118] Tower contends too that the plaintiffs’ choice to engage their own experts was not the result of any refusal by Tower to conduct appropriate investigations. Therefore, Tower says it cannot be responsible for these costs, especially given that the reports have subsequently been abandoned by the plaintiffs.
[119] It is clear in this case that there has been substantial delay in the settlement of the plaintiffs’ insurance claim. It is concerning for an insurance claim to be unresolved seven years after the damage occurred. However, it must be accepted here that responsibility for this is not Tower’s alone. One reason is the unique factor of the Christchurch earthquake sequence. As I noted in Young v Tower Insurance Ltd:17
The claim must be viewed in the context of 25,000 other earthquake claims the defendant has processed since the Christchurch earthquake sequence began and the strained capacity of the available experts pool to provide assistance and reports.
[120] Furthermore, to an extent, the plaintiffs’ have also contributed to the delay here. In the course of this whole matter, Ms Kilduff had expressed to Tower the need to take some “breathing space” after her mother’s illness. Ms Kilduff also considered that Tower’s offer in April 2015 to have an engineer and architect complete final designs and documentation was, in her words, “perhaps a little early”. Tower expressed to her at the time that the meeting she wanted instead would prevent it updating its scope of works. Tower suggests it was consistently attempting to get experts on site to carry out further investigations, but says it was delayed in doing so by the plaintiffs. In particular, the plaintiffs did not allow Tower’s experts access to the house between October 2015 and March 2016 while their own experts were putting their reports together.
[121] While much of the delay on Ms Kilduff’s part was understandable, given her personal situation and her ill parents, that does not negate the fact that to some extent this contributed to the extension of the settlement process.
17 Young v Tower Insurance Ltd, above n 3, at [176].
[122] Tower says that it is not alone in complex cases such as this in taking time to settle on a final repair methodology. It maintains it was entitled to have all the information before it before making its election. It notes too that for some time here the plaintiffs maintained in their pleading that this was a full rebuild case and it was not until its second amended pleading filed 13 September 2017 that the plaintiffs acknowledged the damage could be repaired. It is arguable therefore that it was reasonable for Tower to wait until it had finalised its expert reports and reviewed both parties’ quantity surveyor costings prior to making the election it did.
[123] At this point, I need to record, however, that I do have considerable sympathy for the position the plaintiffs and Ms Kilduff in particular found themselves in post- earthquakes whilst surviving for year after year in a damaged and at times leaking home. Ms Kilduff complains that Tower was impervious to her plight as she survived in a sodden, damaged and, at times, a mouldy house with temporary fixes that failed and also that she was required to endure numerous site inspections and meetings which achieved little. Nevertheless, and I must say only by a reasonably fine margin, I find this case to be similar to others where a claim for general damages because of delay failed.18 I consider that, although it could not be said that Tower’s actions here were entirely blameless, the plaintiffs have not shown, on the balance of probabilities, that Tower caused unreasonable delay in making its election to such an extent that it should be liable for an award of general damages.
[124] This aspect of the plaintiffs’ claim for general damages fails.
[125] But, as to the first aspect, being the plaintiffs’ $24,339.13 claim for consultants’ fees incurred prior to April 2015 noted at [102](a) above, I am of the view that, in all the circumstances prevailing here and in the broad interests of justice, this might represent a justified claim by the plaintiffs. This would be on the basis that they are a proper disbursement incurred from mid 2014 to early 2015 in assisting the plaintiffs in this whole claims process and in galvanising Tower into obtaining proper and reliable damage reports for the house some three to four years after the initial claims. A breakdown of these consultants’ fees, as I understand it, was not provided to Tower,
18 For example, Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262 at [198]-
[204] and Young v Tower Insurance Ltd, above n 3, at [175]-[177].
however, until the hearing before me. I will therefore direct counsel for the parties to provide to me further memoranda on the expert consultants’ fees issue, as I note at
[135] and [136] following.
Relief sought
[126] The plaintiffs in their pleadings seek:
as compensatory damages for the [alleged] breaches, the build cost they will incur up to the full replacement value to reinstate to the policy standard, and achieve compliance with the governing building requirements.
[127] Tower submits that it is not possible to award compensatory damages in substitute performance here as the contract is still on foot. Instead, any order this Court makes would be as to the level of repair costs Tower is required to pay out as its obligation under the contract. It agrees that the plaintiffs are entitled to be indemnified by Tower for the actual and reasonable cost of carrying out the works required to repair the earthquake damage in accordance with the policy.
[128] The plaintiffs contend that while there has been no repudiation of the contract by Tower entitling cancellation, Tower has, through various breaches, repudiated its liability for the earthquake claim. Therefore, the plaintiffs claim to be entitled to an immediate lump sum pay-out as damages. They consider this to be important as they do not have sufficient funds to start the repair process themselves and are wary of any further delay, now seven years after the earthquakes.
[129] The insurance policy requires Tower to pay the plaintiffs “the costs actually incurred to... repair” the house. The Courts have been clear that this requires an insured to actually incur costs, usually in the form of a contractual obligation to pay for the repairs.19 The insurer does not have a prima facie obligation to pay immediately after damage has been assessed. This does not hinder the plaintiffs from proceeding with the repairs because of a lack of funding. Mander J made it clear in Parkin v Vero Insurance New Zealand Ltd that:20
19 Medical Assurance Society of New Zealand v East [2015] NZCA 250 at [29].
20 Parkin v Vero Insurance New Zealand Ltd, above n 15, at [46].
While [the insured] must actually incur costs, that does not equate to a requirement that he expend his own money. Rather, a legal obligation to pay on his part is required to have been created.
[130] Once the plaintiffs enter into a final contract with their chosen builder for the repairs determined by this judgment, Tower is obliged to meet the cost of this contract, up to the amount I have determined.
[131] As the authorities make clear, appropriate relief in a case such as this generally takes the form of a declaration as to the maximum amount Tower is liable to pay to meet its obligation under the policy to cover the repair of the plaintiffs’ house.
Orders
[132] Taking into account all the payment adjustments I have outlined above, I make a declaration now that the maximum amount payable by Tower for repair of the plaintiffs’ house is $840,330.88,21 (less the sum of $242,526.13 being the amount the plaintiffs have received from EQC in relation to the house) leaving a final amount of
$597,804.75 (and subject to [133], [135] and [136] following).
[133] I am also considering making an award of interest in favour of the plaintiffs on this sum from the date of hearing (14 December 2017) first, to the date of this judgment under the discretion given to me by s 87 of the Judicature Act 1908, and secondly and otherwise, to the date of final payment of the judgment amount by the defendant. I do so because in assessing in terms of the policy standard what is the reasonable and practical cost of carrying out what both parties acknowledge are difficult repairs, for which the plaintiffs will take sole responsibility, the prices and market estimates from Mr Eggleton in particular, which I have largely accepted, are based on quoted prices and estimates at or before that hearing date, some four months ago. But, at this point I reserve my decision on that interest question because at the hearing I heard no submissions from counsel for the parties on this particular issue. I will therefore direct counsel to produce to me further memoranda, on this interest issue, as I note at [136] following. My decision on this aspect will then follow.
21 This is the final award and includes the builder’s margin, contingency and GST.
[134] I reach that position too on the basis that both the plaintiffs and Tower seek a monetary judgment here. Tower, as I have noted, has elected not to manage the house repair but instead it wishes to cash settle its liability with one overall payment under the policy. That liability I confirm is for the payment outlined at [132] above, together with possible interest on this $597,804.75 as outlined at [133] above and costs, disbursements and experts’ fees as outlined at [135] and [136] following.
Costs
[135] The issue of costs, disbursements and experts’ fees (both for those before this Court and those earlier experts engaged by the plaintiffs that I refer to at [125] above) is reserved.
[136] I direct that, in the absence of the parties being able to agree on these issues between them, they are to file submissions on:
(a) The interest issue noted at [133] above; and
(b) The outstanding costs, disbursements and experts’ fees questions noted at [135] above;
each on a sequential basis. These are then to be referred to me and, in the absence of either party indicating they wish to be heard on the issue and/or questions, I will decide those matters on the basis of the submissions filed and the material before the Court.
...................................................
Gendall J
Wynn Williams, Christchurch Gilbert Walker, Auckland
Copy to Richard Johnstone, Barrister, Christchurch
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