Court decision on assignment
13 Sep 2017
The High Court has recently confirmed that purchasers of an earthquake damaged house who took an assignment of the vendor's insurance claim can only claim the indemnity value from the insurer. The purchasers are not able to claim for the costs they may incur in repairing or rebuilding the damaged property.
Nearly 30 years ago, the Court of Appeal decision in Bryant v Primary Industries established that new owners who are assigned a vendor's insurance claim can claim for indemnity value but are not entitled to full reinstatement costs.
This long established principle was recently tested in Xu and Diamantina Trust v IAG & EQC. In this case, new owners purchased an earthquake damaged property 'as is where is' for $217,000, took an assignment of the vendor's insurance claim, and sought full reinstatement costs from the insurer of $584,000.
The new owners accepted that the Court was bound by the Bryant decision, but argued that their case could be distinguished. This was on the basis that the IAG insurance policy contained a condition that specifically dealt with insurance for purchasers of properties:
Insurance during sale and purchase
2. Where a contract of sale and purchase of your Home has been entered into the purchaser shall be entitled to the benefit of this Section but to get this benefit the purchaser must
a. Comply with all the Conditions of the Policy, and
b. Claim under any other insurance that has been arranged before claiming under this Policy
The new owners argued that where a contract of sale and purchase had been entered into, this clause entitled the new owners to the full benefit of the vendor's home insurance, including the full reinstatement costs, even if the damage to the property had occurred before the contract of sale and purchase.
The High Court rejected this argument, and agreed with IAG that this clause should be interpreted so that the new owners could only claim for calamities that occurred between the date of the sale and purchase agreement and the date of settlement, so as to mirror insurers' obligations under section 13 of the Insurance Law Reform Act 1985.
The High Court also confirmed that in all other material respects, the circumstances were the same as in Bryant, and that it was bound by that decision. The decision recorded that the right to recover full reinstatement costs was personal to the named insured (ie the vendor).
The decision in Bryant is still good law. The new owners are prevented from recovering full reinstatement costs from IAG and are only entitled to indemnity value.
An appeal is likely. The Court of Appeal will determine whether the 1990s decision of Bryant should be upheld.
Full article from DLA HERE