Purchasers with assigned rights to an insurance claim for an earthquake damaged house argued unsuccessfully that their insurer was estopped from denying full replacement cover. The court found that the purchasers had still profited from the purchase, even if only paid indemnity value.
Mr and Mrs Doig agreed to purchase a residential property that had been damaged in the Canterbury earthquakes. The vendors were insured under a policy held with Tower Insurance, and agreed to assign their insurance claims to the Doigs.
After entering into the sale and purchase agreement, but before going unconditional, the Doig’s solicitors enquired with Tower and asked whether it would agree to complete all required work under the claims on ‘full replacement terms’ as per the terms of the current policy with the vendors.
A claims handler responded, saying that they could not discuss the current owners’ claim without their authority. However, they discussed the generic claim process and advised: “all settlement will be based on the previous owners’ policy, including their policy cover and excess”. After receiving authorisation, the claim handler further confirmed that the current owners’ policy was a full replacement policy and said: “once a deed of assignment is received, any settlement decisions will be negotiated with the new owners”. Upon receiving Tower’s response, the Doigs confirmed the agreement to purchase the property was unconditional.
The house was eventually determined to be in need of a rebuild. However, Tower declined to pay the full cost of replacing the house. It maintained that, in light of Bryant v Primary Industries Industries Insurance Co Ltd, assignment of the vendor’s insurance claims only entitled the Doigs to the indemnity value of the property.
The Doigs argued that Tower was estopped from denying full replacement cover to them because of the representations it made, and on which the Doigs had relied to purchase the property. The Doig’s argued that the claim handler’s response led them to believe that they would be entitled to full replacement of the house in the event it could not be economically repaired.
The High Court rejected the Doig’s claim that Tower was estopped from denying full replacement cover. While it made no final verdict on the matter, the High Court had reservations as to whether Tower’s statements were sufficiently clear and unequivocal to be capable of creating an equitable obligation on Tower to forgo its right to rely on ordinary applicable legal principles. While the statements were open to misinterpretation, especially by the Doigs who already had a pre-existing expectation of an entitlement to full replacement cover despite the assignment, the Doig’s solicitor (who received the emails) was a sophisticated recipient and not likely to misinterpret what Tower had said.
What the High Court was clear on, however, was that in order to establish estoppel, the Doigs needed to show that they had relied on Tower’s representation to their detriment. The Doigs had failed to provide any evidence of detriment. To the contrary, the evidence from Tower was that the Doigs had still profited overall from the property purchase, even though the claim was settled at indemnity value. The only “detriment” the Doigs had pointed to was an unfulfilled promise to them by Tower. As this was insufficient to meet the legal requirements for making out a claim for estoppel, the Doigs’ claim was unsuccessful and Tower was entitled to costs.
Comment from Cecily, Partner at Fee Langstone
A finding of estoppel prevents a party from relying on a right that would normally be available to them. Care needs to be taken when considering whether informal statements are capable of forming the basis for an estoppel, as any representation relied upon must be clear and unequivocal. Even where there is a clear representation, there are further legal requirements that need to be met. As this case demonstrates, it is not enough simply that the recipient of the statement would be better off if the representation is honoured; that is only a disappointed expectation. No estoppel can arise unless reliance on the statement would cause a high degree of detriment to the recipient of the statement if it is not honoured.