Posted on April 3 2017
Myall v Tower Insurance Limited  NZHC 251
Myall v Tower Insurance is a recent earthquake decision of Dunningham J. It concerned a grand historic home first constructed in 1852 and eventually morphing into a triple brick mansion by 1905. It had eight bedrooms and six bathrooms. Mr Myall had spent a considerable amount of money restoring the heritage listed property, which was then significantly damaged in the 2010 and 2011 Canterbury earthquakes.
This decision contains useful discussion on three main issues:
The meaning of the policy
The first question to be determined was what Tower’s obligations were under the policy when costing the rebuild of this property. Dunningham J found that Tower’s primary obligation was to pay for a house of equivalent size, functionality and quality, which reasonably recreates the character and appearance of the original. 
While original plans and specifications were a logical starting point for building a home which was of the same condition and extent as new, the policy expressly avoided the requirement for it to be identical to the original.  It was a question of fact whether what was proposed by Tower complied with the policy obligation by recreating the original homestead in size, functionality, relative quality and aesthetic appearance, while not obligating it to incur unreasonable costs in doing so.
Modern materials and methods
The Court was asked to decide whether Tower must pay for the recreation of particular features of the home, including waxed timber surfaces and heavy chimneys, when there were modern (often cheaper) methods of construction available with the same or similar appearance.
In respect of the waxed timber surfaces, waxing the timber was estimated to cost twice as much as finishing it in polyurethane. There was no evidence that it would not produce an equivalent aesthetic finish. Dunningham J found that the insurer was entitled to use that common method in the absence of any evidence that it would leave the house in an inferior condition to the original.
In respect of the chimneys, Mr Myall sought to have heavy brick chimneys and open fireplaces which would replicate the look of the original chimneys and also their function (although the chimneys could no longer lawfully be used for their original purpose and this particular house had a computer-controlled heating system). As the only function of the chimney was aesthetic, it was not reasonable to require the insurer to recreate an entirely redundant chimney system at significantly greater cost than a lightweight replica chimney structure.
P&G, Margin, Professional Fees, Contingency
The next issue was the inclusion of an appropriate allowance for preliminary and general costs, contractors’ margins, professional fees and the contingency.
It was clear that no particular allowance or percentage would always be appropriate. In relation to this project, it was a heritage home which required high skills of the contractor, so a higher percentage may be justified, but equally a project like this would be competitively tendered and so a lower margin would be attractive for a suitably qualified and experienced contractor.
A 10% margin was considered appropriate here, and likewise a 10% allowance for contingency, but the Court did not accept that a percentage was appropriate for the professional fees.
The final issue that the Court considered related to an under-insurance of the property. Mr Myall had advised Tower that it was a 650m2 building, when in fact it was 799m2.
The Court did not consider Tower was obligated to reinstate 6 functional bathrooms within a floor area that was 20% smaller than had been insured. As the house was very large, many of the costings were based on the extent of work to be done, rather than fixed costs. The Court accepted that in this particular case, Tower was entitled to adjust the full replacement value on a pro rata basis to reflect the insured floor area of 650m2.
The case is predominantly useful as an example of how policy obligations are interpreted and applied to particular facts. The following points can be drawn from the judgment:
Where a policy promises reasonable equivalence, or does not promise an identical property, that will be given effect to by the Court.
For further information, please contact Daniel Weatherley or Megan Gall