Increased vulnerability, estoppel and wasted work: Body Corporate 423090 v QBE Insurance (International) Ltd [2025] NZHC 3015
At 22 storeys, the Pacific Tower located on Gloucester Street is Christchurch’s tallest building. Like many buildings, it suffered damage in the 2010–2011 Canterbury Earthquake Sequence (CES). The Body Corporate made claims under its material damage policy with QBE. QBE paid over $16 million for repairs, but disputes arose over whether further repairs were required to (1) the building’s “active links” (structural fuses designed to absorb earthquake energy) and (2) the alignment of the lift shafts. In this case, the Body Corporate sought declarations that QBE was liable for the cost of further repairs, including undoing or redoing previous works if necessary, up to the policy limit and without deduction for “wasted works”.
Damage and increased vulnerability
The Court reaffirmed that “damage” means a detrimental physical change to the insured property that impairs its value, amenity, or usefulness in a way that is material and not de minimis. The functional purpose of the building element is central: for structural elements, damage must affect their structural or functional purpose. That was relevant to the Court’s finding that reduced capacity or increased vulnerability to future events can constitute “damage” if it materially impairs the functional purpose of the element. However, the insured still must prove, on the balance of probabilities, that such impairment exists and is more than minimal.
This was an issue in respect of:
The Body Corporate’s argument that 22 unreplaced active links had suffered plastic deformation, reducing their capacity. The Court found that while some plastic strain likely occurred, the Body Corporate failed to prove that any unreplaced links were materially impaired in their functional purpose. The expert evidence was inconclusive, and the Court was not satisfied that the policy standard (“substantially the same as when new”) was not met.
The lift shafts, which the Court found were permanently deformed (bowed) as a result of the CES, reducing the available space and clearances below manufacturer specifications. This adversely impacted their functional purpose, particularly for future replacement or adjustment of lift cars. The Court declared QBE liable for the cost of repairing the lift shafts to the policy standard.
Estoppel
QBE argued that the Body Corporate should be estopped from seeking further repairs after directing previous works. The Court held that, in the absence of a clear and unequivocal representation by the insured that repairs were complete and satisfactory, and given the evolving nature of earthquake damage discovery, estoppel would not apply. The insurer bears a high burden to establish estoppel in this context.
Policy Limits and Wasted Works
The Court accepted that, where further repairs require undoing or redoing previous works, the cost of “wasted works” should not be deducted from the policy limit if those works did not contribute to restoring the property to the policy standard. However, as the active links claim failed, this issue was moot for that aspect.
Conclusion
The case clarifies that increased vulnerability or reduced capacity can amount to “damage”, but only if it materially impairs the functional purpose of the property. It also underlines that insureds must provide clear, evidence-based proof of damage to succeed in claims for further repairs.
The decision is also a reminder that estoppel will only be established in the presence of a clear, unequivocal agreement that repairs are final and satisfactory.
If you wish to discuss any issues arising from this decision, get in touch with our team.
