The Court of Appeal decision of Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67 recently considered the degree to which a settlement agreement may by implication provide for the risk of a mistake and assign the risk to one of the parties (making relief unavailable for that party in relation to a mistake).

Prattley owned a commercial building in Christchurch that was insured with Vero for indemnity value with a per-claim limit of $1,605,000.  The building was damaged in the Christchurch earthquakes of 4 September 2010, 26 December 2010 and 20 February 2011.  Subsequently, Prattley and Vero negotiated a settlement agreement for the amount of $1,050,000, which included a clause stating that the agreement covered all claims whether "known or unknown [or] in the contemplation of the parties".  Prattley sought to set the agreement aside under the Contractual Mistakes Act 1977, claiming that it (and Vero) mistakenly believed that market value was the correct measure of indemnity.

The Court noted that the parties knew market value was not the only measure of indemnity available and held that the mistake was of a kind that the parties must have had in their mind when negotiating, as the mistake related to the subject matter of the settlement - the measure of Prattley's entitlement to indemnity under the insurance policy. Therefore, there was no contextual or purposive justification for reading down the general words of the clause which plainly extended to any unknown claim under the policy for earthquake damage to the building.

See Court decision here.