In a recent judgment, New Zealand’s High Court has considered whether two earthquakes had a common cause and were therefore one event for the purposes of an insurance policy.
Mr. Moore, the insured, took out a home insurance policy with IAG New Zealand Ltd (IAG) for the period 13 November 2010 to 13 November 2011. The policy contained a clause limiting IAG’s liability to NZ$2,500,000 in respect of “any loss (or any series of losses caused by one event)”. “Event” was defined in the policy as “a single event or a series of events which has the same cause”.
On 22 February 2011, an earthquake struck Christchurch, causing substantial damage to Mr. Moore’s house. Further damage was caused to the property by another earthquake, which happened on 13 June 2011. The cost of repairing the property far exceeded the policy’s limit of indemnity, however, Mr. Moore sought to argue that each earthquake was a separate event and therefore the limit of indemnity applied in respect of each event.
IAG’s position was that the wording “series of losses caused by one event” in effect provided for aggregation, and so losses caused by the earthquakes of February and June 2011 should be aggregated together as these earthquakes were aftershocks of a previous major earthquake in September 2010.
Dunningham J found in IAG’s favour. On the facts, the September 2010 earthquake was highly likely to have triggered the later earthquakes. Accordingly, the earthquakes of February and June 2011 were single events with the same cause. Aggregation applied and Mr. Moore was restricted to one limit of indemnity despite the fact that damage had been caused by both earthquakes.
Dunningham J noted that the phrase “series of losses” was wide and did not in itself imply that the losses need to be directly connected in order to be aggregated together. Similarly, “series of events” was interpreted widely, whilst “cause” was held to have its usual meaning of “direct or proximate cause”.
This judgment follows a number of other judgments in which the High Court of New Zealand has found in favour of aggregation. In this case that finding was favourable to the insurers as it meant only one limit was payable but the difficulty with aggregation cases is that sometimes it can be in insurers’ interests for the claims to aggregate and in others it is not. It all depends on the structure of the policy and number and severity of the underlying losses.