- Whether insurer may decline cover for property damage caused by the insured's son.
- Whether the son fell within the definition of "you" under the policy.
In 1999, Mr & Mrs Nand (the Nands) bought a rental property in Flatbush, Manukau, New Zealand and insured it with Tower Insurance (Tower). In 2010 they rented the property to their son. The Nands lived some distance away from the property and were unaware that their son was using the property to produce methamphetamines. On 1 July 2012 there was a fire at the property caused by an accident in the methamphetamine lab. The fire caused substantial property damage. Tower declined the Nands insurance claim. The Nands issued proceedings.
Tower brought an application for summary judgment against the Nands on the basis that the son was a child of the insured, thus an insured himself and accordingly cover should be excluded due to his criminal conduct. The Nands submitted that their son was a “grown up” living independently and that the policy definition of “you” should only apply to children living with their parents.
The Decision at Trial
The court dismissed Tower’s application for summary judgment. Using a “reasonable person”, objective test to determine the intentions of the parties and the meaning of the policy, the court found that the son was not an insured for the purpose of the policy and so the exclusion did not apply.
Citing Maulder v National Insurance Co of New Zealand Ltd  2 NZLR 351, the court found that, even if the son were found to be an insured under the policy, the misconduct of one insured will not deprive an innocent co-insured, and accordingly, "the same must also apply when the person causing the loss is not insured under the policy at all".
Further, the Court found that the condition, which purportedly allowed the insurer to decline cover if the insured “and any person in charge of the property” with the insured’s permission caused or facilitated “loss or damage … by any unreasonable, reckless or wilful act or omission”, was inconsistent with another exclusion clause in the policy which allowed claims for deliberate fire damage by tenant’s or their guests.
This decision highlights the importance of the policy wording being internally consistent given that inconsistency can prevent an insurer from relying on a condition or exclusion that it might have otherwise been able to.
Nand v Tower Insurance Limited  NZHC 1455