Tower, the insurer which sold its health, life, and investment units to focus on general insurance, has talked down yesterday’s Supreme Court ruling on how to value the replacement costs of a house, saying it doesn’t expect a material impact on the firm’s future settlement payments.
Justices John McGrath, William Young, Susan Glazebrook, Terence Arnold and Mark O’Regan yesterday ruled against the insurer’s interpretation of its full replacement house policy, saying “if the insured chooses to buy another house, the only cap on the cost that Tower must meet is that it will not exceed the cost of rebuilding the insured house at its present site and there is no requirement that the house which is bought be ‘comparable’ to the insured house.”
Tower was of the view that it should have been able to settle a claim by offering a comparable new home, which the judges found wasn’t consistent with its policy and “would result in an insured’s entitlements being distinctly less than what the policy appears to envisage.”
The Auckland-based insurer said it was “disappointed” with the judgment, but no claims had been settled using that option and it didn’t expect the ruling “to have a material impact on Tower’s future settlement payments.”
The insurer has settled and closed 89 percent of all Canterbury claims, and has previously said it’s on track to wrap up 95 percent of them by the end of next year. Last month, Tower reported gross ultimate incurred claims of $706.9 million in respect of the quakes as at Sept. 30, up from $600.4 million a year earlier.
Yesterday’s Supreme Court ruling came from a dispute between Tower and Skyward Aviation 2008 Ltd, which made a claim for a residential property in Christchurch that was affected by the 2010 and 2011 Canterbury earthquakes. The property was in the ‘red zone’, and accepted the government’s option to sell the property to the Crown at the land value recorded in the 2007 rating, while keeping the right to pursue its insurer for physical damage improvements.
Skyward claimed it was entitled to buy another house and be reimbursed for the cost up to $683,000 – its estimate of repairing or rebuilding the property on the same site – while Tower countered with an estimate of $369,000, which would have meant Skyward’s earlier payments from the insurer, the government and Earthquake Commission would have already discharged Tower of any further liability.
The judges also ordered Tower to pay Skyward’s costs in respect of the initial High Court hearing and subsequent appeals.
Shares of Tower were unchanged at $2.20 yesterday, and have gained 30 percent over the past 12 months.