QBE Insurance v Wildsouth Holdings – The Court of Appeal considers the interpretation of automatic reinstatement clauses

12 September 2014

Court Decisions , Insurance Law

In QBE Insurance v Wildsouth Holdings the Court of Appeal considered 3 key insurance issues arising out of the Canterbury earthquakes.

1. What do automatic reinstatement clauses mean; in particular, is cover continuous, or does cover only reinstate when depleted by an insurer’s payment?

2. Whether the marine insurance doctrine of merger applies to material damage policies?

3. When is a building destroyed?

 

The Court of Appeal held that:

What do automatic reinstatement clauses mean; in particular, is cover continuous, or does cover only reinstate when depleted by an insurer’s payment?

  1. The insured’s cover reinstates immediately after the event that caused the loss, and at the same time the insured incurs a liability to pay any additional premium the policy provides.

  2. If the policy provides that reinstatement can be cancelled by notice, then the notice to cancel the reinstatement is prospective.  Until notice is given the insurance cover and the liability for any additional premium remain in place.


 

Whether the marine insurance doctrine of merger applies to material damage policies?

  1. The CA applied the Supreme Court’s decision in Ridgecrest that merger does not apply to material damage policies, and an insured can claim more than the sum insured if the damage is spread over more than one event.


 

When is a building destroyed?

  1. The Court of Appeal found that this question can only be answered with reference to the circumstances of the particular building.  However the enquiry must take into account the special character or feature of the building, the insurer’s promise to pay the cost of reinstating that building and the insured’s preference so far as they are not eccentric or unreasonable.