Supreme Court considers insurer’s payment obligations when house damaged beyond economic repair.

18 December 2014

Commentary , Insurance Law

In Tower Insurance Limited v Skyward Aviation 2008 Ltd the Supreme Court was asked to determine the following questions:

a. Under the terms of the insurance policy, on what basis the amount payable by Tower to be calculated if [an insured party’s] claim is to be settled by Tower paying the cost of buying another house?

b. Under the terms of the policy, is it Tower’s choice:

i. Whether the claim is to settled by paying the cost of another house?
ii. If settlement by Tower making payment is chosen, whether the payment is to be made based on the cost of rebuilding the insured house, replacing the insured house or repairing the insured house?

In answering question (a) the SC held that where a house is damaged beyond economic repair and where Tower has elected not to rebuild or replace the house, Tower’s payment obligations are determined by the insured’s choice to rebuild/replace the house on another site or to buy another house.

In considering question (b)(i) and (ii) the SC held that it is not Tower’s choice to settle the claim by paying the cost of another house. However, if the insured party chooses to buy another house then Tower must pay the lower cost of either the replacement house or the cost of rebuilding the insured house on its present site. The SC also held that there was no requirement that the replacement house be comparable with the insured house.