When “when new” is not “as new”

Fitzgerald v IAG New Zealand Ltd

The High Court has recently clarified the difference between “when new” and “as new” policies. The case provides useful guidance regarding:

  1. Repair strategies under a “when new” standard – this case demonstrates the distinction in compliance requirements when compared to an “as new” policy; and
  2. The interplay between the Building Act, Building Code and MBIE Guidelines.

The facts

The plaintiffs’ 1920s house was built on unreinforced perimeter “rubble” foundations which largely comprised loosely cemented stones, rocks and broken bricks. Later renovations added a sun-room and garage which were founded, respectively, on reinforced and unreinforced concrete slab-on-grade.

The parties’ experts agreed that the foundations of the house and garage/sun-room had been damaged and had settled in the Canterbury earthquakes, and that that settlement (and cracking) required remediation. The question for the Court was the extent of the works IAG was required to fund – a full foundation rebuild to current Building Code requirements (the plaintiffs’ claim) or a more modest repair involving epoxy crack filling, jack and pack relevelling and re-finishing (IAG).

In determining this question, the Court considered which of the parties’ repair methodologies would meet both the policy standard and its compliance requirements.

(1) The policy standard

The policy standard provided:

In the event of physical damage, the Policy requires IAG to pay for the cost of repairing the house to a “condition as similar as possible to when it was new, using current materials and methods”. This is commonly known as a “when new” repair policy as opposed to an “as new” repair policy.

Having charted the authorities on the distinction between “as new” and “when new” policies, the Court held (our emphasis):

… the Policy specifically requires that the plaintiffs’ house is to be restored to a condition as similar as possible to when it was new. With regard to the foundations particularly, this means that those foundations must provide the same level of functional support to the building as when they were new. There is no prima facie obligation on IAG to ensure that the foundations are at the same level as modern standards, although modern materials and methods are to be used to bring the foundations back up to their original standard. As Mander J noted in Parkin, IAG must undertake repairs sufficient to render the fact of the earthquake damage immaterial. In other words, the house must, as far as possible, be put in the same position it would have been in had the earthquakes not occurred. This is the scope of IAG’s obligation under the Policy.

This marks a clear distinction between “when new” and “as new”.

(2) Compliance

Having determined the scope of IAG’s policy obligation, the Court then addressed issues of Building Act/Building Code compliance. The Court started from the proposition that the policy required IAG to pay for the cost of ensuring that the foundations are repaired in accordance with such Government or local authority by-laws or regulations as may apply, including the Building Act and Building Code.

The Court held that IAG’s jack and pack strategy would meet the requirements of the Building Code to the extent required under the Building Act. That is, the aspects of the house that are being repaired would comply with current code requirements (where assessed by an engineer as suitable and a building consent is issued), but those aspects not repaired may be left at the same level as they were originally. This finding was made in reliance upon recent MBIE guidance on repairing rubble foundations, together with earlier case authority (see Parkin).

The Court was satisfied on the evidence that IAG’s proposed repairs would meet the policy standard and “put the perimeter foundations into ‘a condition as similar as possible to when it was new’ being when it was largely built in the 1920s”. While this would not meet current standards for a newly built home, it would comply to the extent required (see ss 17 and 112 of the Building Act). This was an effective tie-in to the policy standard addressed above. The Court also accepted that the cracks in the perimeter foundations did not cause a structural issue and, by definition, did not give rise to compliance issues as their repair was only aesthetic. Epoxy and re-finishing would be sufficient for that purpose.

The result

The Court found that:

  1. IAG’s proposed methodology would be suitable on the evidence in this particular case as the repair only needed to restore the foundations to the condition they were in when they were constructed in the 1920s i.e. “when new”. The Court’s conclusion was influenced by evidence that the foundations had otherwise performed adequately and had supported the house relatively well through the Canterbury earthquakes;
  2. IAG’s proposed mechanical relevel of the sunroom foundations would be sufficient to restore the room’s amenity; and
  3. the garage foundations were insufficiently out of level to require relevelling. Cracks could be fixed with epoxy and some form of finishing, such as paint if that was sufficient, to disguise the epoxied cracks.
A final caveat and lessons learned

The Court’s decision was, however, caveated. The findings in respect of IAG’s proposed repair methodology were contingent on the Council issuing consent or an exemption for the works, together with any necessary code compliance certificates. The repairs also required an engineering assessment.

Insurers will need to be mindful of precisely which compliance requirements apply to different policy wordings. This case provides further clarity around how that investigation should take place.

Download Cover to Cover Issue 16

Who can help

Related Articles