Actual floor area v Insured floor area


In Myall v Tower Insurance Ltd [2016] NZHC 251 the High Court (Dunningham J) considered Tower’s obligations under the insurance policy where the actual floor area was 799m2, but the owner had insured the house for only 650m2.  The number of rooms and amenities were not specified on the insurance policy schedule which only referred to the insured house being a house built in 1885  with an area of 650m2.  There were 8 bedrooms and 6 bathrooms. Tower calculated the premiums based on 650m2.  Tower used a pro rata adjustment to reduce the calculated rebuild cost.  Mr Myall suggested that elements unaffected by area such as numbers of toilets and doors could not be apportioned on a pro rata basis.  Dunningham J decided that the Tower approach was correct because the house was very large and many of the costs were based on the extent of the work, rather than fixed costs on elements.   She noted that the outcome may be different where you were dealing with an 120 m2 house insured for 80m2 where significantly more of the costs would be for items unaffected by floor area such as bathrooms and kitchen(s).