Hypothetical rebuilds & Southern Response insurance policy


Recently the High Court considered the quantification of rebuild costs under Southern Response’s Rental Policy for a “red zone” house where the insured elected the buy another house option under the insurance policy.  The disputed items were margin, professional fees, contingency and external works.  In his decision in Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2013] NZHC 1433 MacKenzie J decided that an appropriate margin was 10%.  He declined to award any contingency component because in his view the house would not actually be rebuilt so there were no risk factors.  He used the same reasoning to award only $29,000 in professional fees. Notwithstanding that the external works were within the definition of “house” under the policy and that Southern Response had concerned that the “house” must be rebuilt the Court only awarded the cost to restore damaged external work and not all of the external work. The decision is likely to be appealed to the Court of Appeal.