Judgment Summary - Final is final - Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158

This is an appeal from the High Court's judgment in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2015] NZHC 1444 and the Court of Appeal's judgment in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750.

The issues before the Supreme Court were:

the nature and extent of Vero's liability under the insurance policy; and whether a settlement entered into by the insured and insurer can be reopened, or whether the insured assumed the risk of mistake so that it could not rely on the Contractual Mistakes Act 1977. Background Prattley Enterprises Ltd (Prattley) owned a building on Worcester Street, just east of Cathedral Square. The building sustained damage in the earthquake on September 2010, further extensive damage on the Boxing Day earthquake (after which the Council red-stickered the building, and Prattley's engineering report confirmed that it was "clearly not safe for occupation"), and additional damage in February 2011, when sections of the roof and upper floor collapsed. The building was demolished in September 2011.

Prattley insured the building with Vero, with cover on an indemnity rather than replacement value basis. The policy recorded an indemnity limit of $1,605,000, but valuations obtained by both Prattley and Vero after the earthquakes did not support that figure. Prattley's first (and undisclosed to Vero) valuation was for $700,000, while a later joint valuation based on different assumptions was $1,050,000. The evidence in the High Court showed that there was a conscious decision not to insure for full replacement value.

Prattley entered into a settlement agreement with Vero, accepting $1,050,000 in full and final settlement of its claims.

Revisiting the settlement Prattley challenged the settlement on the basis that they were mistaken about how indemnity should be calculated.

The Contractual Mistakes Act 1977 allows relief to be granted if:

a contract is entered into under the influence of a qualifying mistake of law or fact; the mistake resulted, at the time that the contract was entered into, in a substantially unequal exchange of values; and the contract had not provided for the risk of mistake, and recorded that one of the parties would bear that risk. The Supreme Court decided that "Prattley's first two arguments fail: there was no common mistake as alleged and the settlement was distinctly favourable to Prattley." Unfortunately, the Supreme Court then decided that it...