A New Zealand court has held that a policy undertaking by an insurer to reinstate the sum insured ‘after we have paid a claim under this policy’ does not give the insured a reinstatement right until a claim is actually paid. Where a loss happened, followed soon after by another loss before the first claim was paid, the reinstatement provision was not triggered.

The insured buildings were damaged in the Canterbury earthquake in September 2010 and emergency repairs were carried out of about NZ$170 000. Further damage was inflicted by the earthquake in February 2011 involving a further repair claim of about NZ$146 000. The question was whether the sum insured had to be reinstated after the initial loss which had not yet been proved or quantified by the time of the second event.

The insured argued that the provision in the policy should be read as if to say ‘after we have paid or ought to have paid a claim under this policy, we will reinstate your sum insured’. The court saw nothing in the policy that required the additional words to be implied into the clause.

The insurer was only obliged to provide an indemnity for the first event once they received satisfactory evidence of the loss and was not required to make payment until the cost of reinstatement had been incurred. The fact that there had been a claim only did not introduce sufficient certainty as to the extent to which the cover would have to be reinstated.

This is an unfortunate outcome for the insured but follows the plain wording of the policy. The matter is Annex Developments Limited v IAG New Zealand Ltd.