A recent decision of the Supreme Court clarifies when a purchaser of a property that is insured, but not yet paid out, can claim cover under the vendor’s insurance. A claim for a house damaged in the Christchurch earthquakes was still not dealt with after three years.  The owners sold the house and assigned their rights under their insurance policy to the buyers as part of the sale.

Under the policy the insured could recover the loss suffered (loss of value) if they did not reinstate the house or the cost of replacement if they did reinstate the house.

The Supreme Court held that the new owners were not entitled to claim the cost of replacement under the assignment as the “insured” had not carried out the reinstatement as required by the policy. The reinstatement was carried out by the new owners, so was not done by the insured.

The new owners were held not to be the “insured” so could not claim as if the insured had carried out the reinstatement.  The new owners were to be paid the loss of value as that benefit under the policy had been validly assigned to them. This was substantially less than they had paid to reinstate the property.

If you are buying a property, that is subject to an insurance claim, it pays to take advice from an expert on insurance law before you sign up.

Alan Knowsley
Insurance Lawyer