RUIREN XU AND DIAMANTINA TRUST LIMITED v IAG NEW ZEALAND LIMITED [2019] NZSC 68 [3 July 2019]

RUIREN XU AND DIAMANTINA TRUST LIMITED v IAG NEW ZEALAND LIMITED [2019] NZSC 68[3 July 2019]IN THE SUPREME COURT OF NEW ZEALANDI TE KŌTI MANA NUISC 47/2018[2019] NZSC 68BETWEEN RUIREN XU AND DIAMANTINA TRUSTLIMITEDAppellantsAND IAG NEW ZEALAND LIMITEDRespondentHearing: 13 November 2018Court: William Young, Glazebrook, O'Regan, Ellen France andArnold JJCounsel: N R Campbell QC and J Moss for AppellantsM G Ring QC and C M Laband for RespondentJudgment: 3 July 2019JUDGMENT OF THE COURTA The appeal is dismissed.B The appellants are to pay costs of $25,000 and reasonabledisbursements.____________________________________________________________________REASONSPara No.William Young, O'Regan and Ellen France JJ [1]Glazebrook and Arnold JJ (dissenting) [59]WILLIAM YOUNG, O'REGAN AND ELLEN FRANCE JJ(Given by William Young J)TABLE OF CONTENTS Para No.Introduction [1]Is the right under cl 1(a) to reinstate and be reimbursed for thecost assignable?[8]Bryant v Primary Industries Insurance Co Ltd [8]The general insurance law principles as to assignment [11]The indemnity principle [14]Replacement insurance, the indemnity principle and moral hazard [16]The personal nature of insurance [22]Non-standard replacement insurance [24]The terms of the policy [26]The assignment cases relied on by Mr Campbell [28]Other authorities and commentary on the assignment ofreplacement benefits[37]Entitlement to replacement benefits conditional on reinstatementby the Barlows: a conclusion[43]Condition 2 [47]Disposition [58]Introduction[1] The Christchurch home of Natalie Hall-Barlow and Matthew Barlow (theBarlows) was damaged in the Canterbury earthquakes on 4 September 2010 and22 February 2011. The house was insured pursuant to a policy underwritten byIAG New Zealand Ltd (IAG) which provides:The amounts you can claim1. If, following loss or damage you(a) restore your Home, we will pay the cost of restoring it to acondition as nearly as possible equal to its condition whennew using current materials and methods plus any extra coststhat are necessary for the restoration to meet with the lawfulrequirements of Government or Local Bodies.(b) do not restore your Home, we will pay the lesser of(i) the amount of the loss or damage, or(ii) estimated cost of restoring your Home as nearly aspossible to the same condition it was in immediatelybefore the loss or damage happened using currentmaterials and methods.[2] The Barlows claimed under the policy but, some three years later, with theirclaim still unresolved, they transferred the property to a company under their control,which then, several months later, sold the house to the appellants. As part of the lattertransaction, the Barlows assigned to the appellants their rights in respect of their claimunder the policy. IAG has been content for the case to be addressed on the basis thatthe transfer by the Barlows to their company can be ignored. It is common groundthat the assignment to the appellants was effective to transfer to the appellants theBarlows' entitlement to an indemnity payment under cl 1(b), but the appellants claimalso to be entitled to replacement costs under cl 1(a), should they restore the house.This claim is denied by IAG and is the subject matter of this appeal.[3] The IAG policy is what we will refer to as a "standard replacement policy". Itprovides for the insured to elect between: (a) recovery of "replacement benefits", beingthe actual costs (on a new-for-old basis) of repair ("reinstatement") where the insuredhas reinstated the property; and (b) in default of reinstatement by the insured, anindemnity payment for the economic loss suffered by the insured (being the lesser ofthe diminution in value of the insured property and the cost of restoring it to itspre-event condition). As we understand it, replacement building insurance has usuallybeen offered on this basis (although sometimes with the additional option of replacingthe building on another site). There are, however, some North American casesinvolving policies which were not explicit as to reinstatement being effected by theinsured – cases which we will discuss later in these reasons. As well, it appears thatsome insurers in New Zealand are now offering replacement policies under whichrecovery of replacement benefits is not dependent on reinstatement or replacement ofthe property.1[4] The primary issue in this case is whether the right under cl 1(a) is assignable soas to entitle an assignee, in this case the appellants, to reinstate and be reimbursed. Itis common ground that as of the date of assignment, the Barlows had not restored, anddid not intend to restore, their home and had not incurred, and would not incur, anyactual costs of reinstatement of their home.1 See Chris Boys "Rights and indemnity plus policies" [2019] NZLJ 99 at 102.[5] Standing in the way of the appellants' claim is Bryant v Primary IndustriesInsurance Co Ltd, a decision of the Court of Appeal nearly 30 years ago.2 Bryantprovides powerful support for IAG's primary position that under a standardreplacement policy, the entitlement to replacement benefits conditional onreinstatement by an insured (where such reinstatement has not occurred) cannot beassigned so as to give an assignee the right to reinstate and be reimbursed.[6] There is a further issue whether, irrespective of Bryant, the appellants areentitled to reinstate and be reimbursed. This is because condition 2 of the policyprovides:Insurance during sale and purchase2. Where a contract of sale and purchase of your Home has been enteredinto the purchaser shall be entitled to the benefit of this Section but toget this benefit the purchaser must(a) comply with all the Conditions of the Policy, and(b) claim under any other insurance that has been arranged beforeclaiming under this Policy.The appellants say they are within the letter of this condition and that they are entitledunder it to recover the replacement benefit provided by cl 1(a).[7] The appellants' claims failed in the High Court and Court of Appeal. In the HighCourt, the primary focus of the argument was on condition 2 as the Judge consideredthat he was bound by Bryant.3 He concluded that condition 2 applied only to situationswhere the insured event occurred between the entering into of an unconditionalcontract for sale of the insured item (with risk transferring to the purchaser) andsettlement.4 This is consistent with the legislative context provided by s 13 of theInsurance Law Reform Act 1985 which we discuss later. The Court of Appeal agreedwith this interpretation of condition 2 and, as well, declined to overrule or distinguishBryant.52 Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142 (CA).3 Xu v IAG New Zealand Ltd [2017] NZHC 1964, (2017) 19 ANZ Insurance Cases ¶62-160(Nation J) at [32].4 At [61]–[62].5 Xu v IAG New Zealand Ltd [2018] NZCA 149, (2018) 20 ANZ Insurance Cases ¶62-177(Asher, Clifford and Gilbert JJ) at [25] and [32].Is the right under cl 1(a) to reinstate and be reimbursed for the cost assignable?Bryant v Primary Industries Insurance Co Ltd[8] Bryant concerned a standard replacement policy. A farm house had been insuredfor an indemnity value of $14,060 and an excess of indemnity sum (orreplacement benefit) of $48,101. The policy provided that if the insured was unableor unwilling to effect reinstatement, the insurer would not be liable to pay thereplacement benefit. The house was destroyed by fire shortly before the farm was soldat auction and the purchasers took an assignment of the insured's rights under thepolicy.[9] The purchasers sued the insurer, claiming both the indemnity sum and thereplacement benefit. The claim for the replacement benefit failed; this for reasonsexplained by Cooke P:6There is some attraction in the view or interpretation that the insured shouldbe able to assign this contractual right to a purchaser of the property whowishes to rebuild. After all the insurer has accepted premiums for replacementinsurance and the risk of destruction by fire has eventuated. Why should itmake any difference that instead of the insured himself rebuilding and thenselling, he sells to a purchaser before a rebuilding? But in the end we aredriven to the conclusion that there is a difference and that the interpretation ofassignability runs counter to a principle of insurance law from which thisCourt would not be justified in departing.This is the principle that a contract of insurance such as for fire insurance isno more than one of indemnity for the particular insured, who can accordinglynever be entitled to more than his actual loss. We will refer to it as theprinciple of personal indemnity. It is to be observed that the clause alreadyquoted is consistent with the principle in that the insurer thereunder willindemnify the insured for the actual incurred cost to reinstate or replace. Theinsurance certificate named the insured as Mr John William Jamieson andMr Peter George Jamieson (who were the vendors) and nowhere in the policyis that definition widened. The assignment after the fire could not make the purchasers retrospectivelythe insured at the time of the fire. They could acquire no more than whateverassignable rights had accrued to the insured before the assignment. But theright to replace under the excess of indemnity clause was personal to theinsured. As stipulated in special condition (ii), if the insured was unable orunwilling to effect reinstatement or replacement of the property, the insurerwas under no liability in respect of this item of insurance.6 Bryant, above n 2, at 145.The principle of personal indemnity is illustrated by the leading case ofCastellain v Preston (1883) 11 QBD 380. There damage by fire occurredbefore the completion of a contract of sale and purchase. The insurer paid outindemnity value, but when the purchaser completed (as a purchaser is boundto do in the absence of provision to the contrary in the contract of purchase)the insurer was held entitled to recover from the vendor insured the moneypaid out, for the vendor had suffered no loss. A simple modern illustration ofthe same principle is Ziel Nominees Pty Ltd v VACC Insurance Co (1975) 7ALR 667, which shows that the result cannot be altered by the vendor'sassigning the policy after the fire and directing the insurer to pay to thepurchaser all moneys to which the vendor is entitled under the policy. Theprudent purchaser avoids the result by insuring his own interest.The principle appears to be firmly settled in other jurisdictions, and weconsider that to depart from it now in New Zealand would wrench the commonlaw too far without solid justification.[10] Bryant was decided on the basis that in the context of the policy wording:(a) assignability of the right to the replacement benefit would infringe theindemnity principle, that is that insurance only covers losses sufferedby the insured and thus will not cover a loss suffered by an assignee;and(b) the entitlement to reinstate and be reimbursed for the cost was personalto the insured.The general insurance law principles as to assignment[11] It is trite that an entitlement to cover under an insurance policy in respect offuture events is not generally assignable without the consent of the insurer.7 We say"generally" because there are exceptions in respect of life and marine insurance.8There is also an exception provided for by s 13 of the already mentioned InsuranceLaw Reform Act for insured events which occur where risk to property has passed7 Peters v General Accident Fire & Life Assurance Corp Ltd [1938] 2 All ER 267 (CA) at 269–270;Minucoe v The London and Liverpool and Globe Insurance Co Ltd (1925) 36 CLR 513 at 524 perStarke J; The Ocean Accident and Guarantee Corp v Williams (1915) 34 NZLR 924 (SC)at 927–928; and Schneideman v Barnett [1951] NZLR 301 (SC) at 305–306. Because the consentof the insurer is required, this will be, strictly speaking, novation as opposed to assignment: seeJeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contractin New Zealand (6th ed, LexisNexis, Wellington, 2018) at [17.1.9]; and Robert Merkin and ChrisNicoll (eds) Colinvaux's Law of Insurance in New Zealand (2nd ed, Thomson Reuters, Wellington,2017) at [11.4.2(1)].8 See s 51 of the Marine Insurance Act 1908; and s 43 of the Life Insurance Act 1908.under an agreement for sale and purchase but the transaction has not been settled. Wediscuss s 13 later in these reasons.[12] The reason for the general non-assignability of cover is that if the law wereotherwise, insurers would be required to accept an assignee whom they might not havebeen prepared to insure.9 Underpinning this notion is the ability of an insurer toevaluate the moral hazard of the particular insured when assessing the likelihood ofloss at the time a contract of insurance is entered into.[13] It is clear that, in the absence of express words to the contrary in the policy, anaccrued right to payment under a policy can be assigned,10 either at law under s 50 ofthe Property Law Act 2007 or in equity. In particular, it is well established that thisextends to the right to payments calculated on an indemnity basis.11 Such rights arein the nature of an existing debt. Accordingly, IAG accepts that such rights toindemnity as the Barlows had under cl 1(b) are now vested in the appellants. It is alsoaccepted that if the Barlows had restored the house, they could have assigned what,by then, would have been their accrued right to payment under cl 1(a).The indemnity principle[14] Under the indemnity principle, policies are construed in such a way as to avoidinsurers paying more than the insured has actually lost. In 1883, this principle wasexpressed in very strong terms by Brett LJ in Castellain v Preston:12In order to give my opinion upon this case, I feel obliged to revert to the veryfoundation of every rule which has been promulgated and acted on by theCourts with regard to insurance law. The very foundation, in my opinion, ofevery rule which has been applied to insurance law is this, namely, that thecontract of insurance contained in a marine or fire policy is a contract ofindemnity, and of indemnity only, and that this contract means that the9 Peters, above n 7, at 269–270.10 Holmes v The National Fire and Marine Insurance Co of New Zealand (1887) 5 NZLR SC 360at 366; Bank of Toronto v St Lawrence Fire Insurance Co [1903] AC 59 (PC); Schneideman, aboven 7, at 306; and Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115, (2017) 19 ANZInsurance Cases ¶62-144. There can be a pre-event equitable assignment, for instance where theinsured asset is subject to a security which requires the insured/borrower to take out insurance. Inthis situation, there will be a charge on the proceeds of the policy in favour of the security holderby way of assignment: see Colonial Mutual General Insurance Co Ltd v ANZ Banking Group(New Zealand) Ltd [1995] 3 NZLR 1 (PC).11 Bryant, above n 2, at 145. See also Lloyd v Fleming (1872) 7 LR QB 299 (QB) at 302–303.12 Castellain v Preston (1883) 11 QBD 380 (CA) at 386.assured, in case of a loss against which the policy has been made, shall befully indemnified, but shall never be more than fully indemnified. That is thefundamental principle of insurance, and if ever a proposition is broughtforward which is at variance with it, that is to say, which either will preventthe assured from obtaining a full indemnity, or which will give to the assuredmore than a full indemnity, that proposition must certainly be wrong.[15] This principle is of continuing significance and application in the case ofindemnity insurance, as is illustrated by the judgment of this Court in PrattleyEnterprises Ltd v Vero Insurance New Zealand Ltd.13 But it is not easy to apply theindemnity principle in the context of replacement insurance.14 Replacement insurancewas not available in 1883 and was thus not within the contemplation of Brett LJ inCastellain.15Replacement insurance, the indemnity principle and moral hazard[16] Replacement insurance first became widely available in the 1940s in theUnited States.16 It addressed the problem that indemnity cover is usually insufficientto enable the owner of a damaged building to fund reinstatement to the extentnecessary to produce the functional equivalent of the building as it was before theinsured event. This is because it is seldom possible to reinstate a building on anold-for-old basis given the likely introduction of new building materials andtechniques and possibly more stringent building standards.1713 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158, [2017] 1 NZLR352 at [35]–[48].14 See Ridgecrest NZ Ltd v IAG New Zealand Ltd [2014] NZSC 129, [2015] 1 NZLR 40 at [54]where this Court noted that the indemnity principle "is a slightly awkward phrase in the contextof a replacement policy".15 There were clauses prior to 1883 which conferred upon the insurer the option of reinstating orrepairing the insured item. However, those clauses only required reinstatement on an old-for-oldbasis, that is reinstatement to the pre-event condition of the property: see, for example, The TimesFire Assurance Co v Hawke (1858) 1 F & F 406, 175 ER 783 (Exch). Alternatively, the insurerwould be entitled to deduct for betterment or to deduct from the assessed repair or reinstatementcost an allowance representing the depreciated condition of the insured property immediatelybefore it was damaged: see Prattley, above n 13, at [41]. Those clauses are thus distinguishablefrom replacement benefits as defined in [3].16 For an explanation of the history of replacement insurance: see Higgins v Insurance Co of NorthAmerica 469 P 2d 766 (Or 1970) at 771–774; Leo John Jordan "What Price Rebuilding? A Lookat Replacement Cost Policies" (1990) 19(3) Brief 17; and Jeffrey E Thomas and Brad M Wilson"The Indemnity Principle: From a Financial to a Functional Paradigm" (2005) 10 Journal of RiskManagement and Insurance 30.17 Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015] 1 NZLR 341 at [24].[17] Where reinstatement on a new-for-old basis occurs, the insured property islikely to be worth more than it was before the insured event.18 The prospect offinancial advantage resulting from an insured event disincentivises careful behaviourby an insured and, probably more importantly, may provide a motive for fraudulentbehaviour. It thus creates a heightened moral hazard.19[18] Replacement insurance is usually issued on the standard basis which we haveoutlined, that is, with the entitlement to replacement benefits expressed (with more orless particularity) to be subject to the insured reinstating the property and limited tothe amount actually expended in replacing the property.20 Two interconnected reasonshave been advanced for the imposition of these conditions.[19] The first is that the conditions enable replacement insurance to be reconciledwith the indemnity principle. This was the point made by Cooke P in Bryant when heobserved:21It is to be observed that the clause already quoted is consistent with the[indemnity] principle in that the insurer thereunder will indemnify the insuredfor the actual incurred cost to reinstate or replace.[20] Although supported by other authority,22 the conceptualisation of loss whichunderpins Cooke P's rationalisation of the indemnity principle and replacementinsurance is contestable. The provision of indemnity makes good the extent to whichthe insured is worse off by reason of the insured event – that is, a loss represented bya diminution in total wealth. The loss recoverable under replacement insurance is ofa different nature – that is, expenses incurred, reimbursement of which may result in18 For example, in Tower Insurance Ltd, above n 17, the house which was the subject of the claimhad a pre-event value of around $500,000. The total of the payments already made and thoselikely to be required on the interpretation adopted by this Court was more than twice that amount.19 See the early case of Godin v London Assurance Co (1758) 1 Burr 489, 97 ER 419 (KB) at 420where Lord Mansfield stated: "Insurance was considered as an indemnity only, in case of a loss:and therefore the satisfaction ought not to exceed the loss. This rule was calculated to preventfraud; lest the temptation of gain should occasion unfair and wilful losses." See also NeilCampbell and Barnaby Stewart "Prevention of Performance in Replacement CostInsurance — Preventing a Fictional Response" (2002) 10 Otago LR 229 at 231–232; and TowerInsurance Ltd, above n 17, at [26], n 13.20 See Tower Insurance Ltd, above n 17, at [26] where it was noted that issuing replacement benefitpolicies on this basis is "commonplace".21 Bryant, above n 2, at 145.22 This rationalisation was adopted in Medical Assurance Society of New Zealand Ltd v East [2015]NZCA 250, (2015) 18 ANZ Insurance Cases ¶62-074 at [20]–[21] and [28]; and Paul Michalikand Christopher Boys Insurance Claims in New Zealand (LexisNexis, Wellington, 2015) at [5.12].a gain in the insured's net worth. It may thus be better to just accept that replacementinsurance is an exception to the indemnity principle.23[21] The second and more convincing reason – albeit interconnected because theindemnity principle addresses moral hazard – is that limiting liability to payreplacement benefits to reimburse reinstatement costs actually incurred by the insuredlimits (although it certainly does not eliminate) the moral hazard which replacementinsurance creates.24 This is explained by Thomas and Wilson, who, in discussing theemergence of replacement insurance, observed:25This shift means that insurers can no longer rely on the indemnity principle asa mechanism to address moral hazard. As a result, moral hazard needs to beaddressed in its own right, especially as new products are [developed] thatmay provide even greater opportunities for insureds to benefit from theirlosses. Insurance providing replacement cost coverage has begun to addressthis concern. Most policies, for example, require that compensation be usedto actually rebuild the property or be subject to a reduction for depreciation.It remains to be seen whether such measures are sufficient.The personal nature of insurance[22] Mr Ring QC for IAG argued that the personal nature of a contract for insuranceis material to whether the cl 1(a) right to reinstate and be reimbursed is assignable.26He contended that, when it comes to reinstatement, an insurer will not be indifferentto the identity of the person making the election to reinstate; albeit that he necessarilyaccepted that the insurer is sufficiently indifferent to the identity of the person makingan indemnity claim as to not preclude assignment.[23] There may be circumstances – for instance in the case of a newbuilding – where there may be no practical difference between indemnity andreplacement cover; this because the replacement benefit would reflect the cost of23 See the remarks in Prattley, above n 13, at [46] where this Court said: "We accept that it is opento the parties to an insurance contract to provide for recovery on a basis which is not constrainedby the indemnity principle. Reinstatement and agreed value policies provide examples where thishappens." This is consistent with this Court's earlier statement in Tower Insurance Ltd, aboven 17, at [25], n 12 where it said "the applicability of the indemnity principle is subject to thewording of the policy under consideration". See also the cases cited below at [24].24 Brkich & Brkich Enterprises Ltd v American Home Assurance Co (1995) 8 BCLR (3d) 1 (BCCA)at [29]; and Tower Insurance Ltd, above n 17, at [26].25 Thomas and Wilson, above n 16, at 42–43.26 See Peters, above n 7, at 270.reinstating the building using new materials and the indemnity payment would becalculated by reference to the cost of the building, also constructed with new materials.And arguments in respect of indemnity cover can be quite difficult (as Prattleyshows).27 That said, a claim to replacement benefits will generally be more complexto assess than a claim for indemnity. There will likely be more interaction betweenthe insurer and the insured, and thus greater scope, and incentive (because the amountsare likely to be larger), for deception and fraud. In that sense, there is force in MrRing's argument and it finds support in Colinvaux's Law of Insurance in NewZealand:28 an insurance contract is personal, and an important aspect of the assured'sduty to the insurer is the conduct of the assured in the claims process, inparticular the duty not to make fraudulent claims. Thus it is unsurprisingthat an insurer may properly have objections to dealing in the claims – mostimportantly, the rebuilding – process with an assignee .Non-standard replacement insurance[24] Pausing at this point, it may be helpful to consider how the case might bedecided if cl 1 had read:The amounts that can be claimed1. If, following loss or damage(a) Your Home is restored, we will pay the cost of restoring it toa condition as nearly as possible equal to its condition whennew using current materials and methods plus any extra coststhat are necessary for the restoration to meet with the lawfulrequirements of Government or Local Bodies.(b) Your Home is not restored, we will pay the lesser of(i) the amount of the loss or damage, or(ii) estimated cost of restoring your Home as nearly aspossible to the same condition it was in immediatelybefore the loss or damage happened using currentmaterials and methods.There are a number of North American decisions concerning policies expressed inbroadly this way, that is with reinstatement a pre-condition to recovering replacement27 Prattley, above n 13.28 Merkin and Nicoll, above n 7, at [11.4.3(3)].benefits but with no explicit requirement for such reinstatement to be effected by theinsured. There are three, in particular, to which we will refer. They areRuter v Northwestern Fire and Marine Insurance Co,29 Paluszek v Safeco InsuranceCo of America30 and Edgewood Manor Apartment Homes LLC v RSUI Indemnity Co.31[25] In each of these cases: (a) the plaintiff was the original insured; (b) the propertyhad been sold "as is where is"; and (c) reinstatement was effected by the purchaser. Inone of the cases (Ruter), the sale was made expressly on the basis that the purchaserwas to reinstate the property, with the insured advancing back to the purchaser thepurchase price, secured against the property, to facilitate this happening.32 In all threecases, the insurers argued that it was implicit in the policies that reinstatement was tobe effected by the insured.33 This argument was accepted in one of the cases(Paluszek)34 but rejected in the other two.35 In the second, and more recent, of thosetwo cases (Edgewood Manor), the United States Court of Appeals for the SeventhCircuit observed that:36If [the insurer] wanted to impose a prerequisite that the insured repair orreplace the property itself, it could have written the conditions as follows:d. We will not pay on a replacement cost basis for any loss or damage:(1) Until you actually repair or replace the lost or damagedproperty;Edgewood Manor proceeded on the basis that, on the policy wording, reinstatementby the insured was not a prerequisite to an entitlement to replacement benefits. Wehave no difficulty in accepting that if the policy wording in this case can be construedin the same way, the appeal should be allowed; this despite the apparent inconsistencywith the indemnity principle.29 Ruter v Northwestern Fire and Marine Insurance Co 178 A 2d 640 (NJ Super Ct App 1962).30 Paluszek v Safeco Insurance Co of America 517 NE 2d 565 (Ill App Ct 1987).31 Edgewood Manor Apartment Homes LLC v RSUI Indemnity Co 733 F 3d 761 (7th Cir 2013).32 Ruter, above n 29, at 641.33 Ruter, above n 29, at 642; Paluszek, above n 30, at 568–569; and Edgewood Manor, above n 31,at 774–775.34 Paluszek, above n 30, at 569.35 Ruter, above n 29, at 642–643; and Edgewood Manor, above n 31, at 775.36 Edgewood Manor, above n 31, at 773–774. This echoes an earlier comment made by Jordan,above n 16, at 41 who, in discussing the effect of Ruter, said: "Standard policies, however, nowrequire repair or replacement by the insured as a requirement to receiving replacement proceeds."The terms of the policy[26] Under the policy:The Insured is the person (or persons) shown in the Schedule ("you/your").This also includes any person you are married to or with whom you are livingin the nature of a marriage.The Barlows are named as the "Policy Owner" in the schedule. The definition isextended by cl 13 of the policy to encompass "your legal personal representative".Unsurprisingly, there is no express inclusion of assignees.[27] On the argument advanced for the appellants by Mr Campbell QC, "you",when used in cl 1(a) is to be read as meaning "you or your assignee", a meaning whichit plainly does not generally bear in the rest of the policy. This suggests that, on themost obvious reading of the policy, restoration of the house by the insured is aprecondition of any entitlement to replacement benefits. It is not, however, in itself adecisive consideration. Clause 1 is headed "The amounts you can claim" and it iscommon ground that an assignee also can claim indemnity entitlements under cl 1(b).And, as Mr Campbell observed, references in a contract to named parties taking certainsteps are not necessarily inconsistent with those steps being taken by an assignee.The assignment cases relied on by Mr Campbell[28] Mr Campbell referred to a number of decisions in respect of assignment whichhe said supported the view that restoration of the house by an assignee would sufficeto trigger liability under cl 1(a). A brief discussion of the cases he relied on and thelegal context in which they were decided is thus necessary.[29] Although it remains the law that only the benefit, and not the burden, of acontract can be assigned,37 it is also customary to refer to "assignment of contracts".3837 Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [85] and[90]–[92].38 See the comments of Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta SludgeDisposals Ltd [1994] 1 AC 85 (HL) at 103 where he said: "Although it is true that the phrase'assign this contract' is not strictly accurate, lawyers frequently use those words inaccurately todescribe an assignment of the benefit of a contract since every lawyer knows that the burden of acontract cannot be assigned."Sometimes this is just a misnomer for novation.39 It otherwise usually denotes asituation in which: (a) the assignor remains a party to the contract; and (b) the assigneeperforms the assignor's obligations and is entitled to the benefits of the contract fromthe other party ("obligee"). In practical, although not strictly legal, terms this meansthat a contract can be assigned where the assignor's obligations can be performed bythe assignee.40 Such an arrangement may be contemplated expressly by the contract,for instance where the parties are defined as including their assignees.41 As well,vicarious performance is possible where the obligee is (or should be) indifferent towhether the obligations are performed by the assignor or a third party such as anassignee and where performance is in accordance with the terms of the contract.42[30] Building on the cases which establish the principles just outlined, Mr Campbellmaintained that a similar approach should apply to the reinstatement requirementbecause he maintained that IAG should be indifferent to whether this is effected bythe Barlows or the appellants. In support of this argument, Mr Campbell relied on anumber of assignment cases, two of which warrant consideration.[31] In CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd both partieswere defined as including their assignees.43 The contract concerned the supply of milkby a dairy farmer to Hamilton Milk Producers. The supplier sold some of the land onwhich the milk was produced and assigned the milk supply contract to the purchaser.Hamilton Milk Producers claimed that the assignment was ineffective in the absenceof its consent and, in particular, that it was not required to accept the milk which theassignee produced in discharge of the assignor's obligations. This argument wasrejected by the Court of Appeal. McCarthy J explained why:44The parties have expressly provided for assignment. The contract for thesupply of milk was not one drawn between [the vendor] and the HamiltonMilk Producers Company Limited. It was one drawn between [the vendor],his executors and his assigns on the one part and [Hamilton Milk Producers],its successors and assigns, on the other; and by virtue of this interpretationclause the performance of each obligation on the part of the supplier can be39 Merkin and Nicoll, above n 7, at [11.4.2(1)].40 HG Beale (ed) Chitty on Contracts (33rd ed, Sweet & Maxwell, London, 2018) vol 1 at [19-082].41 CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 (CA) at 579.42 The British Waggon Co v Lea (1880) 5 QBD 149 (QB) at 154.43 CB Peacocke, above n 41, at 579.44 At 582.satisfied not only by the [vendor] personally but also through his executors orhis assigns.[32] The same result is arrived at where the nature of the contract contemplates thatthe assignor might subcontract out performance of its obligations. The British WaggonCo v Lea,45 on which Mr Campbell particularly relied, was a case of this character.Lea & Co had hired 100 railway wagons from the Parkgate Waggon Company for aterm of seven years. Under the rental agreements, Parkgate was required to keep thewagons in good repair and was to receive a yearly rent payable quarterly. Parkgatewent into voluntary liquidation but was not dissolved. It sold the wagons to the BritishWaggon Company and assigned to British Waggon the benefit of the rental agreementsincluding money which would become due under them. In return, British Waggonundertook to perform the repair obligations of Parkgate under the agreements.[33] Lea & Co wished to treat the rental agreements as at an end. Its principalargument to this end was summarised by Cockburn CJ in this way:46The main contention on the part of [Lea & Co], was that, as the ParkgateCompany had, by assigning the contracts, and by making over their repairingstations to the British Company, incapacitated themselves to fulfil theirobligation to keep the waggons in repair, that company had no right, asbetween themselves and [Lea & Co], to substitute a third party to do the workthey had engaged to perform, nor were [Lea & Co] bound to accept the partyso substituted as the one to whom they were to look for performance of thecontract; the contract was therefore at an end.This argument was dismissed for the following reasons:47Much work is contracted for, which it is known can only be executed by meansof subcontracts; much is contracted for as to which it is indifferent to the partyfor whom it is to be done, whether it is done by the immediate party to thecontract, or by someone on his behalf. In all these cases the maxim Qui facitper alium facit per se applies.In the view we take of the case, therefore, the repair of the waggons,undertaken and done by the British Company under their contract with theParkgate Company, is a sufficient performance by the latter of theirengagement to repair under their contract with [Lea & Co]. Consequently, solong as the Parkgate Company continues to exist, and, through the BritishCompany, continues to fulfil its obligation to keep the waggons in repair, [Lea& Co] cannot, in our opinion, be heard to say that the former company is not45 The British Waggon Co, above n 42.46 At 151–152.47 At 153–154.entitled to the performance of the contract by them, on the ground that thecompany have incapacitated themselves from performing their obligationsunder it, or that, by transferring the performance thereof to others, they haveabsolved [Lea & Co] from further performance on their part.[34] On this analysis, the contract between Parkgate and Lea & Co remained inplace, with Parkgate satisfying its repair obligations by subcontracting them out toBritish Waggon. The Court declined to express an opinion whether the same resultwould have been arrived at if Parkgate had been dissolved and thus unable to perform,even vicariously, its obligations under the rental agreements.48[35] Both cases are consistent with the principle that only the benefits and not theburden of a contract may be assigned. In both cases, the assignors remained liableunder the contracts. In CB Peacocke, the inclusion of "assigns" in the definitions ofthe parties made it clear that the obligee was required to accept supply by an assigneein discharge of the assignor's milk supply obligations. And in The British Waggon, itwas open to the assignor/obligor (Parkgate) to subcontract out performance of itsrepair obligations. The fact that the assignors/obligors remain liable to the obligees isconsistent with the position at common law whereby the assignee cannot be sued bythe obligee for non-performance or defective performance of the obligations.49[36] Analysed in this way, neither case is of assistance to the appellants. This isbecause, in both instances, the assignor was still in contract with the obligee and theassignee was acting, in a sense, on behalf of the assignor in discharging its obligations.In contradistinction, in the present case it could not sensibly be said that restoration ofthe house by the appellants would be on behalf of the Barlows. It is no longer theirproperty, they have no continuing insurable interest and they are indifferent to whetherit is restored.Other authorities and commentary on the assignment of replacement benefits[37] As we have noted, there are some North American cases in which argumentsbearing some similarity to the case for the appellants have succeeded. These cases48 At 151.49 Finn, Todd and Barber, above n 7, at [17.2.2], citing Schmaling v Thomlinson (1815) 6 Taunt 147,128 ER 989 (Comm Pleas); Beale, above n 40, at [19-082]; and Davies v Collins [1945] 1 All ER247 (CA) at 249.involved non-standard replacement policies under which replacement benefits wereavailable following reinstatement but with no express stipulation as to suchreinstatement being effected by the insured. This is discussed above at [24]–[25]. Theparticular arguments which succeeded in those cases would not be tenable in respectof the IAG policy in issue; this given the specificity of cl 1(a) of the policy, which isexpressed in substantially similar terms to those postulated in Edgewood Manor asbeing effective to limit an insurer's liability for replacement benefits to reimbursementof reinstatement costs incurred by the insured.[38] Mr Campbell did, however, rely to some extent on North American decisions.Some of these concerned the non-standard wording identified above and, as will beapparent, we see such cases as distinguishable. Others, where reinstatement by theinsured was required by the policy wording, turned on whether the insured had takensufficient steps to satisfy this requirement even though reinstatement was directlybrought about by the actions of third parties.50 Only one of the cases cited involved asituation comparable to the present dispute and in particular: (a) a standardreplacement policy; (b) an "as-is-where-is" sale; (c) an assignment of the policy to thepurchaser; (d) actual or proposed reinstatement by the assignee-purchaser; and (e) aclaim by the assignee-purchaser. This was Tiffin Avenue Investors v MidwesternIndemnity Co where the Court held that reinstatement by the insured was a prerequisiteto recovery of the replacement benefit and therefore the assignee-purchaser was notentitled to the replacement benefit.51[39] For the reasons just given, we do not see the North American cases as assistingthe appellants. And as far as we are aware, there are no authorities from elsewherewhich bear directly on the issue we must determine. The leading case is thusundoubtedly Bryant.50 See, for example, Brkich, above n 24.51 Tiffin Avenue Investors v Midwestern Indemnity Co (Ohio Ct App, No 5-85-22, 28 May 1986).[40] Bryant has been applied in New Zealand52 and has been cited, generallywithout adverse comment, in a number of textbooks.53 The only arguably adversecomment comes from Colinvaux's Law of Insurance in New Zealand which, indiscussing Bryant, and after noting the arguments in favour of the approach taken,goes on to say:54As against those considerations, it may be questioned whether the wording inthe Bryant policy was sufficiently robust to exclude assignment of the right torebuild. It is one thing to make payment conditional on actual reinstatementor on an expressed intention to reinstate, but it is quite another to hold that thereinstatement has to be by the assured rather than by an assignee. It is at leastarguable that the purpose of the special condition in Bryant was to prevent theinsurers having to pay a cash sum if that sum was not to be used forreinstatement purposes. Any objection to the outcome in Bryant is, therefore,not of principle, but rather of the question whether the wording used wassufficient to exclude reinstatement by an assignee.[41] In a recent article, Chris Boys criticised the reasoning in Bryant (and in theCourt of Appeal in this case) in relation to reliance on the indemnity principle – acriticism for which we have some sympathy.55 He also did not see reinstatement bythe insured personally (as opposed to by an assignee) as a pre-condition to the recoveryof replacement benefits.56 In this respect he was influenced by the common industrypractice under which the insurer assumes responsibility for reinstatement.57[42] Although the wording of the policy in issue in Bryant differed from the IAGpolicy we are concerned with, the essential and relevant features of both policies arethe same:52 Bryant was recently applied without criticism in Doig v Tower Insurance Ltd [2017] NZHC 2997,[2018] 2 NZLR 677; and Doig v Tower Insurance Ltd [2019] NZCA 107.53 Merkin and Nicoll, above n 7, at [11.4.3(2)] and [11.4.3(3)]; David Kelly and Michael Ball Kellyand Ball: Principles of Insurance Law (looseleaf ed, LexisNexis) at [6.0080.5]; Ian Enright andRobert Merkin Sutton on Insurance Law (4th ed, Thomson Reuters, Sydney, 2015) vol 1 at[11.770] and [11.820]; John Birds, Ben Lynch and Simon Paul MacGillivray on Insurance Law(14th ed, Sweet & Maxwell, London, 2018) at [22-009], n 41 and [22-017], n 69; Michalik andBoys, above n 22, at [11.2.10], n 55; Andrew McGee The Modern Law of Insurance (3rd ed,LexisNexis, London, 2011) at [47.10], n 2; and John Birds Birds' Modern Insurance Law (10th ed,Sweet & Maxwell, London, 2016) at [11.4], n 41.54 Merkin and Nicoll, above n 7, at [11.4.3(3)].55 Boys, above n 1, at 100–101.56 At 101–102. Although he did acknowledge that the policies in this case and in Bryant "do supportan inference that require the named insured to carry out the reinstatement": at 101.57 At 101–102.(a) The policies provided for replacement cover but in terms which wereconditional on reinstatement by the insured. The wording of thepolicies is expressed with far more specificity than the non-standardwording used in the North American cases referred to above.(b) Both provided that in the event that the insured did not reinstate thehouse, indemnity cover was available.Entitlement to replacement benefits conditional on reinstatement by the Barlows: aconclusion[43] There are policy considerations which support the appellants' argument. Ifreplacement benefits are lost on sale of the insured property (which is the resultcontended for by IAG) insurers may seek to sit out claimants who are time constrainedand/or lack the money to reinstate first and sue later.58 In any event, in the case ofnatural disasters producing hundreds of thousands of claims, as was the case with theCanterbury earthquakes, insurers may have insufficient staff and other resources todeal reasonably promptly with claimants, thus exacerbating the pressure suchclaimants may be under. Such claimants may have little choice but to sell on an"as-is-where-is" basis and thus be unable practically to insist on their contractualentitlements.59 A conclusion that the entitlement to reinstate and be reimbursed isassignable would produce better results from the point of view of claimants and mightalso promote speedier resolutions of claims by insurers.[44] The approach proposed by Glazebrook and Arnold JJ proceeds on the basisthat from the time when the house was damaged in the 2010 and 2011 earthquakes,the Barlows had a right to replacement benefits, albeit one that was conditional on58 The need for the insured party to have sufficient funds to meet the cost of reinstatement in orderto fulfil the conditions of a replacement policy was a consideration noted in both Bland v SouthBritish Insurance Co Ltd (1990) 6 ANZ Insurance Cases ¶60-998 (HC); and Campbell andStewart, above n 19, at 232–233.59 This is not to say that unreasonable delays on the part of insurers are not able to be dealt with bythe courts: see Young v Tower Insurance Ltd [2016] NZHC 2956, [2018] 2 NZLR 291at [163]–[164]; Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262 at [202];and Kilduff v Tower Insurance Limited [2018] NZHC 704 at [108] and [123]. As well, an insuredwho has not reinstated may insist on payment of the indemnity value of the loss which will provideat least some funds to commit to reinstatement: see the discussion in Henry Holderness"Replacement Cost Cover in Residential Property Insurance and the Canterbury Earthquakes2010–2011" (2017) 23 NZBLQ 3 at 13.reinstatement. They describe this as an accrued benefit. They note that a contract forthe writing of a book is personal but that royalties can be assigned.60 And they see noreason why "the already accrued right" to replacement benefits cannot also beassigned. In reaching this conclusion they conclude that the policy does not requirethat reinstatement be effected by the Barlows.[45] It is on the last point – that the policy does not require that reinstatement beeffected by the Barlows – that we part company. As will be apparent, we are of theview that on the most obvious reading of the policy, the entitlement to replacementbenefits is conditional on reinstatement by the insured. Given the moral hazardassociated with replacement insurance, insistence by insurers on reinstatement by theinsured is at least rational. In North American cases, similarly worded policies havebeen so construed. And, most significantly, this was the approach taken in Bryant.While we have adopted a doubting approach to Cooke P's rationalisation of theindemnity principle and replacement insurance, we think Bryant is still correct to theextent that it stands for the proposition that the entitlement to replacement benefitsconditional upon reinstatement by the insured cannot be assigned where no suchreinstatement has occurred. Given that Bryant is the leading decision on the point andmust have been influential as to the terms on which insurers have offered replacementinsurance in New Zealand over the last three decades, it would be very destabilisingto, in effect, overrule it, a consideration which we see as being of paramountsignificance. And, as indicated at [3] above, some insurers are now offering policiesunder which recovery of replacement benefits is not legally dependent on personalreinstatement by the insured, a development which may reflect either or both of marketforces and an attempt to bring the wording of policies into line with common industrypractice.6160 We see this a difficult analogy. An author commissioned to write a book and entitled to royaltieson sales plainly cannot assign the contract so as to entitle an assignee to write the book. So theanalogy assumes that the original author will write the book. Translating this to the currentsituation, the analogy is awkward, as there is no obligation to reinstate; rather reinstatement is acondition which must be satisfied before replacement benefits are payable. More generally, ifreinstatement of the house by the Barlows is to be treated as the equivalent of the writing of thebook by the author (that is, as something which must be effected by the assignor), the analogydoes not support the appellants' claim. The case thus comes back to whether, on the trueinterpretation of the policy, replacement benefits are payable only if the Barlows reinstate thehouse. If this is the case, the appellants' case must fail.61 See [41] above.[46] Read against the background to which we have referred, and particularly givenBryant, we conclude that in this case, the entitlement to replacement benefits isconditional upon reinstatement having been effected by the Barlows. In light of thisconclusion, the "right" of the Barlows to replacement benefits was highly contingent(as subject to a condition which might never be satisfied). In this context, we do notsee the expression "already accrued right" as apt to describe the Barlows' conditionalentitlement to replacements benefits.Condition 2[47] Despite the repetition, it is helpful to set out again the wording of condition 2of the policy:Insurance during sale and purchase2. Where a contract of sale and purchase of your Home has been enteredinto the purchaser shall be entitled to the benefit of this Section but toget this benefit the purchaser must(a) comply with all the Conditions of the Policy, and(b) claim under any other insurance that has been arranged beforeclaiming under this Policy.The "benefit of this Section" encompasses the entitlements of the Barlows undercl 1(a) and (b) of the policy.[48] Mr Campbell's position is that the appellants are within the language ofcondition 2. A contract for sale and purchase was entered into, the appellants were thepurchaser and, accordingly, they were "entitled to the benefit of this Section".[49] In the absence of a provision to the contrary, equitable ownership and risk passto the purchaser once there is an unconditional agreement for sale and purchase ofland.62 The vendor retains an insurable interest; this because of retained legalownership and the contingency that the purchaser might not settle.63 As well, because62 Poole v Adams (1864) 10 LT 287 (Ch); Carly v Farrelly [1975] 1 NZLR 356 (SC) at 362; andBudhia v Wellington City Corp [1976] 1 NZLR 766 (SC) at 768.63 Collingridge v The Royal Exchange Assurance Corp (1877) 3 QBD 173 (QB) at 177; and Carly,above n 62, at 361.equitable ownership and risk has passed, the purchaser also has an insurable interest.64What is important for present purposes is that vendor and purchaser both haveinsurable interests during – but only during – the period between the agreement forsale and purchase and settlement. We will refer to this as "the period of overlappinginsurable interests".[50] Prior to 1985, the position was that, in the absence of an agreement by thevendor's insurer to extend cover to the purchaser pending settlement, the purchasercould not obtain the benefit of the vendor's policy; this despite being obliged to settlein full for the property. If, for instance, the vendor on settlement assigned to thepurchaser all rights under the policy, a claim by the purchaser would be met with theanswer that the result of the settlement was that the vendor/assignor had suffered noloss and therefore had nothing to assign to the purchaser/assignee.[51] In order to protect against this risk, the purchaser would have to obtain its owninsurance or take an assignment of the vendor's policy which, as noted above, requiredthe consent of the insurer and is therefore, strictly speaking, novation.65 To resolvethis problem, a clause was often included in the vendor's policy extending its coverageto the purchaser in the interim period between contract and conveyance.66 As will beapparent, the effect of these mechanisms was to extend cover to a purchaser for eventswhich occurred in the period of overlapping insurable interests.[52] All of this, and possible solutions, was addressed in the 1983 report of theContracts and Commercial Law Reform Committee.67[53] In response to that report, Parliament enacted s 13 of the Insurance LawReform Act 1985 in the same terms as recommended by the Contracts and CommercialLaw Reform Committee.68 The provision was subsequently amended by the64 Milligan v Equitable Insurance Co (1858) 16 UCQB 314.65 See above at n 7.66 Merkin and Nicoll, above n 7, at [9.1.11].67 Contracts and Commercial Law Reform Committee Aspects of Insurance Law (2): A Report bythe Contracts and Commercial Law Reform Committee (Government Printer, 19 May 1983).68 At 48–51.Property Law Act 2007, however it remains substantially the same as that enacted in1985.69 Subsections (1), (1A), (1B), and (1C) provide:13 Purchaser of land entitled to benefits of insurance between datesof sale and possession(1) Subsection (1A) applies during the period beginning with the makingof a contract for the sale of land and all or any fixtures on that land,and ending on the purchaser taking possession of the land and fixtures,or final settlement (whichever occurs first).(1A) During the period specified in subsection (1), any policy of insurancemaintained by the vendor in respect of any damage to or destructionof any part of the land or fixtures enures, in respect of the land andfixtures agreed to be sold and to the extent that the purchaser is notentitled to be indemnified or to require reinstatement of that land andthose fixtures under any other policy of insurance, for the benefit ofthe purchaser as well as the vendor.(1B) In particular, the purchaser is entitled to be indemnified by the insureror to require the insurer to reinstate that land and those fixtures in thesame manner and to the same extent as the vendor would have beenso entitled under the policy if there had been no contract of sale.(1C) However, nothing in subsections (1A) and (1B) obliges an insurer topay or expend more in total under a policy of insurance than it wouldhave had to pay or expend if there had been no contract of sale.As will be apparent, those subsections provide for a statutory extension of the vendor'spolicy in the period between contract and conveyance to protect the purchaser fromdamage to the property. Subsections (2)–(5) provide more detail as to the coverprovided to the purchaser and for the section to be excluded by express agreement bythe vendor and purchaser. Cover is thus extended to purchasers for events which occurduring the period of overlapping insurable interests but with the variation that thiscover terminates if the purchaser obtains possession prior to settlement.[54] The end point for the operation of condition 2 must be settlement. Uponsettlement a vendor no longer has an insurable interest and any insurance policy inrespect of it necessarily lapses.70 So although this is not spelt out in the text ofcondition 2, we think it clear that it extended cover only in respect of events occurring69 Property Law Act 2007, s 364(1) and sch 7.70 Rogerson v Scottish Automobile and General Insurance Co Ltd (1931) 146 LT 26 (HL) at 27;Collingridge, above n 63, at 177; and The Ecclesiastical Commissioners for England v The RoyalExchange Assurance Corp (1895) 11 TLR 476 (QB) at 476.prior to settlement. This is consistent with the heading of the condition – "insuranceduring sale and purchase" – which might be thought to denote an event prior tosettlement.71[55] The more significant issue on this aspect of the case is whether condition 2applies to events which occur prior to the entering into of the contract for sale andpurchase. At least if the heading is put to one side, it is perhaps possible to construethe words "[w]here a contract of sale and purchase of your Home has been enteredinto" as identifying not the commencement of cover but rather as a definition of thecircumstances in which a third party to the contract (that is the purchaser) would deriverights under it. This, in essence, is the argument advanced for the appellants. Thatsaid, the text of condition 2 and particularly the heading suggest that coverage for apurchaser is confined to events which occur after the entering into of the agreement,that is events which occur during the period of overlapping insurable interests.[56] Mr Campbell's argument on this aspect of the case was rejected by both theHigh Court and Court of Appeal, with the latter Court explaining why in these terms:[32] Self-evidently, any loss caused by an insured event prior to thedate of the agreement will be sustained by the vendor, not the purchaser. It isonly after an agreement for sale and purchase is entered into that the purchaseracquires an insurable interest in the property and becomes vulnerable to losscaused by an insured fortuity. We consider that the purpose of condition 2 isto provide cover to a purchaser for this risk. The text of the clause makes thisclear by stating that the condition applies "where a contract of sale andpurchase of your home has been entered into". The contract marks thecommencement of the operation of the clause. Following settlement, theproperty is no longer "your home" and the vendor no longer has an insurableinterest in it. This marks the end of the relevant period of insurance becausethe insured is no longer vulnerable to the insured risk after that date.[33] It is not necessary to rely on the heading to reach this interpretationbut the heading supports it — "Insurance during sale and purchase". Theheadings in IAG's policy are not merely rough guides to interpretation and inmany instances they form part of the text — for example, "You are insuredfor", "You are not insured for" and "The amount you can claim". We see noreason why the headings should be ignored when discerning the meaning of aparticular clause. The headings form part of the document which should beconsidered as a whole when interpreting any part of it.71 Headings in insurance policies are a legitimate aid to interpretation: see Farmers Mutual GroupAssoc Ltd v Watson (2001) 11 ANZ Insurance Cases ¶61-510 (CA) at [34] and [48].[34] We see the existence of the statutory provision as being a more neutralfactor. If both parties are to be taken as having been aware of the provision,why did they include condition 2? On the other hand, it is common forcontracts to contain superfluous provisions that merely relate the law. Further,the provision in the policy does not mirror the statutory provision. Forexample, it does not differentiate between possession and settlement.(footnote omitted)Save that we see s 13 as providing support for IAG's argument (in the sense of helpingto identify the problem to which condition 2 is addressed), we broadly agree with theapproach of the Court of Appeal.[57] There is another consideration not mentioned by the Court of Appeal which wesee as providing further support for the conclusion that the appellants cannot rely oncondition 2. The earthquake damage which is the subject of the claim occurred duringthe currency of a policy which covered the period 1 April 2010 to 1 April 2011 and theagreement for sale and purchase was not entered into until 9 December 2014. Coverunder the IAG policy is addressed to events which occur during its currency. Giventhis, it would be perhaps a little odd to treat condition 2 as engaged by events whichoccur some years after the policy expired.Disposition[58] The appeal is dismissed. The appellants are to pay costs of $25,000 andreasonable disbursements.GLAZEBROOK AND ARNOLD JJ(Given by Glazebrook J)TABLE OF CONTENTSPara No.Introduction [59]The Courts below [64]The submissions of the parties [66]The appellants' submissions [66]IAG's submissions [70]Issues [75]Insurance Policy [79]Replacement insurance [83]Has the replacement benefit accrued? [88]Can the replacement benefit be assigned? [93]Applicability of Bryant [104]Reasoning in Bryant [104]Our assessment of Bryant [108]Should Bryant be overruled? [119]Condition 2 [127]Submissions [127]Our assessment [129]Result [134]Introduction[59] IAG New Zealand Ltd (IAG) is the insurer of a house damaged in theChristchurch earthquakes of 4 September 2010 and 22 February 2011. Mr andMrs Barlow were the owners of the house and the insured at the time it was damaged.[60] The IAG policy (the Policy) provides cover for loss or damage to the house.72If restoration takes place, then IAG agrees to pay the "cost of restoring [the house] toa condition as nearly as possible equal to its condition when new" (replacement sum).If the house is not restored, IAG agrees to pay the lesser of the amount of loss ordamage, or the estimated cost of restoration to the condition the house was inimmediately before the loss or damage occurred (indemnity sum).[61] The Barlows made a claim under the Policy on 27 April 2011. Their claim wasstill unresolved in 2014. By the process explained by the Court of Appeal,73 the legal72 The relevant Policy provisions are set out at [79]–[82] below.73 Xu v IAG New Zealand Ltd [2018] NZCA 149, (2018) 20 ANZ Insurance Cases ¶62-177 (Asher,Clifford and Gilbert JJ) [Xu (CA)] at [9].ownership and possession of the property passed to the appellants on 9 February 2015.The rights related to the insurance claim were assigned absolutely to the appellants onthe same day.74[62] It is common ground that the appellants, as assignees, have the right to recoverthe indemnity sum. It was also accepted by both parties that, as at 9 February 2015,the Barlows had not restored the house and would not incur any of the actual costs ofrestoring it. The issue in the appeal is whether the appellants can restore the propertyand claim the replacement sum. IAG says that they cannot.[63] We were told at the hearing that the indemnity value will not exceed the amountto be paid by the Earthquake Commission (EQC). If IAG is correct in its contentionthat the appellants cannot claim the replacement benefit, this means that IAG will infact pay nothing under the Policy, despite having received premiums from the Barlowsbased on replacement cover.75The Courts below[64] The High Court76 and the Court of Appeal found for IAG, in part because of adecision of the Court of Appeal on a similar issue in Bryant v Primary IndustriesInsurance Co Ltd.77 The High Court was bound by Bryant and did not consider itcould be distinguished.78 The Court of Appeal refused to overrule Bryant.79[65] The Courts below also rejected an argument that condition 2 of the Policy (setout at [82] below) conferred the ability to claim the replacement benefit directly onany purchaser.8074 The assignment was in accordance with s 50 of the Property Law Act 2007.75 The Policy in this case excepted cover for loss or damage covered by the Earthquake CommissionAct 1993: see below at [80].76 Xu v IAG New Zealand Ltd [2017] NZHC 1964, (2017) 19 ANZ Insurance Cases ¶62-160(Nation J) [Xu (HC)].77 Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142 (CA) (Cooke P, Somers andWylie JJ).78 Xu (HC), above n 76, at [32].79 Xu (CA), above n 73, at [25].80 Xu (HC), above n 76, at [52]; and Xu (CA), above n 73, at [32].The submissions of the partiesThe appellants' submissions[66] For the appellants, Mr Campbell QC submits that the assignment in this caseis of an already accrued benefit under the Policy and that the ordinary rules relating toassignment apply. In his submission, the fact that the Barlows will not restore thehouse does not, by itself, prevent the appellants from recovering the replacement sumfrom IAG.[67] An assignee is able to fulfil a condition upon which an assigned right depends,except where it makes a difference to the counterparty (IAG) whether the condition isfulfilled by the original party or by an assignee. In this case Mr Campbell submits thatit makes no difference to IAG whether or not the original insured or an assigneerestores the home. The condition is not promissory and does not involve the provisionof any value to IAG.[68] Further, the Barlows suffered the loss as soon as the damage to the houseoccurred and the Policy does not prohibit assignment. It is submitted that Bryant iseither wrongly decided or distinguishable.[69] In the alternative, it is submitted that condition 2 of the Policy allows theappellants to restore the home and receive the replacement benefit.IAG's submissions[70] Mr Ring QC submits that this case is governed by two fundamental principlesof insurance law:(a) subject to the terms of the policy, any indemnity provided under acontract of fire insurance is personal to the insured; and(b) an assignee can only recover the insured's loss and not his or her ownloss.[71] In this case the contention is that the replacement sum indemnifies the insuredagainst the cost of restoration. In Mr Ring's submission, the insured only suffers thisloss once the insured elects replacement and restoration costs are incurred (rather thanwhen the damage caused by insured event actually happens).[72] Further, on a proper interpretation of the Policy, the replacement benefit ispersonal to the Barlows as, unless the original insured actually incur costs ofrestoration, they do not actually suffer the loss for which the replacement benefit ispayable. Mr Ring submits that the Policy definition of "the insured" and the referenceto "you" in the operative policy provision are properly interpreted as making thereplacement benefit personal to the Barlows.[73] Mr Ring also submits that allowing assignment of a replacement benefit wouldincrease moral hazard as an insurer might end up dealing with a person who may haveacquired the property solely for the purpose of making a quick profit or who isdishonest or who is particularly difficult or litigious.[74] It is submitted that Bryant was correctly decided and is not distinguishable andthat condition 2 does not assist the appellants.Issues[75] The main issue in this appeal is whether:(a) as the appellants contend, the assignment is of an already accruedbenefit under the Policy, albeit a conditional benefit; or(b) as IAG contends, the Policy insures the loss incurred for the restorationcosts and therefore the right to the replacement benefit has not yetaccrued under the Policy.[76] If the appellants' contention is correct, this gives rise to the following issues:(a) whether the replacement benefit can be assigned; and(b) whether Bryant can be distinguished and, if not, whether it should beoverruled.[77] The final issue is whether condition 2 allows the appellants to claim thereplacement benefit, irrespective of the answer to the question set out at [75].[78] Before discussing these issues, we first set out the terms of the Policy in moredetail and provide some history on replacement insurance.Insurance Policy[79] The Policy provides, with regard to "Home Insurance":You are insured for1. Accidental and sudden loss of or damage to your Home.[80] The Policy also provides insurance for gradual damage caused through wateror waste disposal pipes in certain circumstances. There are then a number of matters"you are not insured for", including wear and tear and depreciation, and loss or damagecovered by the Earthquake Commission Act 1993.[81] The Policy then sets out the amounts able to be claimed in the event of loss ordamage occurring:The amounts you can claim1. If, following loss or damage you(a) restore your Home, we will pay the cost of restoring it to acondition as nearly as possible equal to its condition whennew using current materials and methods plus any extra coststhat are necessary for the restoration to meet with the lawfulrequirements of Government or Local Bodies.(b) do not restore your Home, we will pay the lesser of(i) the amount of the loss or damage, or(ii) estimated cost of restoring your Home as nearly aspossible to the same condition it was in immediatelybefore the loss or damage happened using currentmaterials and methods.[82] Condition 2 of the Policy provides:Insurance during sale and purchase2. Where a contract of sale and purchase of your Home has been enteredinto the purchaser shall be entitled to the benefit of this Section but toget this benefit the purchaser must(a) comply with all the Conditions of the Policy, and(b) claim under any other insurance that has been arranged beforeclaiming under this Policy.Replacement insurance[83] Thomas and Wilson trace the history of fire insurance and the 20th centurymovement towards replacement cover in the United States. They note that a strict,financial approach to indemnity stemmed from three concerns:81 whether insurancewas consistent with contemporary understanding of morality,82 whether insurancewould improperly tempt insureds to become involved in immoral conduct (moralhazard) and whether insurance was distinct from gambling.83[84] The "moral hazard" concerns (including that insurance could encouragecarelessness) led to requirements, such as in Massachusetts, of not allowing insuranceto exceed 75 per cent of the value of the property.84 The authors note that concernsabout moral hazard were heightened by the inability of nineteenth century insurers touse risk data as a basis of underwriting. This meant that nineteenth century insurersrelied on the "morality and individual character" of the insured to limit risk.8581 Jeffrey E Thomas and Brad M Wilson "The Indemnity Principle: From a Financial to a FunctionalParadigm" (2005) 10 Journal of Risk Management and Insurance 30 at 33.82 Similarly in the United Kingdom, the Victorian moral code and the perils of insuring/wageringagainst lives led to a prohibition of insurance without interest: see, for example, the preamble tothe Life Assurance Act 1774 (UK) and the discussion in John Lowry, Philip Rawlings and RobertMerkin Insurance Law: Doctrines and Principles (3rd ed, Hart Publishing, Oxford, 2011) at 177.83 Insurance law developed to require an "insurable interest" to ensure gambling and insurance weredistinct: see Marine Insurance Act 1906 (UK), ss 4–5; and Marine Insurance Act 1908, ss 5–6.This requirement has since been abolished in non-marine indemnity cases by s 7 of the InsuranceLaw Reform Act 1985 and wagering is now restricted under the Gambling Act 2003: see RobertMerkin and Chris Nicoll (eds) Colinvaux's Law of Insurance in New Zealand (2nd ed, ThomsonReuters, Wellington, 2017) at [1.6].84 Thomas and Wilson, above n 81, at 33–34.85 At 34. This of course has now changed and methods to detect fraud, and in particular arson, havebecome more sophisticated.[85] Adding to these concerns was a perception that insurance could be seen asgambling, hence a prohibition on insuring property a person had no interest in:86By limiting the recovery to precisely what the insured had prior to the loss,insurance policies avoided the temptation to cause a loss because such a losswould not convey a benefit. Similarly, reducing the amount of recovery towhat the insured had prior to the loss distinguished insurance from gambling.The insured's recovery would not convey any extra benefit, the "winnings"that would be received from gambling.[86] By the mid-twentieth century, replacement cover had become common in theUnited States. In New Zealand, new-for-old reinstatement provisions are nowcommon in insurance contracts.87 Such policies do not fit easily within a strictlyfinancial view of indemnity.88 This is because replacement on a new-for-old basis maywell mean that a property is worth more reinstated than in its original state. As such,an insured could be seen as receiving more than the loss actually suffered and this canbe seen as increasing the moral hazard concerns.89[87] Replacement insurance arose, however, because a purely financial view ofindemnity frequently caused an under-insurance issue. It is often not possible torestore on an "old-for-old" basis. New materials and building techniques may well berequired, either for practical or for regulatory reasons. This means that strict financialindemnity cover does not allow repair or replacement to the same functional state asbefore the loss or damage had occurred.90 Thomas and Wilson suggest that, ifindemnity is viewed in a functional sense, then all that is being provided byreplacement cover is a property with the same functionality as before the loss ordamage.9186 At 34. See also above n 83.87 Paul Michalik and Christopher Boys Insurance Claims in New Zealand (LexisNexis, Wellington,2015) at [5.11].88 As was noted in Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015]1 NZLR 341 at [24]–[26] per William Young J for the Court; and Ridgecrest NZ Ltd v IAG NewZealand Ltd [2014] NZSC 129, [2015] 1 NZLR 40 at [54] per William Young J for the Court.89 Conditions are often placed on replacement policies to reduce moral hazard: for example that aninsurer has the option to provide indemnity by payment or replacement, or that reinstatement mustactually occur before the replacement sum is payable, with the sum being limited to costs actuallyincurred. Respectively see the discussion of this Court in Prattley Enterprises Ltd v VeroInsurance New Zealand Ltd [2016] NZSC 158, [2017] 1 NZLR 352 at [38] per William Young Jfor the Court; and Skyward Aviation, above n 88, at [26].90 Skyward Aviation, above n 88, at [24].91 Thomas and Wilson, above n 81, at 36.Has the replacement benefit accrued?[88] IAG's submission is that the replacement benefit has not accrued as therelevant loss occurs only when restoration costs are incurred.[89] We reject this submission as it does not accord with the wording of the Policy.The Policy covers "[a]ccidental and sudden loss or damage" to the Barlows' house.That is the insured event and what the insurance is for. The insured then has twooptions for payment for that loss or damage: (a) the replacement sum (conditional onactually restoring the home) or (b) the indemnity sum (if the house is not restored).[90] We thus accept the appellants' submission that the assignment is of an alreadyaccrued benefit. The sudden loss or damage occurred at the time of the earthquakesin 2010 and 2011 when the property was owned by the Barlows and at a time whenthe Barlows were the insured under the Policy. The right to payment for that loss alsoarose at that time, even though the basis for calculation of the payment depended onwhether the property was reinstated or not.[91] We accept the appellants' submission that restoration merely quantifies IAG'spayment obligation in respect of the Barlows' loss that had occurred in theearthquakes. This conclusion is further reinforced by the fact that, without theearthquakes causing loss or damage to the property, neither the replacement sum northe indemnity sum would be payable.[92] We also note that different insurers word policies differently. In some policiesused in New Zealand, it appears that the payment of replacement benefits does notdepend on restoration having taken place.92 There would thus be no question inrelation to such policies but whether the loss occurred at the time of the insured event.Making payment conditional on restoration is a means of reducing moral hazard.93 Itwould be odd if the addition of a condition for this purpose could so fundamentallyalter the nature and timing of the loss.92 For examples of policies see Chris Boys "Rights and indemnity plus policies" [2019] NZLJ 99at 102.93 See methods to reduce moral hazard and authorities discussed above at n 89.Can the replacement benefit be assigned?[93] Insurance contracts are seen as personal to an insured and not generallyassignable unless the insurer consents to the assignment.94 This is because the identityof an insured has been seen to be important to the insurer in the setting of premiums,often because of different risk profiles.95[94] The Barlows in this case were not, however, purporting to assign the wholePolicy. They were merely assigning the claim, including for the replacement benefit.96As indicated above, we consider this was an already accrued benefit under the Policy.97Accrued benefits can be assigned even if they arise under personal contracts. Forexample, as pointed out by the appellants, a contract for writing a book is undoubtedlypersonal but nevertheless the royalties can be and are regularly assigned.98[95] In this case it is accepted by IAG that the right to be paid the already accruedindemnity sum under the Policy is assignable. This accords with the decision inBryant.99 Contrary to IAG's submission (and the decision in Bryant), we do notconsider there to be any reason why the already accrued right to the replacementbenefit should not also be assignable.[96] IAG submits that the Policy makes it clear that the Barlows must restore theproperty personally. We do not accept this submission. The fact that the Policyidentifies the parties and attributes responsibilities to them does not suffice to preventassignment.100 As the appellants submit, it is commonplace for a contract to expressa condition by reference to a named party and not to include assignees. If the rightsare, on a proper interpretation of the contract, assignable, the contract will be94 Merkin and Nicoll, above n 83, at [11.4.2(1)]–[11.4.2(2)], citing Tolhurst v The AssociatedPortland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 (CA).95 Merkin and Nicoll, above n 83, at [4.4.2]. The Court was not asked to revisit whether this shouldbe the case for all types of insurance contracts and it is not necessary to do so for the purposes ofthis appeal.96 See the distinction between assigning a contract of insurance versus assigning the insured's rightto receive the proceeds of the policy: Schneideman v Barnett [1951] NZLR 301 (SC) at 306.97 Contrary to the view expressed in the reasons given by William Young J at [13] and [44]–[46].98 See Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law ofContract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [17.1.8(b)]; and Merkin andNicoll, above n 83, at [11.4.3].99 Bryant, above n 77, at 145.100 In agreement with the reasons given by William Young J at [27].interpreted as if the named parties included assignees.101 In any event, in this case, thesame wording is used in respect of the indemnity sum102 and IAG accepts this isassignable.[97] IAG also argues that the Barlows have suffered no loss. This is on the basis ofits argument we have already rejected that loss only occurs once the restoration costsare incurred. The relevant loss occurred at the time of the earthquakes. It was alsopresumably reflected in the sale price of the property.103[98] It is true that the right to be paid the replacement benefit was conditional onrestoration and the Barlows will not restore the property. The mere fact that a right isconditional does not, however, prevent it from being assigned.104 While a burdenunder a contract cannot be assigned,105 vicarious performance of a condition ispossible where it does not matter to the other party who fulfils the condition.106 Thetest is whether "the obligations are so obviously personal in character that it must beconcluded that the common intention of the parties was that the obligations could bedischarged only by the specific individuals between whom the contract was made".107[99] The Policy in this case limits the costs that can be claimed to the cost ofrestoring the house to a condition "as nearly as possible equal to its condition whennew". The insurer is not obliged to pay more than this. Further, as pointed out by theappellants, it would obviously not be the case that the Policy would require theBarlows to do the restoration work personally rather than employ contractors.Moreover, it is common industry practice for the insurer to contract third parties tocarry out reinstatement and make direct payment to the contractors.108 This meansthat an insured would in fact have a very limited role to play in the restoration process.101 CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 (CA) at 583 perMcCarthy J for the Court of North, Turner and McCarthy JJ, citing Tolhurst v The AssociatedPortland Cement Manufacturers (1900) Ltd [1903] AC 414 (HL) at 420 per Lord Macnaghten.102 The clause provides: "If, following loss or damage you (a) restore your Home" the replacementsum is payable; and "If, following loss or damage you (b) do not restore your Home" theindemnity sum is payable. See above at [81].103 The property was sold for $217,000.104 Amounts payable in the future under a right already possessed by the assignor are assignable underss 50 and 53 of the Property Law Act 2007.105 HG Beale (ed) Chitty on Contracts (33rd ed, Sweet & Maxwell, London, 2018) vol 1 at [19-079].106 Beale, above n 105, at [19-082].107 CB Peacocke Land Co Ltd, above n 101, at 582.108 Boys, above n 92, at 99 and 102.There is thus nothing so obviously personal in the restoration condition that it must beinferred that it could only be discharged by the Barlows.[100] In other contexts, terms requiring quite extensive work have been held able tobe performed vicariously. In The British Waggon Co v Lea, a covenant to repair leasedrailway wagons was held to be able to be performed vicariously, on the basis that "[a]llthat the hirers cared for in this stipulation was that the waggons should be kept inrepair; it was indifferent to them by whom the repairs should be done".109[101] We accept, as William Young J notes,110 that in British Waggon the assignorsremained liable under the contract, while in this case the Barlows are only theoreticallyin the same position.111 We do not consider this a relevant distinction. In BritishWaggon, the repair covenant mattered to the lessee and thus the continued liability ofthe assignor was important. In this case, whether restoration occurs is at the option ofthe insured. There is no contractual requirement that the house be restored. Indeed,IAG would presumably prefer the house was not restored. As noted above, if the houseis not restored, IAG does not have to pay anything under the Policy, despite havingreceived the premiums for replacement cover.112[102] As to the moral hazard arguments raised by IAG,113 these were addressed inthe Policy by providing that the replacement costs are not paid until they are actuallyincurred and by limiting the costs to those necessary for reinstatement. The mainmoral hazard concern is that the insured could be more careless or more tempted to bedishonest because, with replacement insurance, the occurrence of the event insuredagainst would leave them better off. Once the event insured against has actuallyoccurred, however, that danger has either already been realised (because the insuredhas been more careless or has been dishonest) or no longer exists (because the loss ordamage has already occurred).114109 The British Waggon Co v Lea (1880) 5 QBD 149 (QB), at 153.110 At [32]–[35].111 Although the Barlows as assignors remain parties to the insurance contract, it is accepted theywould play no part in any restoration.112 See above at [63].113 See IAG's submissions summarised above at [73].114 In the case of natural disasters such as earthquakes, the moral hazard risk of carelessness ordishonesty in bringing about the insured event does not arise.[103] The issue that remains is that the insured may inflate replacement costs whenreinstating. That danger is addressed by the Policy wording limiting what is to be paidand by the practical measures, such as paying directly to contractors, discussed above.Further, no payment will be made until reinstatement has occurred. All of thesemeasures will continue where there is an assignment. The moral hazard protectiontherefore continues to apply. As to IAG's submission that it may end up dealing witha person who has acquired the property to make a quick profit115 or who is dishonest116or particularly difficult or litigious,117 substantially the same risk would also apply tothe assignment of an already accrued indemnity claim. In the end, we find the moralhazard arguments unconvincing.Applicability of BryantReasoning in Bryant[104] In Bryant the property had been destroyed by fire on the morning of an auctionfor the sale of the house. The vendors were told by the insurers that, if they sold theproperty at auction, they would forfeit the replacement sum and would only receiveindemnity value.118 The auction proceeded, despite the purchasers knowing about thefire. The vendors later assigned their rights under their insurance policy to thepurchasers for $8,470, a sum equating to an assessor's calculation of the indemnityvalue of the house at the time of the fire. The issue was the same as in this case:whether the replacement benefit could be assigned.[105] Cooke P, writing for the Court, recognised that the insurer had received thepremiums for replacement cover and queried, "should it make any difference thatinstead of the insured himself rebuilding and then selling, he sells to a purchaser beforea rebuilding?" However, he considered that assignment of the replacement benefit ran115 Such an assignee might in fact be easier for an insurer to deal with as the assignee's aim would beto complete restoration as soon as possible. By contrast an insured restoring a home would haveconcerns beyond expeditious reinstatement (see below n 117).116 The measures to deal with possible dishonesty still however apply if there has been an assignment.117 These risks would still be present if the original insured restores the property and, in some cases,might be exacerbated by the insureds' understandable emotional issues arising from restoring hisor her damaged home.118 Bryant, above n 77, at 144.counter to the principle of personal indemnity, a principle of insurance law the Courtwould not be justified in departing from.119[106] The Court said that the principle of personal indemnity means that a contractof insurance is "no more than one of indemnity for the particular insured, who canaccordingly never be entitled to more than his actual loss".120 The Court said that theassignment could not retrospectively make the purchasers the insured at the time ofthe fire and that they "could acquire no more than whatever assignable rights hadaccrued to the insured before the assignment".121 The Court went on to say that the"right to replace under the excess of indemnity clause was personal to the insured".122It was noted that the insurance policy named the insured and nowhere was thedefinition widened. The Court also pointed to the clause providing that, if the insuredwas unwilling or unable to reinstate or replace, then the insurer had no liability.123[107] In coming to its conclusions, the Court applied Castellain v Preston124 fromthe Court of Appeal of England and Wales and Ziel Nominees Pty Ltd v VACCInsurance Co Ltd from the High Court of Australia.125 Cooke P considered thatdeparting from principles that are settled in other jurisdictions would not be justifiedas the facts did not lead to real injustice, the insurer did not represent that the insuredcould assign the replacement sum and neither the vendors nor purchasers appear tohave been "lulled into that belief".126Our assessment of Bryant[108] We agree that Bryant cannot be distinguished.127 It will be obvious, however,from what we have said above that we consider Bryant to have been wrongly decided.119 At 145.120 At 145.121 At 145.122 At 145.123 At 144.124 Castellain v Preston (1883) 11 QBD 380 (CA).125 Ziel Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173.126 At 145.127 See reasons given by William Young J at [42].[109] The Court in Bryant relied on Castellain and Ziel in coming to the view thatassignment of the replacement benefit was precluded by the principle of personalindemnity.128 Neither of these cases however concerned replacement policies. Bothwere indemnity cases.[110] In Castellain, the property was damaged by fire after the date of agreement forsale and purchase but before the purchase was completed.129 Risk had therefore passedto the purchasers because they were legally obliged to complete the purchase.Settlement took place at the full purchase price, notwithstanding the fire damage. Thevendors, still the legal owners at the time of the fire, made a claim to the insurancecompany in relation to the fire and received the indemnity sum.130[111] The insurer sued the vendors and was held, by way of subrogation, to beentitled to recover part of the money paid to the vendors by the purchasers, to be putin "as good a position as if the damage insured against had not happened".131 Thiswas based on the principle that an insured cannot recover more than his or her loss.132Because the vendors in this case had received the full purchase price, there was noloss. In effect, neither the purchasers nor the vendors were entitled to the insuranceproceeds.[112] In Ziel, the timing was similar: the parties entered a contract for sale of aproperty before the loss (again a fire) occurred. The vendor then lodged an insuranceclaim and the contract of sale was settled. Assignment of the insurance claim to thepurchaser was executed on the same day.133 As in Castellain, the property was soldfor the full purchase price, notwithstanding the damage. The insurer did not pay theclaim. The purchaser sued. It was held that the vendor had not suffered a loss andtherefore was not entitled to any money under the policy.134 As the vendor had nothing128 The Court also referred to Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR164 and distinguished Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR107. We do not need to comment on Kern as there was no purported assignment in that case. Noris there any need to comment on Trident which was a case of co-insurance and concernedcontractual privity.129 Castellain, above n 124, at 385.130 At 385–386.131 At 392 per Brett LJ. See also at 396–397 per Cotton LJ and at 397 and 407 per Bowen LJ.132 At 386.133 At 174–175.134 At 176.to assign,135 neither the purchaser nor the vendor were able to claim from the insurancecompany.[113] If, based on these cases, the principle of personal indemnity prevented theassignment of the replacement benefit in Bryant, it is not clear, as the appellants pointout, why the indemnity sum could nevertheless be assigned. After all, both Castellainand Ziel were indemnity cases.[114] The answer of course lies in the timing of the loss.136 In Castellain and Ziel,the risk had passed to the purchasers before the insured event (the fire) had occurred.This meant that the purported assignment could only have been an attempt to assignthe whole policy, which runs counter to the principle of personal indemnity.137 Nobenefit under the policy had already accrued before the sale and purchase agreementshad been entered. Nor was there any loss, the full purchase price having been receivedat settlement.[115] By contrast, in Bryant the insured event had occurred before the sale andpurchase agreement had been entered into and while the risk remained with the insuredvendors. For the same reasons as in this case,138 both the rights to the indemnity sumand to the replacement benefit had therefore already accrued before the assignment ofthe insurance claim, albeit conditional on restoration in the case of the replacementbenefit. Further, while it is not clear from the case the extent to which the pricereceived in Bryant was lower than it would have been had the fire not occurred, thefact that the vendors assigned their insurance policy to the purchasers for a separateconsideration suggests that the sale price had been affected by the fire.139135 At 176.136 The situation in Castellein and Ziel would now be covered by s 13 of the Insurance Law ReformAct 1985 and the vendor's insurance would cover a purchaser up until settlement. See discussionon that point in Merkin and Nicoll, above n 83, at [15.1.6(2)]. See also discussion of s 13 belowfrom [127].137 See also Merkin and Nicoll, above n 83, at [11.4.3(1)]. See also our earlier discussion of assigningthe whole policy versus assigning the proceeds, above at [94].138 See above at [90]–[91].139 See above at [104]. In any event, the vendor lost the functional utility of the property before thesale and purchase agreement was entered into: on functional indemnity, see above at [87].[116] The significance of the timing issue was not appreciated by the Court in Bryant.It meant that the assignment in Bryant, unlike in Castellain and Ziel, was not of thepolicy but of benefits that had already accrued under the policy. The personalindemnity principle thus had no application.[117] The mistaken belief that the personal indemnity principle applied meant thatthe Court in Bryant did not consider the ordinary law on assignment. As in this case,the mere fact that the policy certificate named the vendors as the insured would nothave prevented assignment.140 The issue was whether the purchasers, as assignees,could satisfy the condition of reinstatement or replacement of the property, upon whichthe excess of indemnity was payable.141 That depended on whether it made adifference to the insurer whether the condition was satisfied by the insured as opposedto an assignee.142 From his rhetorical question at the beginning of his judgment,Cooke P apparently did not consider that it would.143 This should have led to theconclusion that the replacement benefit, like the indemnity sum, was assignable.[118] Cooke P in his reasons also said that the principle of personal indemnity meansthat an insured is never entitled to more than his or her actual loss.144 It might be thatthis was the unarticulated reason why the Court in Bryant considered there was adifference between assignability of the indemnity sum and the replacement benefit. Ifso, it is not a valid distinction. Both benefits had accrued. Further, either replacementpolicies are an exception to the indemnity principle, as William Young J suggests,145or the issue must be looked at in terms of functional indemnity as discussed above.146140 See above at [96].141 Bryant, above n 77, at 144.142 See above at [98].143 Bryant, above n 77, at 145. Cooke P said: "Why should it make any difference that instead of theinsured himself rebuilding and then selling, he sells to a purchaser before a rebuilding?"144 See above at [106].145 At [20]. The indemnity principle, however, must apply at least to the extent of preventing doublecounting: see Ridgecrest NZ Ltd, above n 88, at [14]–[15].146 See above at [87].Should Bryant be overruled?[119] Even though this Court is not bound by Bryant, it is a decision that has stoodsince 1990. Where commercial parties have ordered their affairs on the basis of aCourt decision and particularly if that decision is longstanding, an appellate court maybe reluctant to overturn it, even if it considers the decision to be wrong. The Courtmay well take the view that any change should be for Parliament. This does not,however, mean that decisions will never be overturned.[120] In a case such as this where the Court of Appeal proceeded on a totallymistaken basis,147 it could well be argued that it would be contrary to justice and therule of law for this Court to follow Bryant, no matter how important the value ofcertainty.148[121] In this case, however, we do not consider that insurance companies will in factbe disadvantaged if the decision is overruled and so the certainty principle is notengaged. Insurance companies would have been prudent to price policies on the basisthat the insured will act rationally. This means that premiums should have beencalculated on the basis that the replacement option will be chosen when it is rationalto do so. Whether replacement will be rational will include not just financialconsiderations but will also take into account the personal time, labour andinconvenience involved in restoration. It would have been unwise, to say the least, forinsurance companies to price policies on the basis that the insured would try and assignclaims in ignorance of the Bryant decision.[122] It is true that insurance companies may have explicitly provided thatreplacement benefits were not assignable if Bryant had been decided the other waybut, as it should not matter to the insurer who restores the home, this does not seem tous to be a factor in favour of not overruling the decision.149147 The majority also expresses doubts about the reasoning in Bryant regarding reliance on theindemnity principle: see above at [41] and [45].148 Different considerations might apply if Bryant had been a decision of this Court.149 If IAG had wanted to limit the assignability of the replacement sum, it arguably should have saidso explicitly, despite Bryant, on the principles set out at [129]–[131] below.[123] There is also force in the appellants' submission that Bryant could forcehomeowners to accept an indemnity sum because of delays in the resolution of claims.As noted above, the Barlows' claim was made in 2011 and was still unresolved in2014. This is not to suggest there was any improper delay on the part of IAG. In thecase of widespread disasters some delay will be inevitable. But equally in such cases,the insured will not only be dealing with the trauma of damage to their house but alsowith the general trauma related to the disaster. This could increase the incentive tosell the unrestored home and mean that, despite having received premiums forreplacement cover, the insurer would only have to pay the indemnity sum.[124] It seems to us that Bryant can perhaps be explained by the history ofreplacement policies and the concerns discussed by Thomas and Wilson relating togambling, fraud and morality. This led to concerns about excess of indemnity, at leaston a purely financial measure. As replacement policies are now a common form ofresidential property insurance, this suspicion is outdated and the common law mustcatch up.[125] In principle, there is no reason why, if an indemnity claim is assignable, areplacement claim should not likewise be assignable. A poorly reasoned decision ofthe Court of Appeal some thirty years ago should not be allowed to perpetuate what isa harsh outcome for insureds and somewhat of a windfall to insurers, given that theysold and priced replacement cover and would largely be in the same position whetheror not there is an assignment of the replacement sum.150[126] For all of these reasons, we would overrule Bryant.150 This is particularly the case as there may well be techniques having the same practical effect as anassignment that could be employed to attempt to get around any prohibition on assignment: forexample through a long term sale and purchase agreement, with the original insured nominallyresponsible for restoration. We say "may" because we are not to be taken as expressing a view onwhether such techniques would be successful assuming assignment of replacement benefits wasnot allowed.Condition 2Submissions[127] Mr Campbell submits that because condition 2 is subject to the purchasercomplying with all of the conditions of the Policy, it entitles the purchaser to satisfythe condition upon which the replacement benefit is payable, that is, restoring thehome. Mr Campbell submits that the heading is "nothing more than a rough guide" tothe text and does not make a difference in this case to interpretation. Mr Campbellalso submits that if IAG, as a sophisticated commercial party, had wished to limit theapplication of condition 2 to where the insured event occurred after the contract hadbeen entered into, it could have done so explicitly, as the current policy now does.[128] Mr Ring submits that condition 2 only applies where the insured eventintervenes between the entry into an unconditional contract to purchase and settlementof that agreement. Mr Ring relies on the word "during" in the heading of condition 2and the statutory context of s 13 of the Insurance Law Reform Act 1985. Condition 2in his submission is "simply a contractual expression of the effect" of s 13.Our assessment[129] Contracts are interpreted in light of the context in which they are made. Theextent of the context courts have regard to is, however, in itself contextual.151 Forexample, for registered instruments the relevant context is likely to be veryrestricted.152 In this case we are dealing with a consumer contract written in plainEnglish, presumably designed to explain all the terms of the Policy in anunderstandable manner without the need for the insured to have legal advice.[130] There is a strong argument that when interpreting such standard form consumercontracts (and in particular those written in plain English) context should be restricted151 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432at [60]–[62] per Arnold J writing for the majority.152 Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2018] NZSC 75, [2019]1 NZLR 161 at [73]–[74] per William Young and O'Regan JJ. See also at [151] per Glazebrook J,agreeing with all of William Young and O'Regan JJ's reasons apart from the actual interpretationof the covenant.and not include matters of which the average consumer would be unaware.153 Theordinary consumer of residential insurance would not be expected to be familiar withs 13 of the Insurance Law Reform Act and we therefore do not take it into account ininterpreting condition 2.[131] Further, in the case of consumer contracts, the courts are likely to apply theprinciple of contra proferentem robustly.154 This means that, if there is an ambiguityin condition 2, it would be construed against the drafter, IAG.[132] In this case, condition 2 could have been drafted more clearly. Certainly it isnot made clear in the actual text of the condition that it is intended only to apply toloss that occurs while the sale and purchase agreement is in force. However, it isdifficult to read the clause with the heading in a way that gives the purchasers thebenefit of insurance for events that have occurred under the Policy before the sale andpurchase agreement was entered into. We accept Mr Ring's submission that the useof the word "during" in the heading is key.[133] We do not accept the appellants' submission that the heading should bedisregarded. As William Young J points out, the headings in other clauses are clearlypart of the text and there is no reason to read this clause differently.155Result[134] We would have allowed the appeal on the basis that the replacement benefitwas validly assigned to the purchasers and that the purchasers could fulfil the conditionof restoring the home.Solicitors:Canterbury Legal, Christchurch for AppellantsDLA Piper, Auckland for Respondent153 See Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008]SGCA 27, [2008] 3 SLR 1029 at [110]; and Sabean v Portage La Prairie Mutual Insurance Co2017 SCC 7, [2017] 1 SCR 121 at [35]. See also the colourful comments of Young J in the NewSouth Wales Supreme Court in Ross v NRMA Life Ltd (1993) 7 ANZ Insurance Cases ¶61-170(NSWSC) at 77,963.154 For more on the rule, see Finn, Todd and Barber, above n 98, at [7.3.1].155 At [54]–[56].