TOWER INSURANCE LIMITED v DOMENICO TRUSTEE LIMITED CA303/2015 [2015] NZCA 372 [13 August 2015]

TOWER INSURANCE LIMITED v DOMENICO TRUSTEE LIMITED CA303/2015 [2015] NZCA 372 [13 August 2015]IN THE COURT OF APPEAL OF NEW ZEALANDCA303/2015[2015] NZCA 372BETWEEN TOWER INSURANCE LIMITEDAppellantAND DOMENICO TRUSTEE LIMITEDRespondentHearing: 30 July 2015Court: Randerson, Heath and Collins JJCounsel: M C Harris and M H A Ho for AppellantD A Webb and S E Goodwin for RespondentJudgment: 13 August 2015 at 12:30 pmJUDGMENT OF THE COURTA The appeal is allowed and the High Court judgment is set aside.B The cross-appeal is dismissed.C The proceeding is remitted to the High Court for rehearing in the light of the judgment of this Court.D The respondent must pay one set of costs to the appellant for a standard appeal on a Band A basis together with usual disbursements. There is no certification for second counsel.E Costs in the High Court are to be dealt with in that Court.____________________________________________________________________REASONS OF THE COURT(Given by Randerson J)Table of ContentsPara NoIntroductionThe insurance policyThe factual backgroundWas the Judge correct to conclude that TOWER did not makean unequivocal election to settle on a cash basis on the termspleaded in the first amended statement of claim?The High Court judgmentDomenico's submissionsWas it open on the pleadings for Gendall J to conclude that, byreason of delay on TOWER's part, it was to be treated ashaving elected to settle on a cash basis?The Judge's findingsSubmissions on election through delayDiscussionResult[1][11][14][31][31][37][47][47][55][57][67]Introduction[1] The respondent (Domenico) owns a residential property on Breezes Road, Christchurch that was damaged beyond economic repair by the major earthquakes in that city in September 2010, February 2011 and June 2011.[2] The appellant (TOWER) insured the house for its full replacement value. Domenico promptly made claims to the Earthquake Commission (ECQ) and toTOWER to the extent that the cost of repairing the damage exceeded the EQC'sstatutory cap.[3] It was not until 28 February 2013 that the EQC confirmed that the damage tothe house and garage on Domenico's property exceeded the statutory cap. Formaladvice of Domenico's EQC payouts did not come until 26 April 2013 and amountedin total to $132,783.41.[4] TOWER accepted liability under the policy. On 8 April 2013, it emailed toDomenico's principal, Mr Da Col, a proposed cash settlement offer of $236,413.20based on the costs of rebuilding the house.1 From this sum, it was necessary in terms of the policy to deduct the EQC payments. Domenico did not accept this offer nor an increased offer TOWER made on 18 April 2013 of $254,501.38.2 Instead,Domenico's response was to issue proceedings against TOWER in the High Court on30 April 2013 based on rebuilding costs of $842,392.45.[5] The expert evidence available to TOWER was that Domenico's claim wasseriously overstated. TOWER maintained the position that, while willing to continue negotiations towards a cash settlement, it reserved the right to itself reinstateDomenico's property in the event that agreement on a cash settlement could not bereached. Mr Venneman of TOWER and Mr Da Col had direct discussions on 1 and 4 August 2014 with a view to reaching a settlement. It appeared that provisional agreement was reached in terms of which TOWER would pay Domenico $363,940 less the EQC payouts. However, this was subject to Mr Da Col obtaining legal advice. The proposed settlement was not accepted by Domenico.[6] On 25 August 2014 Domenico filed an amended statement of claim reducing the rebuilding costs to $581,787.42. Domenico added for the first time a pleading that TOWER had elected to settle the claim on a cash basis. Domenico pleaded:10 The defendant has chosen to settle the claim under the policy by paying to the plaintiff in cash the costs to rebuild the house without the need for the plaintiff to first rebuild/buy a house.Particulars(1) Email 18 April 2013 from defendant to plaintiff;(2) Confirmed in oral telephone discussion 1 & 4 August 2014 between PJ Venneman of defendant and Rob Da Col of the plaintiff.11 As at 18 April 2013 the defendant quantified the costs to rebuild the house at $254,501.38.12 As at 2 July 2014 the defendant quantified the costs to rebuild the house at $362,940.1 It made a separate payment to Domenico in August 2012 for the garage and hard landscaping and that is not in issue.2 Again, the EQC payments were to be deducted from this sum.13 By failing/refusing to indemnify the plaintiff based on the cost to rebuild/replace the house of $581,787.42 the defendant has failed and/or refused to meet its obligations under the policy.[7] TOWER continued to take the view that Domenico's claim was excessiveand it remained unresolved. The proceeding was set down for hearing on 2 and 3 March 2015 before Gendall J. Shortly before the hearing, agreement was reached for the purposes of trial between the expert witnesses retained on each side that the estimated rebuilding costs, as at that date, were $370,000.[8] In his judgment delivered on 8 May 2015, Gendall J found:3(a) TOWER had not made an unequivocal election to settle on a cash basis as pleaded.(b) Nevertheless, TOWER had delayed in making its election and as a result of that delay, the Court would make the election.(c) TOWER was obliged to pay the "present day value" (being theindemnity value) of the property under the policy, with the opportunity for Domenico to claim any additional costs of rebuilding the house should it decide to do so in future.[9] TOWER appeals from Gendall J's judgment, contending that it was not openon the pleadings for Gendall J to make a finding that TOWER had elected to settle on a cash basis or that the Court could itself make the election on the basis ofTOWER's delay. TOWER did not call evidence and says it would have done so if ithad appreciated it was facing a different case from that pleaded. Alternatively, even if it was open for the Judge to make that finding, it could not be supported on the evidence. For its part, Domenico cross-appeals, contending that Gendall J was wrong to find there had been no unequivocal election by TOWER to settle on a cash basis. Domenico further contends that the High Court was wrong to conclude that TOWER was not obliged to pay the full costs of reinstatement in cash, without first requiring these costs to be incurred.3 Domenico Trustee Ltd v Tower Insurance Ltd [2015] NZHC 981.[10] On the view we take of this matter, it is necessary only to determine two issues in this order:(a) Was the Judge correct to conclude that TOWER did not make an unequivocal election to settle on a cash basis on the terms pleaded in the first amended statement of claim?(b) Was it open on the pleadings for Gendall J to conclude that, by reasonof delay on TOWER's part, it was appropriate for the Court to make the election and decide that TOWER was to settle on a cash basis?The insurance policy[11] The TOWER policy is in materially identical terms to the policies at issue in the Skyward Aviation 2008 Ltd case which has been the subject to judgments in both this Court and the Supreme Court.4 For present purposes, the key provisions are:HOW WE WILL SETTLE YOUR CLAIMWe will arrange for the repair, replacement or payment for the loss, onceyour claim has been accepted.We will pay: the full replacement value of your house at the situation; or the full replacement value of your house on another site you choose. This cost must not be greater than rebuilding your house at thesituation; or the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding your house on its present site; or the present day value;As shown in the certificate of insurance.We will only allow you to rebuild on another site or buy a house if your house is damaged beyond economic repair.4 Skyward Aviation 2008 Ltd v Tower Insurance Ltd [2014] NZCA 76, [2014] 2 NZLR 713; [2014] NZSC 185, [2015] 1 NZLR 341 .In all cases: we have the option whether to make payment, rebuild, replace or repairyour house;We are not bound to: pay more than the present day value if you have full replacement value until the cost of replacement or repair is actually incurred. If youchoose not to rebuild or repair your house or buy another house we will only pay the present day value and the reasonable costs of demolition and removal of debris including contents; pay the cost of replacement or repair beyond what is reasonable, practical or comparable with the original;[12] There are two definitions in the policy relevant for present purposes: Full replacement value means the costs actually incurred to rebuild, replace or repair your house to the same condition and extent as when new and up to the same area as shown in the certificate of insurance, plus any decks, undeveloped basements, carports and detached domestic outbuildings, with no limit to the sum insured. Present day value means the cost at the time of the loss or damage of rebuilding, replacing or repairing your house to a condition no better than new and up to the same area as shown in the certificate of insurance, plus any decks, undeveloped basements, carports and detached domestic outbuildings, less an appropriate allowance for depreciation and deferred maintenance, but limited to the market value of the property less the value of the land as an unoccupied site.[13] It is not in dispute that where the property is damaged beyond economic repair, the settlement options under the TOWER policy are broadly as follows:(a) TOWER may elect to satisfy a claim for full replacement value by choosing whether to reinstate or pay cash.(b) If TOWER elects to pay cash, the insured can choose to rebuild on the existing site or another site or to buy another house.(c) Full replacement value upon reinstatement is not payable as a lump sum in the first instance but is limited to the rebuilding costs actually and reasonably incurred.(d) An insured who does not wish to repair, replace or rebuild is limited to payment of the present day value (which is defined effectively as an indemnity sum).The factual background[14] After the earthquakes, TOWER engaged consultants to assess the damage toDomenico's house and assisted it to progress its primary claim with EQC. Bothparties acknowledged frustration with the delay in obtaining a decision from EQC. TOWER was also critical of the approach taken by Claims Resolution Services Ltd, a company engaged by Domenico to assist it in pursuing its claims.[15] As soon as EQC confirmed that the damage was over cap, TOWER emailedits "proposed cash settlement offer" of $236,413.20 to Domenico on 8 April 2013.The offer was based on a report from a quantity surveyor, a copy of which was attached to the email. Also attached was a calculation of the enhanced foundation costs based on the geotechnical data obtained from an adjoining property. TOWER explained that geotechnical data held by ECQ for the subject property could not be accessed at the time of the email. The offer was made at this stage because TOWER did not wish delay to occur while further data was obtained.[16] The key parts of the 8 April email were:As advised in our correspondence 24/11/2011, the policy provides the following settlement options: Rebuild on current site Rebuild on another site of your choice – the cost to do so must not exceed the cost to build on the current site Purchase – you may purchase another property. If you choose to purchase a property, Tower's liability is for the purchase price or therebuild price, whichever is less. Cash settlement – based on the market value of the property.Under option (4) TOWER, are now offering the ability for clients to take a cash settlement on the basis of the "full rebuild cost" opposed to the marketvalue. This is not an option under the current policy, but has become an option to allow people to move on outside the claim process.The house has been determined a [sic] uneconomic to repair based on the current costs to repair versus rebuild.The settlement below has been based on the current proposed costs to rebuild. If these costs were to change, the reinstatement option ie repair or replace would need to be considered.(emphasis added)[17] The proposed cash settlement offer was not one of the options provided forunder TOWER's policy. It was based on the full replacement cost of rebuilding thehouse even though TOWER was not obliged to pay for the costs of rebuilding the property before that cost had actually been incurred. This approach had been adopted by TOWER to allow people to move on outside the claim process, as the email explained.[18] Further elaboration of TOWER's approach was made in a document attached to the email headed "Frequently asked questions" (the FAQ document). Three of thequestions and answers in the FAQ document are relevant for present purposes:Q: Isn't this just the insurance company looking to save themselvesmoney?A: Any cash settlement of your claim would be at the full replacement value (and not a depreciated or present day value). This is intended to include the full costs of replacing your house and we are more than happy to discuss with you whether you believe some of the costs are missing.Q: I want my house rebuilt by you – isn't this what my policy givesme?A: Your policy gives us the option to determine how your claim is settled (whether this is by repairing or rebuilding your house or settling your claim in cash). TOWER has not yet made any final decision as to which of these options it will take in relation to your claim.If you have exceptional circumstances that you believe apply to your situation. TOWER is happy to discuss these with you and to consider rebuilding your house rather than paying you cash. We do not want to disadvantage any customers.Q: What happens if the costs are higher than what you have allowed in your settlement with me when I rebuild my house?A: Cash settlements are intended to be full and final settlements of your claims on your TOWER policy, which allows you and us to moveforward. However, TOWER is committed to providing you with the full replacement cost for rebuilding your house under the terms of the policy. If it turns out that you incur greater costs in rebuilding your house than are allowed for under a cash settlement, we will reimburse you for the additional costs provided you meet the following criteria: the additional costs would have been covered under your TOWER policy for your existing house but for the cash settlement; you have spent the full cash settlement on rebuilding your house; your replacement house is the same size (m2) as the existing house; your replacement house is located at the same address as your existing house and in a similar location at that address; your replacement house utilises similar modern equivalent materials and construction techniques to your existing house; your replacement house is a similar layout and build complexity to your existing house; and your replacement house is completed within 2 years of the date of settlement.(emphasis added)[19] Mr Da Col responded on 10 April 2013 to TOWER's cash settlementproposal:I do understand that this option is necessary given the circumstances since the land assessment is not completed, nor even started for my property. It isunlikely that any rebuild can start this year and it's not practical for Tower tosettle by other means within a reasonable time frame as required by thepolicy. [20] Mr Da Col said he thought the offer "seems a bit low" and went on to raise anumber of questions. On 18 April 2013 TOWER answered Mr Da Col's questions inan email and increased the offer to $254,501.38. The increase was attributed to an inflation allowance not previously included.[21] The High Court found that this offer exceeded Domenico's expectations asdisclosed in previous exchanges between Mr Da Col and Mr Cattermole of Claims Resolution Services Ltd. This finding was based on evidence disclosed to TOWER on discovery after the issue of proceedings.5 Mr Da Col had indicated that he was"hoping for around $240,000 excluding demolition and excluding driveways, fences, paths, in order to cover all costs". Despite Mr Da Col's level of expectation,5 Domenico Trustee Ltd v TOWER Insurance Ltd [2014] NZHC 2657.Domenico's response was to issue proceedings against TOWER on 30 April 2013 for $842,392.45.[22] At the first case management conference on 5 July 2013, TOWER drew attention to the disparity between the sum it had offered and the amount claimed in the proceedings. The Court was informed that:Unless Domenico is prepared to accept that its current rebuild estimate is seriously overstated, TOWER is likely to elect to carry out the work itself.[23] TOWER obtained another geotechnical engineering report for the subject property, which it provided to Domenico on 19 July. By letter of 10 September2013, TOWER's solicitors advised that an approved foundation solution had beencosted with little change to the sum initially allowed by TOWER. The letter then stated:3. TOWER is confident that its estimate of the rebuild cost is accurate. However, there is no need for Mr Da Col to harbour any concerns about the costing because TOWER remains willing to manage the rebuild itself, as it is entitled to do under the policy. The process of preparing plans, a specification and the other documents required to obtain a building consent can begin promptly upon Mr Da Col confirming that he wants the house to be rebuilt.4. The rebuild cost annexed to the statement of claim [is] so seriously overstated that TOWER will not under any circumstances consider settling the claim by paying money on that basis. We doubt that this will come as a surprise to your client and will refrain from commenting further at this stage.5. Please advise within the next 14 days whether or not your client wishes to have the house rebuilt on its current site. If your client does want to have the house rebuilt, TOWER will promptly advise how it will settle the claim. At this stage, it intends to exercise its right to commission the work itself. If your client wants to receive cash rather than rebuild, so that he can either hold or sell the property in its current state,TOWER will assess the "present day value" of the loss (as defined inthe policy) and make payment.6. We look forward to hearing from you.[24] On 7 October 2013, TOWER filed a memorandum in Court confirming that ithad offered to commence a rebuild and was awaiting Domenico's response. On2 December 2013 Domenico advised that its revised estimate of rebuilding costs was $655,000 and that it would be willing to settle for a cash payment of $450,000 lessEQC payments. TOWER responded through its solicitors on 18 December 2013 advising:TOWER's position remains that it will commission a rebuild itself if Mr DaCol wants the house to be rebuilt. If he does not, TOWER will arrange for payment of present day value. We assume from the fact that the a[s] new rebuild cost has been presented that a rebuild is what Mr Da Col wants but TOWER would like him to confirm this so that it can begin commissioning arebuild. We have [been] seeking your client's confirmation for some timeand ask that it is provided no later than mid-January.[25] On 13 March 2014, Domenico's lawyers advised that Domenico might beamenable to TOWER building it a new house on land in Wellington but suggested it was probably necessary to endeavour to reach agreement on the rebuild cost at the Christchurch site as a first step. TOWER responded through its lawyers on 9 May 2014:TOWER remains willing to rebuild the property on site but obviouslyrequires confirmation of your client's intentions before doing so.You have suggested more recently that Mr [D]a Col might be "amenable" toTOWER rebuilding the house in Wellington. TOWER is prepared to consider rebuilding the house in Wellington. Obviously, the site would have to be flat, good ground, thereby obviating the need for the enhanced foundations that would be required at Breezes Road.Whether the house is rebuilt at Breezes Road or at an appropriate site in Wellington, it should not be necessary to "agree" costs. TOWER will simplycommission a rebuild of the current house with whatever foundations arerequired for the particular site. We record, however, that Mr Betts' "revised"costing of $655,000 – more than $6,500/m2 – is still significantly overstated. It is not a credible basis for a discussion about a cash settlement. TOWER has not updated the rebuild costs since those previously advised to you.Please advise whether Mr [D]a Col wants the house to be rebuilt at Breezes Road or if he wants to explore the possibility of having it rebuilt on a suitable site in Wellington. Whichever basis of settlement is ultimately agreed, it is important for Mr [D]a Col to understand that anything above PDV [present day value] is payable only as and when incurred. This case started because Mr [D]a Col thought TOWER's allowance for the cost of foundations on his TC3 site at Breezes Road was "a bit low". The costs ofthose enhanced foundations are not relevant to anything other than a rebuild at Breezes Road.We are instructed to request a conference this time next week if we have not received a substantive response by then.[26] By May 2014, a quantity surveyor engaged by TOWER revised the rebuilding costs to $347,990. Thereafter, Mr Venneman of TOWER initiated thediscussions of 1 and 4 August 2014. Although these discussions were "off the record", any litigation privilege was waived before the High Court. A recording ofthese conversations was played in the High Court and a transcript prepared. In the 1 August conversation, a cash settlement figure of $363,940 (less any EQC payments and the TOWER excess) was discussed. The various settlement options including a cash payment or rebuilding either in Christchurch or Wellington. Mr Venneman pointed out that, in terms of the policy, TOWER was not obliged to pay any more than the present value of the house until the rebuilding costs were actually incurred.[27] There was discussion about the advantages of a cash settlement. Mr Venneman expressed the view that TOWER was anxious to get all claims off its books and there was advantage to Domenico because it could do whatever it liked with the cash received. Mr Da Col said he understood that by offering a cash settlement on the terms proposed TOWER would not be settling under the strict terms and conditions of the policy. Mr Da Col said he thought the cash offer seemed quite reasonable but he wished to obtain legal advice.[28] The conversation ended with Mr Venneman saying he would have TOWER'slawyers draft a settlement agreement for discussion with Domenico's lawyers.Mr Venneman followed up with a brief telephone call to Mr Da Col on 4 Augustconfirming that a settlement agreement had been sent to Domenico's lawyers fordiscussion. Mr Da Col indicated he was awaiting a response from Domenico'slawyers.[29] No resolution resulted from these discussions and on 25 August 2014, Domenico filed the amended statement of claim we have already mentioned, raising the issue of election for the first time and claiming a revised sum of $581,787.42 for rebuilding costs.[30] As earlier noted, agreement on the costs of rebuilding was reached shortly before trial at a figure of $370,000.Was the Judge correct to conclude that TOWER did not make an unequivocal election to settle on a cash basis on the terms pleaded in the first amended statement of claim?The High Court judgment[31] Gendall J began his judgment with the observation that it must be seen as remarkable, in a rising building market, that the final rebuild costs agreed amounted to only about 44 per cent of the sum initially claimed.6 He found that the offerTOWER made in April 2013 exceeded Mr Da Col's expectations at that time.7 The Judge accepted as beyond contention that, in terms of the policy, TOWER had, amongst other things, the right to reinstate or to make a cash payment and that the choice between those options rested in its hands.8[32] Gendall J then canvassed the legal requirements for the application of the doctrine of election canvassing authorities in a number of jurisdictions. He summarised the general principles in these terms:9(a) election is an irrevocable act between two or more inconsistent rights that must be unequivocal, unqualified and communicated to the other party;(b) the assessment as to whether there has been an election is evaluative in nature, drawing upon the entire factual matrix of the particular case;(c) an election can be made either by words or conduct. The test is whether the reasonable bystander would consider the totality of the actions of the party entitled to elect meet the threshold of election;(d) the electing party must be apprised of all relevant facts and information such that it is in a position to make an informed election;(e) the act is unilateral and needs no agreement from the insured [—] the responsibility for making an election therefore rests solely upon the party entitled to do so, including the requirement to do so in a timely manner;(f) a mere offer to settle a claim without more will not ordinarily amount to an election;6 At [6].7 At [21].8 At [34]–[36], citing the Supreme Court's decision in Skyward Aviation 2008 Ltd v Tower Insurance Ltd, above n 4, at [26]–[28].9 At [71].(g) the making of inquiries by the insurer, even where it creates expectations upon the insured, will not ordinarily amount to an election; and(h) the party entitled to elect has only a reasonable time in which to make their election before the law will make it for that party.[33] With one exception, there is no dispute about these principles. The exceptionis subpara (h) of Gendall J's summary. Mr Harris accepted there is an obligation onTOWER to make an election under the policy within a reasonable time but disputedGendall J's conclusion that if the insurer fails to make an election within a reasonable time that "the law will make it for that party". We discuss this furtherbelow.[34] The Judge went on to distinguish the concepts of waiver and estoppel (which he noted were not pleaded) and rejected the assertion that the FAQ documents sent to Domenico had become part of the suite of choices that TOWER could elect under the policy.10 Gendall J held that the FAQ document was an explanatory document to provide information and to assist insured parties in understanding certain processes. The options mentioned in the FAQ document were plainly outside those specified inthe policy. The option contained in TOWER's offer in April 2013 could only beachieved by TOWER waiving its policy right to insist that the costs of reinstatement be incurred before it was obliged to pay sums over and above the indemnity amount.11[35] The Judge reached the firm view that Tower had not, by words or conduct, unequivocally made an election to make payment in cash or to reinstate. In makingthat finding, the Judge referred specifically to Domenico's amended statement ofclaim and the particulars relied upon, namely the April 2013 correspondence and the August 2014 telephone conversations between Mr Venneman and Mr Da Col. The Judge said:12At every juncture the discussions between the parties were caveated and interspersed with intimations from Tower that it had not made a decision and stood ready and willing to settle by other means under the policy.10 At [72]–[74].11 At [75].12 At [76].[36] The Judge continued:13The highest the position can be put is that Tower had a desire, and apparently a general interest, in settling this dispute by a payment in cash in order that this claim, like so many others it was facing as a result of the Canterbury earthquakes, could be completed and come off its liability sheet. That said, throughout the entirety of the correspondence between the parties, I am satisfied that Tower made it clear that it stood willing to settle by reinstatement of the house. While this was not something that Domenico desired, Tower never shied away from its willingness to do so. Indeed, when Tower was faced with the claim which it submits was grossly exaggerated by Domenico, its inclination was towards the rebuild option, while at the same time holding out hope that the parties could reach a sensible cash settlement outside the strict terms of the policy.Domenico's submissions[37] Mr Webb submitted on Domenico's behalf that the Judge had erred in findingthat no election had been made by TOWER. He submitted further the Judge had wrongly concluded that TOWER had no ability to elect to pay full reinstatement costs in cash in terms of the policy. As well, the Judge had failed to turn his mind to the entire factual matrix of the case including the words and conduct of the parties. Mr Webb submitted this necessarily included an inquiry as to whether there had been an overt single act of election to pay full replacement value; a series of overt acts consistent only with an election to pay the full replacement value; or a course of conduct which, when viewed in context, was consistent only with an election to pay the full replacement value.[38] In addressing the first of these points, Mr Webb submitted that the payment of full reinstatement costs under the policy was the "default" position. We do notaccept that submission. The Supreme Court confirmed in Skyward Aviation 2008 Ltdthe range of settlement options available to TOWER under the policy and that it was for TOWER to determine the option payable.14 The policy says as much in express terms.15[39] We also accept Mr Harris' submission for TOWER that, by virtue of the definition of "Full replacement value"16 the payment of full replacement value is13 At [77].14 Skyward Aviation 2008 Ltd, above n 4, at [26]–[28].15 See above at [11]–[12].16 Cited at [12] above.dependent upon the rebuilding costs actually being incurred before TOWER is obliged to pay those costs. The same point is made elsewhere in the policy where it is stipulated that TOWER is not obliged to pay more than the present day value until the cost of replacement or repair is actually incurred.17 In terms of the policy, the obligation to pay present day value does not arise until TOWER makes an election to do so under the policy.[40] Of course, as Gendall J found, it is possible for TOWER to make an offer to settle outside the terms of the policy. In that respect, we agree with Gendall J'sanalysis that, in making the offer on 8 April 2013, TOWER was effectively waiving the requirement that the costs of rebuilding be incurred before it became liable to pay the full costs of reinstatement.[41] As the Judge noted, waiver was not pleaded. Even if it had been, we agree with the conclusion of the Judge that there was no unequivocal election by TOWER to make a cash settlement. At the most, TOWER had an understandable preference to reach a cash settlement with Domenico, which would enable it to clear thisparticular liability off its books. TOWER's email of 8 April 2013 expressly statedthat the settlement offer was on the basis of the then current costs of rebuilding. The email warned that if those costs were to change, the reinstatement option would need to be reconsidered. Importantly, the FAQ document expressly recorded that TOWER had not yet made any final decision as to which of the options would be taken in relation to Domenico's claim.[42] In these circumstances, there was no realistic prospect of a finding thatTOWER had made an unequivocal election to settle Domenico's claim by animmediate cash payment of the full costs of reinstatement. The 8 April 2013 email and the one sent shortly afterwards on 19 April were plainly offers made in the course of negotiations, which were not accepted by Domenico. They could not by any stretch be treated as an unequivocal and binding election by TOWER as to the mode of settlement.[43] Domenico then issued proceedings against TOWER. The Judge found thatthe sum claimed could only be regarded as excessive. TOWER's immediate17 As cited in [11] above.response by its memorandum filed on 5 July 2013 was to raise the prospect of settling by reinstating the property itself. We accept Mr Harris' submission that thisis a necessary protection for an insurer faced with an excessive or unreasonable claim by an insured, as the Supreme Court discussed in Skyward Aviation 2008 Ltd.18[44] Thereafter, the correspondence we have outlined between 10 September 2013 and 13 March 2014 demonstrates that TOWER was continuing to pursue its preference for a cash settlement while reserving the option to carry out reinstatement itself. While it retained the option of reinstating the property itself, TOWER was endeavouring to obtain a decision from Domenico as to whether it wanted to reinstate and, if so, where. As Mr Harris pointed out, TOWER did not have the rightto enter Domenico's property for the purpose of carrying out reinstatement without Domenico's consent. Domenico has never, even to this day, advised TOWERwhether it wishes to have the property reinstated or whether this was to be at theexisting site or elsewhere. Faced with Domenico's excessive claim for a cashsettlement, TOWER had no sensible option other than to resist the proceedings that Domenico brought, while continuing to endeavour to settle with Domenico on an acceptable basis.[45] The discussions between Mr Venneman and Mr Da Col in August 2014 can only be viewed as a continuation of the process of negotiations to bring about a final resolution. We agree with the Judge that those discussions cannot amount to an unequivocal election by TOWER to settle by an immediate cash payment of the full reinstatement costs. There is nothing in TOWER's subsequent conduct to suggestotherwise. All the communications show it continued to keep its options open.[46] In summary, we are satisfied the Judge was correct to find that, on the basis pleaded, there was no unequivocal election made by TOWER as to the mode of settlement.18 Skyward Aviation 2008 Ltd, above n 4, at [26]–[28]. See also M A Clarke The Law of Insurance Contracts (6th ed, Informa, London, 2009) at [29.1]; Robert Merkin (ed) Colinvaux's Law ofInsurance (9th ed, Sweet & Maxwell, London, 2010) at [10–040] and [10–01].Was it open on the pleadings for Gendall J to conclude that, by reason of delayon TOWER's part, it was appropriate for the Court to make the election anddecide that TOWER was to settle on a cash basis?The Judge's findings[47] After rejecting Domenico's submission that TOWER had made anunequivocal election on the basis pleaded, the Judge then considered whether the effects of delay in making an election meant that the Court could make the election itself.[48] Gendall J canvassed authorities for the undisputed proposition that a party entitled to exercise a power of election must do so within the time specified in the instrument conferring the power and, if no specific time is provided, then within a reasonable time. But the Judge went further in finding that:19After a sufficient lapse of time, the law will make the election in substitutionfor the party. [49] We have reviewed the authorities cited by Gendall J for this proposition;20 we have reservations about whether this approach is correct. Our reservation is with the proposition that the Court can itself make the election for an insurer by reason of delay. The essence of an election is a deliberate choice to proceed in a particular way: in this case for the insurer to settle with the insured on the basis of either reinstatement or a cash payment. On the other hand, delay, whether justified or not, is a prime indicator of a failure to act. Deliberate choice and failure to act are antithetical concepts.[50] Other approaches are available. For example, there may be circumstanceswhere an insurer's words or conduct are consistent only with one available choicehaving been exercised by the insurer. We have no difficulty in a court reaching such19 At [84]. Mander J has expressed a similar view in a recent judgment: C & S Kelly Properties Ltd v The Earthquake Commission [2015] NZHC 1690 at [136].20 KR Handley Estoppel by Conduct and Election (Sweet & Maxwell, London, 2006) at 252–25, citing CMA CGM SA v Beteiligungs-Kommanditgesellschaft MS Northern Pioneer Schiffahrtgesellschaft mbH & Co [2002] EWCA Civ 1878, [2003] 1 WLR 1015 (CA) at 1037;Clough v London and North Western Rly Co (1871) LR 7 Exch 26 at 35; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corpn of India, The Kanchenjunga [1990] 1 Lloyd's Rep 391(HL) at 398; Sean Wilken and Karim Ghaly The Law of Waiver, Variation, and Estoppel (3rd ed, Oxford University Press, Oxford, 2012) at 68–80; George Spencer Bower, Alexander Kingcome Turner, Piers Feltham and others The Law Relating to Estoppel by Representation (4th ed, LexisNexis Butterworths, London, 2004) at 437–440.a conclusion on the facts. That approach is entirely orthodox. And, if an insurer is in breach of its obligation to make a decision within a reasonable time, the court may order the insurer to make an election. Breach of any such order would risk the insurer being in contempt of court with all the consequences that might flow from that. Damages may also be an available remedy.[51] As it is unnecessary to resolve these issues in this case, we make these observations without expressing any final view.[52] We were informed that it is the usual practice in the Christchurch Earthquake List for an inquiry to be made as to whether an election has been made and, if not, to give suitable directions. That seems to us to be an eminently practical way of dealing with the issue.[53] Addressing the factual issue of delay, Gendall J concluded:[85] From the date of the last claim in February 2011, Tower had reached no final view as to which election it would make. This continued until as late as August 2014 when Mr Vennemann phoned Domenico seeking to settle the claim by cash payment. This is entirely inconsistent with any suggestion that upon being served with the statement of claim in April 2013 it had made an election to reinstate. I consider that when Tower was met with a statement of claim seeking more than treble its settlement offer in April 2013, it should have taken notice that amicable settlement was unlikely.[86] Despite this, and no doubt with good intentions, over the next 18 months, facing the spectre of looming litigation, Tower continued to seek to negotiate and settle by a cash payment outside the strict policy terms. Further, from April 2013, Tower was apprised of all material facts necessary to achieve settlement – the only impediment from that time was the impediment of deadlock between the parties.[87] Generally, a party can only rely for so long on ongoing negotiations as evidence that no election has been made. There comes a point where the law will deem an election and, on the specific facts of this proceeding, but, as I have noted above, only here by a rather fine margin, I find that this time has passed. In reaching this conclusion, I have been cognisant of the unique circumstances which exist in the wake of a substantial natural disaster such as the Canterbury earthquakes and the difficult position Tower was facing here in light of the shifting and perhaps extreme stance taken by Domenico. That said, from February 2013 both parties knew that there was a total loss under the policy. The parties also knew from the end of April 2013 that they were poles apart in their assertions of quantum. Tower endeavoured subsequently and perhaps commendably to bridge that gap but this was unsuccessful and at some point needed to end.[88] As election is referable to an option under the policy, I consider the election here can only be to pay indemnity value under the policy, unless and until one of the triggers for a higher amount has become operative. The repeated and unsuccessful attempts by Tower to settle the claim by a payment of cash outside the policy terms cannot change that position here. Thus, Tower is liable to make immediate payment to Domenico of indemnity value. If, however, Domenico chooses to rebuild (either on the situation or elsewhere) or to buy another house, Tower's liability will likely increase.This is consistent with the terms of the policy:We are not bound to:pay more than the present day value if you have full replacement value until the cost of replacement or repair is actually incurred. If you choose not to rebuild or repairyour house or buy another house we will only pay thepresent day value and the reasonable costs of demolition and removal of debris including contents[54] For reasons we shortly discuss, we consider it was not open on the pleadings for the High Court to find that TOWER had made an election through delay or for the Court to itself make the election on that ground. Given a rehearing is inevitable,we offer no view about the correctness of Gendall J's factual conclusions on delay.Submissions on election through delay[55] Mr Harris submitted that the amended statement of claim was explicit in specifying the basis upon which the plea of election was raised. In deciding at theend of Domenico's case at trial that TOWER would not call evidence, Mr Harris saidhe relied on the pleadings. If there had been any intimation that election through delay was in prospect, he would have called evidence on that topic. For example, he would have called TOWER witnesses to explain in detail all factors relevant to the delay and who was responsible for it. In particular, it would also have been necessary for the witnesses to have canvassed the role of Claims Resolution Services Ltd and the consultants it engaged to assess the rebuilding costs. In short, the possibility that the Judge might find that TOWER had made an election through delay was not raised during the hearing, so TOWER had no opportunity to address the issue.[56] In response, Mr Webb submitted that the issue of election was clearly raised by the pleadings and that it was open for the Judge to make a finding of election by delay.Discussion[57] We do not accept Mr Webb's submission. We are satisfied that Domenico'samended statement of claim was explicit in identifying by the particulars cited the basis upon which Domenico was advancing the election argument. The transcript of the opening and closing submissions made by counsel supports Mr Harris' position. Domenico's counsel in the High Court (not Mr Webb) made it clear in opening that reliance was placed on TOWER's email of 8 April 2013 and the conversations in August 2014. No reference was made to delay. Rather, the case was that the election had been made by the pleaded particulars and it was too late for TOWER to resile from it. The only witness called was Mr Da Col.[58] The transcript supports Mr Harris' submission that, at the conclusion of Domenico's case, he relied on the particulars given in the amended statement ofclaim in deciding not to call further evidence. He made his closing submissions to the Court on that basis. In her closing, which followed that of Mr Harris, counsel for Domenico stated:The plaintiff's primary case is that TOWER elected to settle in cash andcannot resile from that position. Its secondary argument is that it is too late given the passage of time since acceptance of the claim and proceedings issuing for the insurer to change its position.[59] Later in her closing, counsel for Domenico referred to the particulars relied upon in terms of [10] of the amended statement of claim as an election by TOWER to settle by a cash payment. Counsel added:If the court prefers the election made by TOWER's lawyer then we have asituation where an insurance company has taken over four years to make anelection. This itself gives rise to the plaintiff's secondary argument and an election made outside a reasonable time is not an election – the result is the same – that the plaintiff is entitled to cash.[60] The Judge, rightly in our view, rejected this last proposition.[61] Mr Harris was permitted a reply on behalf of TOWER in which he confirmed that although Mr Venneman was available to give evidence, he was not called because it was unnecessary on the pleading. Mr Harris added that there was no pleading that it was too late for TOWER to reinstate and that TOWER would have called evidence if that had been suggested.[62] The essential function of pleading in our trial system has been repeatedly emphasised. In Brownlie v Shotover Mining Ltd it was said:21Care and accuracy in pleading is essential if justice is to be done. Pleadings are not to be treated as a mere formality. Rule 108 [now r 5.26 High CourtRules] requires the Statement of Claim to give such particulars "as maysuffice to inform the Court and the party or parties against whom relief issought of the plaintiff's cause of action". A defendant is entitled to preparehis case and conduct it on the basis that he is only required to meet the case pleaded against him. He must be prepared to meet the case disclosed on a fair reading of the pleadings, so that unduly refined objections can be disregarded where the intention is sufficiently clear. It will, of course, happen from time to time that there will be inadequacies in the original pleading, and these may not emerge until trial. In such cases, the proper course is for an appropriate amendment to be sought, and it will be allowed where this can be done without injustice.[63] The provision of particulars is also an essential part of the function of the civil justice system. In Re Securitibank Ltd v Rutherford Barker J said:22The function of particulars is to carry into operation the over-riding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, incidentally, to reduce cost. Their function has been stated inter alia:(a) To inform the other party of the nature of the case he has to meet, as distinguished from the mode in which the case will be proved;(b) To prevent the other party from being taken by surprise;(c) To enable the other party to know with what evidence he ought to be prepared; and(d) To limit and define the issues.[64] Where it is desired to make a substantial departure from the pleadings, it is the duty of the Judge and counsel on both sides to see that a proper application is made for leave to amend the pleadings. The proposed amendment should ordinarily21 Brownlie v Shotover Mining Ltd CA181/87, 21 February 1992.22 Re Securitibank Ltd (No. 25) HC Auckland A355/81, 10 October 1983.be put in writing so that counsel on the other side may consider it and apply for an adjournment if the nature of the amendment is one which involves the calling of further evidence.23[65] In the present case, we are satisfied that a finding of election through delay was not open on the pleadings and was not raised in argument. If the Judge was contemplating a finding that was plainly outside the pleadings and argument, he ought to have given the opportunity to both sides to address the issue and to seek an amendment to the pleadings. That did not occur.[66] In the circumstances, we are satisfied that TOWER was seriously prejudiced by the course of events. It follows that the appeal must be allowed and the judgment of the High Court set aside. A rehearing will be directed. Mr Harris sought an orderfor entry of judgment in TOWER's favour but we are satisfied a direction for arehearing is the proper course.Result[67] The appeal is allowed and the High Court judgment is set aside.[68] The cross-appeal is dismissed.[69] The proceeding is remitted to the High Court for rehearing in the light of the judgment of this Court.[70] The respondent must pay one set of costs to the appellant for a standard appeal on a and A basis together with usual disbursements. There is no certification for second counsel.[71] Costs in the High Court are to be dealt with in that Court.Solicitors:Gilbert Walker, Auckland for AppellantGrant Shand, Christchurch for Respondent23 J Leavey & Co Ltd v George H Hirst & Co Ltd [1944] KB 24 at 27–28; and Waller v Davies[2007] NZCA 51, [2007] 2 NZLR 508 at [90].