The Supreme Court of New Zealand Reaches a Reinstatement Decision

Recently, earthquake damaged properties in Canterbury brought the insurance entitlements of on sold property owners into the spotlight. Many of the affected properties were sold in their damaged condition, with vendors assigning any claims lodged under their insurance policy to the purchaser. This, in turn, led to the new owners’ rights to cover being deliberated by the Supreme Court of New Zealand.

Case Background

The case of Xu v IAG NZ Ltd [2019] NZSC 68 recently covered this particular issue. In this instance, the Barlows sold their earthquake-damaged property to Xu and the Diamantina Trust Ltd. As required, the new homeowners were assigned the Barlows’ IAG insurance claim. The Barlows’ insurance policy offered two different solutions that could be claimed, in the appropriate circumstances, to address damage to the property.

The first option was for the insurer to issue reinstatement benefits, which would cover any costs involved in returning the affected property to an as new condition. In such cases, the damaged residency would be restored as closely as possible to its new state, with any necessary extra costs during the process also being incurred by IAG.

Alternatively, the vendors’ insurance policy provided the option for applicants to acquire indemnity benefits. This is where individuals receive funds that equate to the estimated cost of their loss. In such instances, the insured is given the financial means to return their property to the condition it was in immediately before the damage.

Indemnity benefits act to cover any direct economic loss suffered, as opposed to completely restoring the property. It is for this reason that, often, those who receive indemnity benefits are granted significantly less than those who are issued reinstatement benefits.

The Decision

In this case the Supreme Court ruled that, under the IAG New Zealand Ltd insurance policy, reinstatement benefits could not be assigned.

IAG’s insurance policy defines reinstatement benefits as personal, meaning that they can only be claimed by the individual who was originally insured. This means the property purchaser is ineligible for reinstatement benefits, even after being assigned the Barlows’ IAG insurance claim, because they have no accrued right to be reinstated. As such, the Supreme Court of New Zealand saw that Xu and the Diamantina Trust Ltd were granted indemnity benefits.

It is, however, important to note that some insurers may allow for reinstatement benefits to be assigned. If you are interested in purchasing an earthquake-affected property, you will likely benefit from reviewing the specific insurance claim you would be assigned. By doing this you can determine whether, under the specific policy conditions, you would be entitled to reinstatement or indemnity benefits.

For more information, speak to your insurance and/or legal advisor today.


Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.

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