A landmark Court of Appeal ruling means landlords are now unable to recover the cost of any damage accidentally caused by tenants
AMI Insurance had been attempting to recover a $216,413.28 repair bill since March 2009, after a house it had insured was gutted by fire when a pot of oil was left unattended on high heat. Initially AMI applied to the High Court, but the tenants Kenji & Tieko Osaki argued successfully that the case should be heard by the Tenancy Tribunal.
When the Tenancy Tribunal ruled for AMI, the case went back to the District Court which reversed the decision, saying that the Property Law Act 2007 applied in this case and that the Osaki’s were not liable. Consequently, the High Court (in August 2014), and yesterday the Court of Appeal upheld this finding.
Under the Property Law Act, commercial tenants have immunity if there is inadvertent damage, and in this case the court ruled that this immunity applied to residential tenants as well.
The decision leans toward a “consumer protection” angle, in that:
- The court’s approach was to evaluate the “source of money” used to pay the premiums, reasoning that the insurance premiums form part of the market rent.
- The court also noted the imbalance of negotiation between an ordinary tenant (without a solicitor to advise) and a commercial lease where both parties will have legal advice.
Does this create a precedent?
It may do, but it is difficult to say without knowing if the judgement will be appealed or seeing any more similar cases before the courts.
Will insurance premiums for Landlords increase?
Probably, but not by a lot. Firstly, it is hard to say how many of these claims are concluded with the insurer recovering from the tenant, as usually the insurer only attempts recovery where the tenant was negligent, reckless or malicious in some way.
How will this impact the cover I have for my property?
The decision means that the excesses and any underinsurance will not be recoverable from the tenant, so it’s a good reminder to check that your sum insured is sufficient for your properties.
Note also that as the Initio is effectively insuring the tenant, the tenant is unknown, and the general market may require more information on the tenants before providing cover, or require a more robust tenant vetting process.
We understand that most landlords who have taken the steps to insure their property will have good practices in place, but another reminder to take care when selecting tenants.
As a Landlord how should I respond?
It is interesting that the Court of Appeal noted that insurance premiums form part of market rent. The obvious conclusion is that the tenant should pay the increased premium (and bear in mind that the tenant’s insurance premiums will reduce as they have no need to cover their liability to the landlord).
Alternatively, the commercial model could be applied, whereby the tenant pays the premium in addition to the rent as a condition of the lease. This approach is yet to be tested in the courts.
Will be there be an appeal?
AMI responded to the media: “At this moment we are still considering the significance of the outcome, most importantly for our customers, and are establishing a working group to look at the consequences.
While we must accept the Court’s decision we find this difficult to reconcile with the powers in the residential Tenancies Act for the Tribunal to order a tenant to pay a landlord money by way of damages or compensation for any breach of the tenancy agreement.
This is now a matter for parliament to address, and we are also considering how we can raise the matter into that arena.”
This article includes some of our opinion based on technical experience in the insurance market, we recommend you seek formal legal advice if you are seeking advice on how this impacts your specific situation and risk.