A New Zealand Supreme Court ruling in favour of IAG in an earthquake-damaged home dispute has affirmed long-held legal principles and averted far-reaching consequences, the Insurance Council of New Zealand (ICNZ) says.

The ruling by the country’s highest court of appeal found the buyers of the property were not entitled to restore the home and claim the replacement sum under the policy entered into by the previous owners – despite believing those rights had been assigned to them.

“In this case, the purchaser did not seek the insurer’s consent to the deed of assignment,” ICNZ CEO Tim Grafton said. “Therefore, one could not legally be provided by the [former] property owner.

“The ability of insurers to choose whether to take on assignments is fundamental in their ability to adequately manage the risks they choose to hold.”

The property was damaged in the Canterbury earthquakes in 2010 and 2011 and the owners made a claim against IAG NZ for the damage. But after three years it remained unresolved and they decided to sell.

At the time of the sale they had not incurred any costs from repairing the property, but as part of the sale and purchase agreement they assigned their rights regarding the claim to the new owners.

Mr Grafton says the Supreme Court ruling also confirms that an assignee can only pass on a loss they have actually suffered.

“Selling a property instead of repairing it means the policyholder has avoided the financial cost of the repair work, which in essence means they have not suffered a loss,” he said. “Claimants cannot assign a claim to recover costs they have chosen not to incur.”

He says the decision has reaffirmed New Zealand insurance contract law which has been in place for decades, as well as principles going back to the 1860s in England.

“If [this case] had gone the other way, that could have potentially led to people re-opening claims,” he told insuranceNEWS.com.au. “It would have set a new precedent.”

IAG NZ was contacted by insuranceNEWS.com.au, but declined to comment.

The case is Ruiren Xu and Diamantina Trust Ltd v IAG New Zealand Ltd.