GOLDEN RULES

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Deal­ings be­tween pow­er­ful fi­nan­cial ser­vices com­pa­nies and lit­tle peo­ple are riven with dou­ble stan­dards and a crush­ing power im­bal­ances.

We’ve seen a lot of that since the Can­ter­bury earth­quakes left fam­i­lies bat­tling to get their homes prop­erly fixed.

The case of Greg Young and Tower in­sur­ance was a case in point.

Young’s house was dam­aged in the Can­ter­bury earth­quakes of 2010 and 2011. Tower wanted to re­pair. The man said only a re­build was pos­si­ble.

Cue long and gru­elling court fight.

Long story short: In De­cem­ber High Court found Tower was wrong, Young was right.

The High Court judgement re­vealed Tower had kept se­cret a short re­port it had com­mis­sioned which said Young was right that his home should be re­built.

Not re­veal­ing that re­port to Young was a breach of good faith by Tower to its pol­i­cy­holder, the Treat in­sur­ers with cau­tion Stand your ground

Know your obli­ga­tions

High Court found.

High Court judge David Gen­dall said: ‘‘The plain­tiff al­leges that with­hold­ing the June 2011 re­port ... which, al­though only a brief re­port, did rec­om­mend a re­build of the house, is a se­ri­ous breach of the de­fen­dant’s obli­ga­tion of good faith. I agree.’’

Young’s bat­tle has es­tab­lished prece­dent in­sur­ers must take no­tice of. But there’s an­other story here.

Imag­ine what would have hap­pened if Tower had caught Young hav­ing hid­den some­thing from it, breach­ing his duty of ut­most good faith to it.

The In­sur­ance Coun­cil of New Zealand, says on its web­site: ‘‘An in­sur­ance pol­icy is a con­tract of ‘ut­most good faith’ be­tween the in­surer and the cus­tomer. The in­surer is re­quired to ob­serve and hon­our the con­tract con­di­tions. The cus­tomer is re­quired to dis­close to the in­surer all ma­te­rial facts that could af­fect the risk.’’

One con­tract con­di­tion is to co­op­er­ate at claims time, which cer­tainly does not in­clude con­ceal­ing im­por­tant in­for­ma­tion.

Fail­ing to act with ut­most good faith may ‘‘jeop­ar­dise’’ a pol­i­cy­holder’s in­sur­ance cover, says the In­sur­ance Coun­cil.

What does jeop­ar­dise mean? Well, when an in­surer finds a pol­i­cy­holder has failed to act in the ut­most good faith, it may be in its rights to ‘‘avoid’’ its pol­icy, which means to tear it up.

In ad­di­tion, it may de­cide to en­ter the pol­i­cy­holder’s name on the In­sur­ance Claims Reg­is­ter, which in­sur­ers check be­fore de­cid­ing whether to is­sue poli­cies.

Ef­fec­tively, it is a black list de­vel­oped by in­sur­ers to protect them­selves from dis­hon­est peo­ple, but it is an un­reg­u­lated reg­is­ter.

They are dubbed an in­sur­ance fraudster and may not be able to get in­sur­ance again.

If you can’t get in­sur­ance, you can’t get a mort­gage.

Had Young not acted in ut­most good faith, as the High Court found Tower had, he would have been in an aw­ful lot of trou­ble.

What hap­pens to an in­surer which has breached the duty of ut­most good faith?

It has a moment of em­bar­rass­ment, and then moves on with its com­mer­cial life.

It has strength­ened my be­lief that New Zealand needs a spe­cial­ist in­sur­ance court to deal rapidly and pub­licly with dis­putes.

It’s time to make it eas­ier for the lit­tle guy.

DAVID WALKER/FAIR­FAX NZ

Greg Young sued Tower In­sur­ance, and won.

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