Lessor cannot recover insurance excess from lessee when s269 Property Law Act applies
Section 269 of the Property Law Act 2007 has been in force now for approximately 10 years. That is the section that exonerates the lessee for accidental damage to the lessor’s property if the lessor is insured for that damage or agreed to insure for that damage. This has the practical effect of making the lessor’s insurance available for the benefit of the lessee as well, as though the lessee is named as an insured under the lessor’s policy. There are only two exceptions to the exoneration provided by section 269: where the lessee deliberately causes the damage, or where the lessee causes the damage while committing an imprisonable offence.
Recently, the Court of Appeal in Holler v Osaki  2 NZLR 811 decided that Section 269 also applies to residential tenancies governed by the Residential Tenancies Act 1986.
One issue that has remained unclear up until now is whether a lessor can still recover the lessor’s insurance excess from the lessee even when section 269 applies. The issue came before the High Court in Linklater v Dickison and Others  NZHC 2813.
Linklater v Dickison and Others
Ms Linklater sued her former tenants in the Tenancy Tribunal for damage they had caused to her tenanted house. Her claim included $1,100 for her insurance excess that she had had to pay towards her insurance claim for damage done to carpets in the house. She was unsuccessful.
She appealed the Tribunal’s decision to the District Court. The District Court held the Tribunal was correct to rule that Ms Linklater was not entitled to recover the amount of the insurance excess because of section 269 (1) (a) of the Property Law Act 2007. A ruling to the contrary would have required the tenants ‘… to make good …’ the damage to the carpet that was the subject of the insurance claim. Section 269 (1) (a) prevented this. Not content, Ms Linklater appealed again to the High Court.
She argued that section 269 should be interpreted and applied so as to permit the lessor to recover the excess. She argued that the damage to the carpet was not insured to the extent of the excess. However, the High Court noted that section 268(1) says the exoneration provided by section 269 will apply where the tenanted premises are damaged by:
… an occurrence of any other peril against the risk of which the lessor is insured …
Ms Linklater was insured against damage done to the carpets. The High Court said this meant the protection for the tenant is not limited to the extent of the indemnity which the lessor is entitled to under the policy. It is the fact that there is insurance, not the extent of it, which protects the tenant. The excess payable goes to the extent of the indemnity, not whether the property is insured for the damage that occurred.
This decision finally lays to rest one of the remaining areas of dispute surrounding the application of section 269. Where the lessor is insured for the damage that has occurred, the lessor cannot recover the insurance excess from the lessee.
What this means in the real world
Lessors/landlords must now accept that where the lessee/tenant is exonerated under section 269, the exoneration extends to the uninsured excess under the lessor’s/landlord’s insurance policy. It is not possible to contract out of section 269.
Liability insurers of lessees/tenants can now finally point to legal authority when resisting lessors/landlords who try to recover their insurance excess from lessees/tenants.