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Canterbury Earthquake - Homeowners Legal Perspective

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EQCfix New Zealand
EQCfix New Zealand

This document discusses several issues that homeowners may face when making earthquake damage insurance claims: 1. Insurers are obligated to settle claims within a reasonable time but often cite regulatory delays, workforce shortages, and workload as reasons for delays in settling claims. This delay can result in losses for homeowners. 2. When insurers elect to repair or rebuild damaged homes, the policy becomes a building contract where the insurer controls the project, but the homeowner has no liability for costs. Reinstatement is usually to "as new" condition according to common building methods and materials. 3. In practice, insurers often take a cost-sensitive approach that leads them to impose design changes on homeowners and settle claims

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Welcome
Housekeeping Cell-phones Emergency Exits Toilets Drop, Rock and Roll for an Earthquake
Website: www.southernresponse.co.nz
Selected Homeowner EQ Insurance Issues Dr Duncan Webb
Delay Insurer must settle claim within a reasonable time. Alleged roadblocks: Regulation (red zone review, MBIE guidelines, s 124 notices, consenting) Workforce shortages Internal workload constraints Query is obligation to be viewed at time the obligation was assumed (renewal) or time of performance? Note: most policies have provisions under which settlement could occur immediately (pay cash) Query whether s 30 of the CGA is applicable?
Delay: Loss / Remedy Direct costs: mortgage / rent alternative accommodation Stopgap measures temporary repair Indirect loss Loss of amenity / aesthetic Stress / anxiety Damages Specific damages General damages (aggravated?) Exemplary damages (probably not)
Reinstatement Insurer to arrange / undertake project Contract becomes a building contract Must complete regardless of cost / sum insured Robson v New Zealand Insurance Co Ltd [1931] NZLR, 35). Insured does not have right to control project Insured has no liability to builders / contractors Reinstatement of earthquake damage in terms of policy: Usually to as new Query design changes is there a good faith duty
Reinstatement Standard We will pay to repair or rebuild your house to an as new condition Repair: Query where only a part of an element is repaired (e.g. a portion of the foundation or a portion of a drive). As new is more than just appearance as strong / durable / functional / aesthetically pleasing as new May be more than MBIE guidelines (especially for premium homes or homes that were new at the time of loss). We will use building materials and construction methods in common use at the time of repair or rebuilding: Open fires / Wooden glazing / Tile roofs / Brick homes The relevance of building rules - The Act / The Code / MBIE Guidelines
Reinstatement reality Insured generally involved in some way with design / costing Insurer highly cost sensitive Query right to place hold on projects due to cost blowout / unforeseen problems (e.g. leaky home) Insurers generally require insured to be party to bespoke building contract no terms negotiable Oftentimes insurer seeks to impose design changes (stud height, detached garage, off the rack homes TC3 Friendly) Frequently tradeoff in rebuild of pro and con design improvements
Some concerns Take it or leave it approach No duty to explain misrepresentations / Fair Trading issues? Sometimes significant alteration of policy rights Land payment assignments Significant design changes Insureds giving away rights (e.g. against builders and contractors) Express or implied threats of the queue.
Elections: A contractual crossroad Insurer election to reinstate by either repair/rebuild or pay cash. Obligation to elect within a reasonable time Insurers tend to equivocate for as long as possible Arguable that a failure to elect / repair can be taken as either a breach of the contract, or an election to pay cash? Effect of election to change the rights and obligations of the parties Must be unequivocal
The insureds election Insured may have an election (triggered generally by insurer deeming a rebuild) If your house is damaged beyond economic repair you can choose any one of the following options.. No particular form of election needed (but insurers often use a settlement election form). When does insurers conclusion that it is beyond economic repair / a total loss become binding? Duty to decide in good faith (at least without malice or caprice) Query: Can insurer unelect once they have offered an insured an election that has been made?
Cashing out If your house is damaged and can be repaired, we can choose to pay you the cash equivalent of the cost of repairs. Assumes that repairs are / will be undertaken Query whether payment in advance required to facilitate works Not cash equivalent of our estimate of what the repairs would be completed for by our contractors By electing cash insurer relinquishes control over Cost reinstatement Repair methodology Must pay all reasonable costs of repair. Court likely to err in favour of insured
Cash Settlements Outside of Policy Insurer pays cash equivalent of their own costings. Often reduces / does not pay for some potential costs. Full and final Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2013] NZHC 1433 Contingency (no) Builders margin (yes) Professional fees (yes) Costs of demolition (if to be incurred) Project management (yes) Tradeoffs: no obligation to repair (check terms of settlement) Control of design / improvements
Conclusions Insurers have a control approach Fundamental problem with delay (which could be solved by cash election) Many / most settlements are outside of policy Not objectionable in principle but: Often contains significant concessions No meaningful legal advice Legal advice cannot overcome realities of absence of choice Appropriate out of policy settlements can suit many insureds
Questions and Answers
Website: www.southernresponse.co.nz

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Canterbury Earthquake - Homeowners Legal Perspective

  • 2. Housekeeping Cell-phones Emergency Exits Toilets Drop, Rock and Roll for an Earthquake
  • 4. Selected Homeowner EQ Insurance Issues Dr Duncan Webb
  • 5. Delay Insurer must settle claim within a reasonable time. Alleged roadblocks: Regulation (red zone review, MBIE guidelines, s 124 notices, consenting) Workforce shortages Internal workload constraints Query is obligation to be viewed at time the obligation was assumed (renewal) or time of performance? Note: most policies have provisions under which settlement could occur immediately (pay cash) Query whether s 30 of the CGA is applicable?
  • 6. Delay: Loss / Remedy Direct costs: mortgage / rent alternative accommodation Stopgap measures temporary repair Indirect loss Loss of amenity / aesthetic Stress / anxiety Damages Specific damages General damages (aggravated?) Exemplary damages (probably not)
  • 7. Reinstatement Insurer to arrange / undertake project Contract becomes a building contract Must complete regardless of cost / sum insured Robson v New Zealand Insurance Co Ltd [1931] NZLR, 35). Insured does not have right to control project Insured has no liability to builders / contractors Reinstatement of earthquake damage in terms of policy: Usually to as new Query design changes is there a good faith duty
  • 8. Reinstatement Standard We will pay to repair or rebuild your house to an as new condition Repair: Query where only a part of an element is repaired (e.g. a portion of the foundation or a portion of a drive). As new is more than just appearance as strong / durable / functional / aesthetically pleasing as new May be more than MBIE guidelines (especially for premium homes or homes that were new at the time of loss). We will use building materials and construction methods in common use at the time of repair or rebuilding: Open fires / Wooden glazing / Tile roofs / Brick homes The relevance of building rules - The Act / The Code / MBIE Guidelines
  • 9. Reinstatement reality Insured generally involved in some way with design / costing Insurer highly cost sensitive Query right to place hold on projects due to cost blowout / unforeseen problems (e.g. leaky home) Insurers generally require insured to be party to bespoke building contract no terms negotiable Oftentimes insurer seeks to impose design changes (stud height, detached garage, off the rack homes TC3 Friendly) Frequently tradeoff in rebuild of pro and con design improvements
  • 10. Some concerns Take it or leave it approach No duty to explain misrepresentations / Fair Trading issues? Sometimes significant alteration of policy rights Land payment assignments Significant design changes Insureds giving away rights (e.g. against builders and contractors) Express or implied threats of the queue.
  • 11. Elections: A contractual crossroad Insurer election to reinstate by either repair/rebuild or pay cash. Obligation to elect within a reasonable time Insurers tend to equivocate for as long as possible Arguable that a failure to elect / repair can be taken as either a breach of the contract, or an election to pay cash? Effect of election to change the rights and obligations of the parties Must be unequivocal
  • 12. The insureds election Insured may have an election (triggered generally by insurer deeming a rebuild) If your house is damaged beyond economic repair you can choose any one of the following options.. No particular form of election needed (but insurers often use a settlement election form). When does insurers conclusion that it is beyond economic repair / a total loss become binding? Duty to decide in good faith (at least without malice or caprice) Query: Can insurer unelect once they have offered an insured an election that has been made?
  • 13. Cashing out If your house is damaged and can be repaired, we can choose to pay you the cash equivalent of the cost of repairs. Assumes that repairs are / will be undertaken Query whether payment in advance required to facilitate works Not cash equivalent of our estimate of what the repairs would be completed for by our contractors By electing cash insurer relinquishes control over Cost reinstatement Repair methodology Must pay all reasonable costs of repair. Court likely to err in favour of insured
  • 14. Cash Settlements Outside of Policy Insurer pays cash equivalent of their own costings. Often reduces / does not pay for some potential costs. Full and final Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2013] NZHC 1433 Contingency (no) Builders margin (yes) Professional fees (yes) Costs of demolition (if to be incurred) Project management (yes) Tradeoffs: no obligation to repair (check terms of settlement) Control of design / improvements
  • 15. Conclusions Insurers have a control approach Fundamental problem with delay (which could be solved by cash election) Many / most settlements are outside of policy Not objectionable in principle but: Often contains significant concessions No meaningful legal advice Legal advice cannot overcome realities of absence of choice Appropriate out of policy settlements can suit many insureds