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

1. Welcome

2. Housekeeping
• Cell-phones
• Emergency Exits
• Toilets
• Drop, Rock and Roll for an Earthquake

3. Website: www.southernresponse.co.nz

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
• Insured‟s 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 insured’s 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 insurer‟s 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

16. Questions and Answers

17. Website: www.southernresponse.co.nz