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Grant Shand 2015
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EQC & Insurance Newsletter #6 - July 2015

Meet the TEAM

In 2014 our clients and supporters nominated us for Insurance Specialist of the Year at the Law Awards. Unfortunately, a firm that acts for Insurance Companies won the award. This year we want to win that award, so we need your help. All you need to do is click on the below link, and fill out the form.

http://survey.keymedia.com/nz/nla/2015/nominations/submission.aspx?sid=398

Nominations are due to close MONDAY 20 JULY 2015

Multiple Events - Proof of Loss/Damage 

The Courts have confirmed the ability of insureds to recover for separate damage to insured buildings in separate quakes even where the total recovery then exceeds the sum insured under the policy.  

This has caused issues about proving the extent of the damage in each earthquake and remedial scope/costs.  In Vero Insurance New Limited v Morrison & anor [2015] NZCA 246, 16 June 2015 the Court of Appeal considered the use of a model based on ground shaking as a method of allocating damage and repair costs.  The industrial/commercial building at 23 Heathcote Street, Woolston was insured by Vero Insurance for $4,004,300 per event.  It was damaged in the Canterbury earthquakes.  The building continued to be functional and tenanted after the quakes, so was not destroyed for the purposes of the policy.  Vero paid $79,881 for damage in the September 2010 earthquake and the sum insured of $4,004,300 for the February 2011 earthquake.  It considered that the June 2011 earthquake did not increase the repair scope.  The owners, via Risk Worldwide, sought to recover $10,042,790.83.  The Court decided that the Risk Worldwide model was not as reliable as actual inspections and not of great assistance because it did not include liquefaction damage as part of its inputs.  

So, the Court accepted the Vero amounts for September 2010 and February 2011, but sent the claim back to the High Court to reassess the small amount of damage for June 2011.

 Class Actions – EQC & Southern Response

Class actions against EQC and Southern Response have been the subject of recent media attention.

This has intensified recently with the proposed class action against Southern Response.  Here is the link to Grant Cameron’s page.  Here is the Southern Response page about the proposed class action.  

There is no specific mechanism, or rule(s), by which there can be a “class action” in NZ.  Rules proposed in 2008 have never been implemented.  Recently the Court(s) have shown a willingness to permit representative actions under r4.24 of the High Court Rules. One or more person(s) sues as a representative of a group of person(s) having the same interest either with the consent of all affected people or with the permission of the Court.  This has enabled the “Feltex” and “Bank fees” proceedings.  The “Feltex” proceedings failed in the High Court and the Court ordered the representative to pay costs in excess of $5M to the successful defendants.   

Class actions are usually accompanied a “no win no fee” arrangement and a “litigation funder” that funds the costs of the process for a % recovery of any proceeds.  Insureds considering the class action need to consider whether the % foregone is a reasonable fee for what is done taking into account the current position and  what other service providers may charge for a similar work/outcome.  

We expect Southern Response to fight the class action process hard and challenge every part of it. It is difficult to know how long the process may take and how much it may cost.  Insured homeowners need to be conscious of the 6 limitation period for suing in the Court.
 

CERA New Red Zone Proposal 

CERA has released its draft red zone recovery plan.  Here is a link to it.

Taking into account the five key criteria the Chief Executive’s preliminary views on the quantum of the new Crown offers were as follows:

• For all vacant red zone land: a new Crown offer at 100% of the 2007/08 rateable land value.

• For all insured commercial red zone properties: a new Crown offer at 100% of the 2007/08 rateable land value and
  100% of the 2007/08 rateable improvements value for the insured improvements, if the insurance benefits are
  transferred to the Crown. Alternatively the owners may choose not to accept any payment for the improvements
  and keep the benefits of their insurance claims.

• For all uninsured improved red zone properties: a new Crown offer at 80% of the 2007/08 rateable land value.
  This takes into account the need to balance health and wellbeing needs and a timely recovery process with
  insurance status and precedents, costs to the Crown and fairness and consistency. No payment should be made
  for uninsured improvements. The owners could choose to relocate, salvage
  or sell any uninsured improvements, or they could elect for the Crown to demolish the improvements. The Crown
  would meet the demolition costs.

Comments on the proposal were required by 9 July 2015
EQC Act Reform 
 
Discussions begin on reform of EQC Act

Minister Responsible for the Earthquake Commission (EQC), Gerry Brownlee, and Associate Minister of Finance, Steven Joyce, say the Government has developed a number of proposals to reform the EQC Act, which are being released for public discussion today.

“These reforms are designed to ensure the EQC scheme remains focussed on insuring homes; resolves the difficulties experienced in Canterbury with the interaction of land and building cover; better integrates EQC and private insurers’ claims handling processes; and ensures the ongoing financial sustainability of the scheme,” Mr Brownlee says.

“We also propose keeping EQC’s role in supporting research and education about New Zealand’s natural hazards and how to reduce their impact.”

“This work helps build community resilience by reducing the loss and disruption caused by natural hazards,” Mr Joyce says.

“We believe the proposals in the document we are releasing today will, if implemented, better position homeowners, EQC and private insurers to plan for and recover from future natural disasters.”

The proposals in the preferred reform package are intended to work together to strongly focus EQC on insuring New Zealander’s homes, and to improve the experience for claimants.  In summary the proposals are:
  • EQC to exit from contents insurance: private insurers are willing to take on this business.  Leaving contents insurance to private insurers will enable EQC to focus on insuring homes and will eliminate uncertainties and friction regarding EQC contents claims.
  • Extending EQC building cover to include more site-works and access-ways to the building: this closely reflects private insurer practice in commercial claims.  It would largely remove the uncertainties and friction caused by the interaction between building and land cover by including in EQC building cover any siteworks (land works) necessary to repair or reinstate the building, and access to it.
  • Increasing the cap on EQC building cover from $100,000 +GST to $200,000 +GST: Increasing the cap by this quantum recognises that costs which are presently part of EQC’s land cover will become part of EQC’s new building cover.  It is expected that increasing the cap will lead to lower premiums being charged to homeowners by private insurers.  This will also reduce the interaction between EQC and private insurers on over-cap claims by about two-thirds.  Over-cap claims have been a major point of friction and uncertainty for claimants in Canterbury.
  • Limiting land cover to situations where rebuilding is not practicable: this will ensure that homeowners continue to receive insurance for the land if their home cannot be rebuilt on its original site and they are forced to buy another home elsewhere.  EQC would no longer provide cover for land damage that has not caused damage to the house itself, for example undulations to land around the house.
  • Requiring claimants to lodge their EQC claim with their private insurer: this will reduce uncertainty for claimants and is expected to improve their claims experience.  Insurers will need to validate the claimant’s status before forwarding the claim to EQC, thus reducing the current information churn between the claimant, EQC and insurers.  If this claims lodgement proposal works as intended, and agreements are reached between EQC and insurers, insurers will over time take an even greater role in the claims management process.
  • Technical improvements in drafting core elements of the legislation: this should improve the experience for claimants by increasing clarity about what the EQC scheme covers.

The review is forward looking and will not have any impact on the handling or outcome of existing EQC claims.  Mr Brownlee says the Government welcomes public submissions on the proposals.

“Ministers will carefully consider submissions before making decisions on a reform package.  That package will then form part of a Bill which we expect to introduce to Parliament in early 2016.” 

The deadline for submissions is 5:00pm on Friday 11 September 2015
 

Insurance Settlement Agreement Not Set Aside
 

In Prattley Enterprises Ltd v Vero Insurance NZ Ltd [2015] NZHC 1444 the High Court (Dunningham J) considered a claim by Prattley to set aside the insurance claim settlement agreement it entered into in August 2011 with Vero Insurance for damage to its building known as “Worcester Towers”.  

The building at 103-105 Worcester Street, Christchurch was damaged in the earthquakes on 4 September 2010, 26 December 2010 and 22 February 2011.  It was “red stickered” and demolished in September 2011.  In August 2011 Prattley entered into an agreement with Vero to settle the insurance claim(s) at $1,050,00 plus GST.  Later Risk Worldwide became involved and prosecuted the Prattley claim(s) seeking a further $6.5M based upon a claim to the sum insured of $1.6M per event.  

The insurance policy was an indemnity insurance policy.  The Court decided that indemnity value was calculated as the market value and the insured did not intend to reinstate the building.  The Court decided that Prattley could not recover anything for the September 2010 and December 2010 earthquakes because it had not spent any money on repairing that damage.  So, its insurance policy entitlement of market value was actually less than the amount it received under the settlement agreement.  

The effect of this decision was that strictly the Court did not have to consider the argument to set aside the settlement agreement, but it still did so.  The Court decided that Vero had acted fairly and that Prattley had in any event relied on its own advisers before agreeing to the settlement.  There were also no breaches of the Fair Trading Act or Contractual Mistakes Act and the agreement was a binding settlement agreement.  Vero indicated that it would seek indemnity costs against Prattley and would look to Risk Worldwide for payment if Prattley did not pay.  

The costs issue will be considered separately

MAS v EAST - Need to incur the cost/s of rebuild/repair
 

In Medical Assurance Society of NZ Ltd v East & ors [2015] NZCA 250, 17 June 2015 the Court of Appeal allowed the appeal by MAS against a High Court (Whata J) decision on the timing of payment of replacement cost and dismissed it on the standard of the work.

The owners’ house was damaged in the February 2011 earthquake.  The concrete slab had a floor level differential of 44mm and areas of the slab had a slope greater than .5%.  The owners proposed underpinning the slab and MAS proposed relevelling by LMG.  The owners engaged Risk Worldwide.  They sought a judgment for remediation costs of $3.096M (rebuild).  Risk Worldwide was to be paid 35% of any amount recovered above $1.4M.  The $3.096M was based on a quantity surveyor’s estimate (QS Red- Brian McMorran).  The Court noted that the QS estimate contained significant errors and the correct estimate was about $1.5M.

The Court decided that the owners were only entitled to be paid the costs of restoring the house once they had incurred those costs which could be by the entry into a build contract.  It also decided that the house must be restored to the standard required when the work was done and not the standard as to when the house was built as suggested by MAS.

We recently received a signed Canterbury Crusaders jersery, it is proudly displayed on our wall.

GO THE CRUSADERS!!!!

#Canterbury #Christchurch

Should you wish to enquire about the contents of this newsletter, or if you have any other queries in relation to Earthquake claims. please contact us:

Grant Shand
0800 474 263
grant@grantshand.co.nz

 
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