By Charlotta Harpur, Heaney & Partners
The February 2011 earthquake disaster was massive, not only for those directly affected, but later for the insurers dealing with claims for thousands of properties.
Due to the high incidence of home insurance in New Zealand it became a large international event for insurers and their re-insurers to deal with. Over 583,000 claims were made to the Earthquake Commission (EQC) and insurers for damage to approximately 168,000 residential buildings.
Inevitably, disputes have arisen as to the extent of insurance cover in various situations.
The Government is involved through the EQC and Southern Response. The EQC pays out claims up to $100,000, known as the ‘EQC cap’, once a claim is over cap the insurer steps in and pays the remainder (or commissions the repair work). The claim has to be accepted by EQC in order for the insurance cover to apply.
Southern Response was created by the Government to take over responsibility for insurance policies issued by AMI. AMI insured around a third of the residential properties in Christchurch, and its coffers soon ran dry when claims came pouring in.
The option of leaving the insured owners without any cover was not a palatable one, and claims are now processed and settled by Southern Response.
There are still approximately 3000 unresolved residential building claims. Of concern to the Government has been the time it has taken to resolve claims. Two recent developments are set to deal with this issue.
The first is a public enquiry, led by Dame Silvia Cartwright into the operational practices of the EQC both before and after the Canterbury Earthquakes. The Terms of Reference include considering lessons that can be learnt and any changes that ought to be made as a result. The public enquiry will be focused on processes, and will not address resolution of any individual claims.
The inquiry is to report by 30 June 20191.
The second development is a Bill introduced in August 2018 to establish a specialist Canterbury Earthquakes Tribunal where insured owners of residential properties can apply to have their claims dealt with faster and at a lower cost than by going through the Courts. The Bill establishing the Tribunal is currently going through the Select Committee stage and is intended to come into force early this year.
The Tribunal will deal with the Canterbury earthquakes only, but we can see potential for it to be opened up for other claims if the need arises, such as those arising out of the Kaikoura earthquake in 2016 and the inevitable second-wave of disputes over faulty repair work to earthquake damaged buildings.
Meanwhile, in the High Court, Southern Response may face a class-action. This would concern claims that have settled, allegedly based on Southern Response providing repair estimates to the insured that excluded certain items such as the cost of consultants, demolition and design.
The allegations centre on Southern Response’s engineers preparing two documents outlining the estimated costs to rebuild, and providing only the document excluding additional costs to the insureds.
In November 2018 the Court determined that policy holders Mr and Mrs Ross were entitled to bring a claim as representatives of a group of other policy holders with Southern Response2. The indication was that they may represent up to 3000 policy holders, although it is likely that a much smaller number will elect to be part of the litigation.
In November 2018 another earthquake related case came before the court3. This concerned the design of the CTV building which collapsed in the earthquake leading to many lives being lost.
The Royal Commission of Inquiry found shortcomings in the design and in the lead engineer’s (Dr Reay’s) lack of supervision over a junior engineer. The Government successfully challenged the decision by the Institution of Professional Engineers NZ Inc (IPENZ – now Engineering New Zealand), to end its disciplinary proceedings against Dr Reay, when he resigned from IPENZ. IPENZ may now re-open its investigation.
No doubt there will be more lessons to be learnt and more cases to come, as the aftermath of the earthquakes rumbles on.
2 Ross v Southern Response Earthquake Services Limited  NZHC 3288
3 Attorney-General v Institution of Professional Engineers New Zealand Incorporated & Anor  NZHC 3211
Over 583,000 claims were made to the Earthquake Commission (EQC) and insurers for damage to approximately 168,000 residential buildings. Inevitably, disputes have arisen as to the extent of insurance cover in various situations.