HOT TOPICS:   House prices  |  KiwiSaver   | LVRs                                                RESOURCES:    Economic calendar   |   Cashback incentives

Find your KiwiSaver fund

The comment stream

Reader poll

Will the price of unleaded 91 petrol fall below $2 at the pump?

Choices

Insurance litigator Andrew Hooker looks at some of the contentious Christchurch earthquake claim cases rattling through the courts with some warnings to the insured about how to stay on guard. Your experience?

Posted in Personal Finance

By Andrew Hooker*

Nearly two years after the February earthquake in Christchurch, many businesses and individuals find that their claims have not progressed far.

While many have been paid by EQC and a large number of claims have been settled by insurance companies, there is a huge number of people becoming more and more bogged down in arguments with insurance companies about what they are actually entitled to.

Insurance companies become more and more inventive with their ideas about how buildings can be repaired.

And both commercial and residential buildings that were once deemed total losses, are now miraculously transforming into relatively inexpensive repair jobs. 

However, those people who have either the financial or mental strength, and the pure doggedness to see the matter through, are starting now to litigate with their insurance companies, and there is a large number of cases heading towards the High Court in Christchurch.

The High Court has set up a special process for handling earthquake related claims, and these are being progressed through a tightly managed case management process.

Many of these cases have common threads, relating primarily to disputes over what a replacement policy entitles an insured to, and the extent to which an insurance company is obliged to indemnify. 

Promises, promises

There are however two scenarios that are starting to creep through.  The first relates primarily to commercial buildings.  Many insurance companies are now taking the position that even though they haven’t formally agreed to pay for a scope of repair, that the insured is not entitled to receive any payment until the insured actually starts repairing. They expect the insured are to start repairing or re-building the building, with the optimistic hope that the insurance company will pick up the tab.  But no promises.  Insurance companies say that you are not entitled to receive the benefit of the reinstatement provisions of the insurance contract until you actually reinstate.  But they won’t make any promises about what they will pay for or even how much they will pay.

One insurance company was even known to have said that the insured had to go out, employ the engineers, the architects and the quantity surveyors, prepare the specifications, and submit them for approval, then start work and, it seems, hope that he will get paid. 

Of course, no intelligent person is going to commit to extensive repairs, sometimes in the multiple millions of dollars without some kind of assurance from the insurance company as to what they will pay, when they will pay and how much they will pay. 

Naturally, in many cases there is another agenda. The insurance company may want the insured person to accept a low ball cash settlement. So if the insurance company makes it too easy for the full reinstatement to be undertaken, it is less likely that the insured will accept the low ball cash offer.  A cynic may suggest that this is why the insurance companies are taking this position in relation to so many claims.

But it gets even curiouser. The insurance companies have their chosen panels of experts – building companies, quantity surveyors, engineers and valuers. They rely on these people to provide them with the information they say they need for the claim. That leaves precious few experts for the insured to seek advice from. 

Cornering the market

In one case, in frustration, the insured person located two such experts, and retained them to provide advice that the insured could use to work out his entitlement. After visiting and inspecting the building, both of these experts telephoned and advised that they had been contacted by the insurer’s preferred head contractor and told that they were not to provide advice to the insured. Obviously someone at the insurance company did not like the thought that the insured could actually obtain his or her own independent advice; they wanted that market cornered.

In the United States, many states have a tort called "bad faith." If an insurance company acts other than in good faith, the insured can sue the insurer quite outside the contract for substantial damages that are referred to as bad faith.  Deliberately interfering with the insured’s right to obtain independent advice, using adverse pressure on an insured to accept a low ball offer, or putting offers on the table and then subsequently taking them away are all situations that could well amount to bad faith.

Unfortunately, the New Zealand Courts do not yet recognise the tort of bad faith, and it is still questionable whether punitive damages can be obtained against an insurance company for a breach of the duty of good faith. 

First blood

Recent experiences may suggest that insurers in New Zealand take advantage of this – just sue me if you don’t like it, what have we got to lose?

As well as engineers and other experts, there are a number of law firms who of course specialise in advising insurance companies.

Recently, there was a High Court judgment in relation to an earthquake related event in which the insurance companies were considered to have “succeeded”. A leading insurance law firm specialising in acting for insurance companies, provided an article to its clients about this case.  The final sentence, in celebration of its “success” ended “first blood though to the insurance industry”. 

An outsider may think it somewhat callous or insensitive for an insurance company’s solicitor to comment in this manner about people’s livelihoods. But perhaps it is a timely reminder of the approach that some insurance companies take to what they clearly perceive as a blood battle between the insurance companies and those brazen enough to demand their claim be paid.

-------------------------------------------------------------

*Andrew Hooker practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He is also director of Claims Information Specialists Ltd, an insurance information website.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

11 Comments

Why not have one simple piece

Why not have one simple piece of consumer protection legislation - if insurance companies have not paid a claim to its full entitlement after 12 months, interest accrues at the cash rate plus 10%. 
 
That'd speed'em up!

Chris_J !!!

Chris_J !!!

Andrew, Bernard, May we have

Andrew, Bernard,
May we have ratings of insurance companies on the bases of behaviour in Christchurch pay-outs? That will put us in bit more power against them....

Any chance you could name and

Any chance you could name and shame these companies you mention     ,,,,Thanks,, want to know if its time to change

Three letters.  Very similar

Three letters.  Very similar to an American insurer who needed a bailout.
 
"Ain't nothing going to slow you down!"  ... yeah right!

I agree with "Chris J"

I agree with "Chris J" regarding the need for penalty payments from insurers after a year of non payment.  I found this article very interesting as it is clearly describes what my husband and I are going through with our insurer - IAG/State.  Our house is on the hill and in the $1.5m range, so it comes as no surprise why 'delays' are occuring.  It is uninhabitable and I get infuriated every time I hear IAG's spokesman, Dean McGregor say that people with uninhabitable homes are getting priority.  IAG/State appear to be using delaying tactics by their use of their own consultants/engineers.  One engineer recommended that our land required a serious geotechnical report before any house could be rebuilt on it.  To date, I have emailed IAG/Stage ten (yes 10) times asking when this comprehensive geotech report will take place ... no answers.  We attempted getting our own independent report and were told by 3 major engineering companies here in ChCh that they were not taking on any new independent work as they were fully booked by insurance companies.  There are thousands of us in the same boat - being deliberately delayed in this manner.  Until the term "bad faith" is defined clearly in insurance law here in NZ, insurers will keep getting away with this poor behaviour.   Penalty payments for late settlement of claims is a great idea as nothing else will entice IAG/State to 'do the right thing' and simply get on with our rebuild.

Get legal advice now, and put

Get legal advice now, and put the pressure on seriously.  Don't delay.  Don't let them make you a pushover.  One option is to insist on a detailed independent quantity surveyors report.  If this comes back at high enough price (should be min $2500/m2 for a hill home maybe as much as $4000 for a high quality one), then insist that IAG buy you an existing home to the same value (they have done this for over 1000 customers already), do this and RUN.  Often better with 90% of the cash now than waiting 6 years for a rebuild!  (Imagine the interest or rents received or saved if you invested the payout today instead of waiting - we took a $1.4m payout on one house 7 months ago buying a replacement in Central Auckland, which has earned at about $30k in rents and increased in value about $200k in that time).
 
The problem is if they say its repairable then you're in limbo for possibly years.
 
However the staff IAG are employing for these internal reports are borderline incompetent (which is being generous), and their reports can not be trusted (I have experience with this!  Reports with floor area, measurements, quantities, even the scope of work all vastly and obviously wrong).  So question their reports, and ask for an independent report (at their expense).
 
And perhaps most importantly put some real pressure on those involved.  Get in touch with the CEO if necessary, be annoying, call them everyday, several times a day, be firm but insistent, don't let anyone fob you off.

Chris could you recommend a

Chris could you recommend a good independent QS?

The replacement policy issue

The replacement policy issue does have a "history" in how insurers have settled prior claims. Insurance companies have set their own precedence in what replacement actually means and if they historically paid out full replacement then surely it is a breach of good faith.
A breach of good faith = bad faith! The fact that good faith is referred to should indicate that any breach should have consequences on those who breach this position.
 
Interesting that Insurance companies are trying to control the market of obtaining independent reports.  The insured person needs to request that the companies/business's and writers of these reports guarantee the information and accuracy of the report provided on their property.
 
Type up a simple form with related property details etc identify the report in question and request that they guarantee the accuracy of information, that the report is a full and factual account/appraisal etc and obtain a signature from both the business head and writer.
I'm sure a good lawyer can make a template document or people could do their own depending on their knowledge and skills.
 
Intersting that these tactics are being used by the insurance companies. ACC have tried similar tactics for years. Health assessments completed by their chosen Doctors. Case Managers despite no medical training formulating treatment plans for injured etc. Building assessments completed by those the insurer chooses. Case Managers despite no engineering, building etc experience formulating repair plans.
Home and building owners need to ensure that they obtain independent reports for damage and repair costs. If you have to bring in outside help to get these reports completed then do it.  
 

The Doctrine of Good

The Doctrine of Good Faith
Insurance contracts are contracts of  "utmost good faith"
Doesn't seem the Insurers are respecting that requirement
 
The doctrine of "bad faith" is not recognised in New Zealand, but, there are remedies for that. Anyone in Christchurch who is getting the run-around by their insurer would do well to read this article by Neil Campbell Senior Lecturer in Law, University of Auckland, Barrister, Shortland Chambers
http://www.nzila.org/conferences/docs/christchurch/Neil%20Campbell%20-%20Damages%20Against%20Insurers.pdf
 
Damages available under breach of good faith are substantial. But you would need deep pockets.
 
An ancilliary comment. Insurance companies are exploiting "divide and conquer" the power of the few over the weakness of the many. If New Zealand permitted "class-action" law suits,  the class-action law firms such as Slater & Gordon, and Maurice Blackburn would be all over this in a flash.

Great report there - at last

Great report there - at last someone who understands!! Thank you. My frustration is this - after visits from 24 different people - engineers, QS, Builders, assessors, loss adjustors, house levellers - the list goes on. I am over the cap, extension pulls away 60 ml from the house, house levels 220mm in length 100 in width, house twisted forward on one side. The repair strategy? glue broken piles and pack, glue the 20 cracks in foundations, 'push' the house back together on a moveable reinforcing rod so if the earth shakes again it will 'simply move away and need to be pushed back' yes the walls and floors will need repaired' each time they say but that will save Tower lifing and moving the house and costing more or rebuilding. The garage is also out by 100mm but 'it may have been on a slope before they EQ so we cant say that the levels are out due to EQ'. What if I am not happy with the strategy - which Im not.