Andrew Hooker's take on the landmark court ruling that EQC must repair to a 'when new' standard

*By Andrew Hooker 

There is a famous skit in a Monty Python Movie – “Search for The Holy Grail” – in which the Dark Knight, having lost both arms and both legs in a sword fight, refuses to give up or back down from his position. Instead he threatens, with the only weapon he has left, to bite the enemy’s legs off.

Watching EQC on television recently maintain that its agreement to finally settle court litigation was nothing more than reflecting its practice from the start seemed airily similar to the Black Knight’s constant refusals to concede that he was beaten. 

There have been countless cases involving disputes between home owners and EQC about the standard of repairs and in particular the relevance of what are known as the Ministry of Building, Innovation and Employment (MBIE) standards. 

After the earthquakes, MBIE produced a number of detailed documents setting out certain standards that may be appropriate when considering earthquake damage to buildings and a possible repair strategy. But at no stage did MBIE or any other party representing MBIE suggest that these were of any relevance when considering the obligations of insurance companies or EQC. This is because both insurance policies and the EQC legislation require that a house be repaired to “as new” or sometimes “when new” standard. 

What that means is the house must be repaired to the standard the same as a new building.  This is not the standard it was immediately before the earthquake. It also means that building practices or a finished job that is not the same as would be expected in a new building does not meet the policy standard or the standard under the Act.

Put simply, the MBIE standards are simply what may be accepted as a competent repair or patch up. But insurance policies and EQC legislation require a repair to a new (not patched up) basis.

Engineers and experts acting for both EQC and insurance companies appear to almost routinely trot out repair strategies that meet the MBIE standards, as if they reflected the insurance policy or EQC Act standard. But of course they do not. 

This fight has gone on for years, and finally in an out of court settlement, EQC has acknowledged in writing that the MBIE guidance on floor/foundation dislevelment is not to be used as a trigger or target for repairs under the Act. So, for example, in relation to the MBIE guidelines on releveling damaged floors, the guidelines allowed floors that were less than 50mm out of level to not be repaired. EQC had attempted to adopt this standard, but has now agreed that the MBIE guideline no longer applies. Instead, EQC agrees that it must return the floor to a condition substantially the same as when new and compliant with current regulations.

Anyway, back to the Dark Knight.

It appears that now that EQC has admitted that it can no longer rely on the MBIE guidelines as dictating its obligation under the Act it may acknowledge that it had got it wrong and take well deserved credit for rectifying this error. 

Instead, the EQC representative embarked on a continual denial of the obvious:

“…EQC’s approach under the Act has been consistent since day one and I think that this joint statement confirms that for us.” 

The interview continued:

“So should it be substantially new or pre-quake?… So our approach since day one has been as per the statement”. 

Is he suggesting that all these people decided to embark on court action to get EQC to do what it has always done anyway? Surely not. But no admission, just steadfast denial.

It would be more productive to celebrate this huge concession, rather than to try to understand why, after making such a concession, EQC seems determined to deny that it was ever wrong. Maybe Pythonesque analogies may help us to better understand the thinking of EQC. But on a more serious note, there is now a need for all people whose houses were supposedly repaired by EQC to take a close look.

If EQC relied on MBIE guidelines (for example in relation to acceptable tolerances for subsidence), or offered less than new for old, then homeowners need to have their files reviewed and decide whether they have been short changed. 

Otherwise, down the track, they may find that their houses are substandard, and possibly of reduced value.

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*Andrew Hooker is the Managing Director of Shine Lawyers NZ Limited practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He also runs an insurance information website - www.claimshelp.co.nz