EQC faces multiple quake payouts

BusinesDesk: EQC faces multiple Christchurch quake payouts for some properties as High Court rules payouts can't be limited to NZ$100,000 per year

2nd Sep 11, 6:50pm by BusinessDesk

By Paul McBeth

The Earthquake Commission faces a bigger bill from the Canterbury earthquakes just days after the government lifted the value of its likely exposure to the natural disasters to NZ$7.1 billion.

The High Court in Wellington today shot down a bid by the EQC to limit its exposure to one payout of up to NZ$100,000 a year, saying “continuity of cover is not achieved.”

High Court Chief Judge Helen Winkelmann and Judges Alan Mackenzie and Forrest Miller preferred allowing separate claims for subsequent events, provided they didn’t invalidate one another.

The bench reserved its final judgement to allow further consideration from the parties involved.

The judges’ preliminary stance will mean the EQC will continue to provide cover so long as the insurance contract is in force for each event of natural disaster damage. Subsequent events won’t reduce the amount of cover available, though they trump an initial claim if it became redundant.

Still, the EQC will have the right to charge an additional levy from the date of the first claim.

The ruling comes after Finance Minister Bill English pushed out the estimated cost of the quakes by NZ$4 billion, effectively wiping out the EQC’s NZ$6 billion Natural Disaster Fund.

That leaves the government on the hook for any extra cost, and has already seen this year’s fiscal deficit blow out to an expected NZ$18 billion for the 12 months ended June 30.

See the High Court press statement on the ruling here.

See the full High Court ruling here.

(BusinessDesk)

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13 Comments

by Chris_J | 2nd Sep 11, 8:50pm 1314953439

My goodness, how much is EQC's liability now?

Just as a note, I spoke with a (private) insurance assessor today. He noted that one property he had, was assessed by EQC at $14k after Feb. The private insurance company assessed as a total loss ie about $240,000.

The issue with that is EQC have not done anything to resolve the discrepancy, so there's another $100k plus EQC haven't accounted for, how many cases like that are there? I'd say it's a high number - 10-30,000 are probably way under estimated, it's hard to say but from my experience it's probably half of all claims that are at least thousands under estimated.

Now back to the multiple claims issue. Say we make some estimates for working out EQC's extra liability. If we say 30,000 are overcap now (after June). 10,000 were overcap after September, and say 25,000 overcap after Feb.

Then if at September we had (remember these are just some estimates to gauge the extra cost):

3,500 at $100,000 plus GST = $115,000 which were a total loss

6,500 at $100,000 plus GST = $115,000 which were repairable

10,000 at an an average $50,000

10,000 at an average $10,000

Say at February

4,500 of 6,500 that were over $115,000 and repairable now total loss or ovecap again, so that's another $115,000 for each of these.

The remaining 2,000 of those say had an average $70,000 extra damage.

7,500 of the 10,000 that had $50k had another $115k.

Say the remaining 2,500 of those had an average $90k (remember minimum extra was $65k)

Now say half the other 10,000 had another $115k and the other 5,000 were still undercap at an average of another $70,000.

Now say at June

Say 2,500 had another $115,000 and 4,500 had an average of another $60,000.

All a bit complicated but add all that up and...

the original $3.45b becomes

a massive $6.7b ANOTHER $3.25 billion

Now I reckon that the $7.1b was too light anyway, so that's probably $9b anyway. Now throw in another $3.25b and we are at a GIGANTIC $12+ billion.

THAT'S ANOTHER $5+ Billion for the Government to pick up!!!

NZ Inc is officially broke!!!!!!!!!!!

by Kate | 2nd Sep 11, 9:39pm 1314956341

Yup, I imagine the Treasury mandarins are burning the midnight oil on that spreadsheet tonight!

JK will have to do alot more smiling and waving at his friends at the ratings agencies to spare us a downgrade this time.

by Les Rudd | 2nd Sep 11, 10:20pm 1314958802

An option they don't have is levying a levy, doh. Just like they don't have the option of a gradual switch from the number 65 to 67, because ...... doh! (F'wit.)

Maybe they'll come back with a suggestion for some form of capital taxation, but ..... doh!

I got it, let's sell some assets.

Or, anybody like cycling, how about bashing out a track that goes from ......

So much paint .... and how many corners?

by Colin Riden | 2nd Sep 11, 11:01pm 1314961311

I disagree. The spin doctor in charge of TSY will be directing work towards more important fields such as the economic benefits of the RWC. O.K, bad example.

Maybe TSY are simply encouraging staff to take leave now because they will need to be working overtime after the election.

by Crooked Thumb | 2nd Sep 11, 11:24pm 1314962647

There have been strange doings of late behind the scenes at EQC, I believe. Both our next door neighbours and ourselves have received cheques to "settle" our September house claims, closely followed by over-cap payments for February. The September cheques were both miniscule and bear little relation to the actual damage and cost to reinstate "like for like". What I think has happened is that the bosses have realised the ballooning cost of claims, so have embarked on some serious pruning where they think they can get away with it.

I asked for scopes of works, get one (inadequate as it was) for Sept, but for Feb was told it is no longer their policy to release this to the homeowner. Go figure. Did get a $ figure for cost of repairs, at $143K (not sure if this includes the Sept cheque - which we sent back), absolutely no details as to how this figure is compiled. Contrasts just a little with our own Quantity Surveyors detailed scope of works, costings for house reinstatement about $450K.

The whole concept, and working methodology of EQC needs a serious rethink. The last year has exposed a lot of flaws. Not that surprising when you consider that it was revamped by bureaucrats in the early 90s.

Anyway must off to bed, need a good rest. The real battle, with our insurance company, is yet to come. I am in no mood to take any prisoners. Yet I am mindful that those who lost loved ones in February have far, far greater sorrows.

by Kate | 3rd Sep 11, 9:02am 1314997321

The awful thing about this court ruling is that I'm thinking it gives your private insurer legitimate grounds to argue the toss with EQC regarding that Sept assessment as well. I fear it could simply serve to delay full settlement. Just what Cantabrians don't need. Best wishes - I wish there was more those of us not there could do.

by LAJ | 3rd Sep 11, 10:00am 1315000832

It does say above the Feb one trumps the Sept one.

Eg: A room had minor cracking in Sept and a broken window so they allowed for plastering and painting the whole room and fixing the window. In Feb the same room had worse cracking but no more broken windows so they still need to plaster and paint the whole room and fix the window. They would just pay out the bits that haven't got worse in Feb in the Sept cheque ie the window wouldn't they?

I think the bills for the Sept one may actually decrease where they hadn't fixed the damage or paid out yet.

eg above if after Sept

painting is $2000

Plastering is $500

Window is $100

then after Feb

painting is still $2000

Plastering is increased to $800

Window is $100

Then they would pay $100 for the window in Sept and $2800 for the painting and plastering in Feb. Their reserve for Sept has decreased from $2,600 to $100.

This explains why they have been so slow to pay out if they think there will possibly be another 6.0 in the next year. (10% chance)

I think there may be hope yet!

by Crooked Thumb | 3rd Sep 11, 10:08pm 1315044526

I follow your logic but it seems odd that damage costings are "exported" into a claim for a subsequent event. It also gets a bit hypothetical. Also impossible to verify without access to the second scope of works, however I do agree that one shouldn't be able to claim twice for the same damage if it wasn't fixed in the interim.

If our insurance company wants to argue with EQC over these matters so be it, I don't see why our entitlements should be prejudiced or delayed, or should I say further delayed. But then again, maybe they will, it's hard to know how this will pan out.

The sad thing for me is that communities (mainly, but not wholly in the red zone) have become divided between those who wanted an out, and those who would have preferred to stay. I know a few people just on the other side, in green zones, who would quite happily swap places with us, just so they could get an exit package. I don't blame them for this attitude, yet I feel the demolition of so many fixable homes ( which were built, maintained and enhanced with human passion as much as bricks and timber) is a colossal waste. I spoke to an elderly neighbour this morning who has to leave her (almost undamaged) home of 55 years, and was humbled by her serene acceptance of the situation. It will take me a heck of a lot longer to get to that point.

by BigDog | 5th Sep 11, 1:43pm 1315187034

The question I have is this.

If you were paid out for the damage done by September's quake before Christmas (i.e. sent a cheque due to being onder $10k), and you decided to wait a while before doing the repairs.

Then February 22 rolled in and you were then assessed as requiring management due to something like piles needing fixed, as well as additional cracking etc inside. Not over $100k.

So you aren't going to be sent a cheque. You are just going to get fixed.

Do you have to give the money back from the September settlement?

by Wolly | 3rd Sep 11, 9:30am 1314999004

Good quality picture evidence will prove to be the homeowners best defence against an EQC directed to say "prove it". Too late for many in chch to act on this, as before pictures cannot be gathered now.

Lesson for the rest of us....use that digital camera and make dam sure the dates are on the pics and the data is stored in different places and updated. Keep all records regarding bills related to work done. Keep duplicates of insurance papers and all communications with same...when told something over the phone, ask for it in an email and then record that and store it off site.

We have entered the age of evidence.

by LAJ | 3rd Sep 11, 9:49am 1315000169

And can I say if you haven't got your insurance policy doc out yet and examined it do it today!!

Look up other companies policy docs on the web and compare it with yours, clause by clause as they are all different.

For example we have a Vero maxiplan which is covering our rent payments on our rental property until we have had sufficient time to rebuild it. Other companies only allow up to 6 months. A huge difference to us, if our broker had given us an AMI for example we would be in trouble as it it would have run out last month and we would still have to pay rates (60%) insurance premiums (yes, on a written off building), and mortgage payments. EQC still hasn't paid and only just came to see us last week. Who knows how much longer it will take to get paid? Despite telling us we are in a priority queue (yeah right).

Veros policy also only makes you pay 1 excess per event over all of your properties and policy types! So that is considerably less than paying one each for house and contents and rent insurance on each property.

by LAJ | 3rd Sep 11, 10:46am 1315003587

While is is understandable and sensible for the EQC to delay payments so future events trump previous ones and they don't have to pay twice to refix things, it is unfair to policyholders where it is costing them financially.

For a landlord the difference bewteen being paid within a few months as you'd expect, or having to wait for a year is the difference between bankruptcy and solvency, being able to rebuild and not being able to rebuild.

EQC premium needs to include a landlord's premium to cover delays in payments in these sorts of cases so when the private insurer's rent payment run out the EQC takes over especially where they are delibrately withholding payments while they battle in court or while they wait for aftershocks to stop as they are in this case. They are earning interest on the money they are withholding.

Also note that while the taxpayer is covering the excess they have I believe accepted a $10m pa premium to provide stoploss reinsurance so this should have been kept in a reserve to pay future claims. (I heard it on the news the other day). I'd be interested for someone to investigate this- ie how much the taxpayer has received since EQC started as stoploss premium and what is the accumulated value of these premiums to date? (If it is $10m pa over a long period that does compensate in part for the cost now)

It seems to be a very risky position to put NZ in. Who agreed to it, is there another commercial reinsurer who would provide the cover in future? Is the $10m premium pa fixed or has it risen over the years to allow for the increasing risk? Can a journalist out there get to the bottom of this?

by FCM | 5th Sep 11, 8:14am 1315167268

Is'nt it funny how JK an Co tried to put the growth spin on the Earthquake and how positive this was going to be for NZ, and many of us said they were seriously under estimating the costs, and hey presto..the fiqures are now starting to add up more and more, and I know many many people that have still not been assessed. Push for your money now, as it is very evident that they have slowed right up in paying out claims, I'm not sure just how much cash flow EQC have but I would say it is fast running out.