As quake claim desperation sets in, recent Court decisions are favouring claimants. Andrew Hooker says insurers should follow the law

By Andrew Hooker*

While the insurance company and government spin doctors paint a rosy picture of progress in the Christchurch rebuild, on the ground people are losing their patience with insurance companies and EQC.

The Courts have utilised some helpful processes to expedite cases.

But the backlog grows nevertheless.

As set out in an earlier article, insurance companies are continuing to invent the most “ingenious” ways to repair the unrepairable.

Some recent examples include:

1. In a Duplex home in which two separate dwellings are divided only by a concrete firewall with each half insured separately, one insurer declared its half damaged beyond repair and the other insurer declared that it could repair its half.  This of course raises the interesting question of how you repair “half a house” and comparisons with those famous NZI “half a pyramid” television advertisements are irresistible. 

2. An insurer who stated that a house that had subsided 40mm did not need to be re-levelled because the Department of Building and Housing say that such subsidence is within acceptable tolerances.  Of course, the insurance policy in question was underwritten by an insurance company not the Department of Building and Housing, and it is the policy that states that the insured is entitled to get “new for old”.  The insurance company has failed to respond to requests for examples of new houses that were built with 40mm out of level floors.

3. One commercial insurer that has rejected documented engineering and building evidence as to the nature of damage and relied on somewhat dubious extrapolations from aerial photographs to reject evidence of damage in a particular earthquake. 

4. Many cases in which insurers are refusing to pay for a rebuild of a commercial building because of the insured has not started rebuilding, notwithstanding that the insurer has refused to accept the insured’s scope of works. 

These are just some examples. There are many to choose from.

Many insurance companies have moved from considering ways to decline claims (such as the “depopulation arguments”) to considering ways to settle claims for as little as possible. 

In the recent McLean v IAG case, IAG (that is NZI) tried to argue that the common law principles of indemnity applied to a claim where the policy specifically defined the basis of settlement.

Insurers have for many years repeatedly enhanced the policy coverage, presumably in an effort to obtain market share, but when it comes to paying out they want to ignore these benefits and slip back into the old 19^th century insurance principles they abandoned years ago.

In this particular case IAG tried to argue that a calculation of “Present Value” which was defined as cost of replacement less depreciation did not include in its calculation the unavoidable architects and engineers’ costs.  IAG simply wanted to depreciate the physical build cost.

The High Court rejected that argument and ruled in favour of the insured. 

In another case, widely publicised, the O’Loughlin v Tower Insurance case, the High Court considered a number of important principles. In particular, the Court rejected an argument that the mere fact that a property was within the red zone amounted to damage.

But the High Court ruled that when an insurance company submits to its customer a proposal to reinstate damage, it must do more than provide a hypothetical or unproven proposal.

It must provide a proposal that is going to succeed and, most importantly, obtain the necessary consents.

This will hopefully quell the tide of cases in which insurance companies, knowing they will never have to repair because the property is in a red zone, propose repairs that will simply never succeed or are impossible.

Perhaps the insurer with the “half a house” problem might like to read this decision carefully.

Those who visit Christchurch regularly to assist people with insurance problems feel the mood becoming more and more tense.

People are either crumbling and accepting low-ball offers, or digging in for the big fight.

The Courts have stepped up and streamlined the processes to resolve these disputes, and people need to know that they do not have to accept the proposals that are put to them.

If the insurance companies promise the world, that is what they must deliver.

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*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.