Christchurch owners in areas of risk of rockfall are being treated differently depending on which insurer is involved.  I am aware that IAG and Southern Response are paying out full rebuild costs to owners of properties “red zoned” and with s124 notices  by reason of rockfall risk.  Tower Insurance and Lumley General Insurance are currently only wanting to pay a theoretical repair cost.  Hopefully the High Court will shortly alter the position of Tower Insurance and Lumley General Insurance.

The decision in Murray v State Farm Fire and Casualty Company 509 S.E 2d 1 (1998) 203 W.Va 477 assists the homeowners.  It involved two homes being damaged by rockfall and one home that suffered no damage.  All homes were at risk of future rockfall damage.  The house occupiers were required to vacate their homes.  The insurance companies argued that the plaintiffs could not recover for the total loss of their homes due to the potential for future rockfall, but only for physical damage suffered.  The Supreme Court of Appeals of West Virginia disagreed with the insurance companies.  It decided that all houses were damaged and the homeowners suffered a total loss because the houses were completely useless and uninhabitable.

The date for red zone residents to settle sales and leave their houses has been extended from 30 April 2013 to 31 July 2013 as reported in the Press.  The extension does not apply to Southshore, South New Brighton or Port Hills property owners.

The recent High Court decision dated 11 December 2012 in Dominion Finance Group & ors v Body Corporate 382902 & ors [2012] NZHC 3325 considered issues with the division of earthquake insurance policy proceeds for the Gallery Apartments on Gloucester Street.

Under s136 of the Unit Titles Act 2010 money received under the body corporate’s insurance policy must be applied to reinstate the unit title development unless the body corporate decides otherwise by special resolution.  Owners of units at Gallery Apartments decided by resolution to accept a cash settlement from their insurance company, divide the money between the unit owners based on then unit entitlement, cancel the unit title and sell the land to the Christchurch City Council.

The owners received the insurance proceeds and divided it among the owners based on the then unit entitlement.  Later when they were about to complete the sale of the land they and their legal advisers became aware that s177(7) of the Unit Titles Act required the reassessment of ownership interests before cancellation of the unit plan.  A valuer engaged to perform this exercise produced values for units that differed significantly from earlier unit entitlement calculations.  There was then a dispute among unit owners as to whether the newly calculated unit values should be used to divide the money and whether money previously paid out ought to be refunded/reallocated.

The Court declined to interfere with the allocation being based on original unit entitlements and ordered the cancellation of the unit plan.  The Court said that the parties were mistaken about the applicable law and it would now be unfair to alter the previous agreement/understanding.  The Court was also not persuaded that the revaluation done was on an appropriate basis.

This judgment is a victory for common sense and also highlights the need be aware of legal provisions before a body corporate makes decisions about insurance policy proceeds.

A recent article in the Press on 3 December 2012 stated that the insurance company, IAG would payout a rebuild cost to owners of earthquake hit houses in the Port Hills red zone that have received notices under s124 of the Building Act 2004.  I am aware that Southern Response Earthquake Services is adopting a similar attitude.  This is a positive development for homeowners in the fight against insurance companies.  It remains to be seen what the attitude will be of other insurance companies.

In the recent decision in Turvey Trustee Ltd v Southern Response Earthquake Services Ltd [2012] NZHC 3344 dated 11 December 2012 the High Court (Dobson J), in the context of a summary judgment application was required to interpret, AMI’s Premier House Cover policy; particularly what was the meaning of the obligation on the insurer to rebuild the house to an as new condition using building materials and construction methods in common use at the time of rebuilding.

The property at issue was an Edwardian masonry villa at 23 Aynsley Terrace.  After discussing the relevant Australian cases (Spina v Mutual Acceptance (Insurance Ltd) and Colonial Mutual General Insurance Co Ltd v D’Aloia) the Court  decided the insurer’s obligation is to meet the cost of constructing a new house of the same style and quality of materials as the property insured, subject to the requirement that the materials and methods are in common use in erecting Edwardian style villas and the requirement for reasonable consideration of substitute materials  or methods of construction where they would not affect the quality or character of the replacement structure.  Justice Dobson in paras [25] & [26] stated that common use is likely to be made out at a relatively low threshold.

The decision was limited to interpreting the particular AMI policy and the Court noted that each claim would need to be determined on a case by case basis.

10th December 2012

Retired couple Matt and Valerie O’Loughlin find themselves uncomfortably at the centre of a landmark insurance case arising from the Christchurch earthquakes.


Retired couple Matt and Valerie O’Loughlin built their home 12 years ago

Their action before the High Court in Christchurch is due to settle one of the most vexed insurance questions to arise out of the quakes.

The case will look at whether an insurance company is entitled to pay only the repair costs of damaged houses in the red zone when such houses cannot be repaired anyway.

Many red-zoners have taken the Government offer of their property’s rateable value, but people like the O’Loughlins, who believe their properties were undervalued, want their insurance companies to honour their policies.

The court is due to hear the case in early March in a week-long trial.

The O’Loughlins said their architecturally designed house in the hard-hit area of Dallington was damaged beyond economic repair in the quakes.

Their insurance company, Tower, was therefore obliged to pay them enough to fully replace the house and surrounds they had built 12 years ago, they said.

They were not comfortable about being in the limelight of a test case and would much rather be getting on with their lives.

The last two years had been a torrid battle with Tower and they had been left stressed and angry.

They were also claiming $50,000 general damages from Tower for “distress, inconvenience and mental anguish”.

“We haven’t got that much time left. Instead of doing things we enjoy like spending time with our grandchildren we have spent countless hours fighting our insurance company. We’ve been totally consumed by the whole thing and so much money has been wasted,” Matt O’Loughlin said.

“Our lives have been on hold. We have relatives who were in a similar situation who are now putting down the lawn at their new property.”

He said Tower had been difficult to communicate with and they had dealt with more than five Tower representatives.

“We didn’t want a fight but we are not going to be run over by an outfit which says one thing in its policy and does another,” he said.

Grant Shand, who is representing the couple along with international insurance assessors World Claim, said the couple argued it was untenable to discuss repair when the house could not, in reality, be repaired.

The case was the first to test the standard insurance stance on red-zone houses and would have ramifications for the whole insurance industry, he said.

Costings suggested it would take nearly four times the amount offered by Tower, including the Earthquake Commission payout, to replace the house on another section, he said.

The couple maintained that even if their house was not in the red zone it could not be economically repaired because it was too badly damaged.

Tower, in its court documents, says its obligation in the O’Loughlins’ case is restricted to the cost of repair and claims the house is economic to fix.

In a statement, a Tower spokeswoman said the company could not discuss the O’Loughlins’ case because it was before the courts.

(Click here for full article)

Houses located in the red zone cannot be rebuilt on their current site(s).  I am still coming across insurance companies that want to settle homeowner claims by paying the insured a theoretical repair cost for the house in the red zone.  The High Court is scheduled to hear a case that starts 4 March 2013  that will decide this issue.  Please contact me if you want any further information.

The High Court held conferences on 28 & 29 November 2012 for cases in the Earthquake list.  The list is designed to handle cases against insurance companies and EQC arising out of the earthquake(s).  On the filing of Court proceedings the Court allocates a conference to take place at the High Court about 5 weeks after filing.  There were thirteen conferences allocated.  I acted for the plaintiffs in seven of the conferences.  Eight of the earthquake proceedings were against Tower Insurance..