Here is the link to newsletter no. 5
Subsequent to the High Court judgment of 10 December 2014 on declarations sought by EQC on flooding and liquefaction vulnerability etc the two intervenors applied for an order that EQC contribute to their costs. By a judgment 12 March 2015 the High Court decided to let costs lie where they fell.
EQC and Insurers postponed dealing with what they termed “multi-unit” claims. These claims are now emerging and raise many issues. They use the term “multi unit” to refer to physcially connected properties. These properties can be unit titles within a body corporate, cross-leased properties or physically connected units on separate titles. The primary reason for the delay in the resolution of multi unit claims is that EQC postponed its assessment of them. With a body corporate there is a single insurer and usually a single sum insured. There will be issues with the apportionment of the sum insured between units when there is insufficient cover to pay for reinstatement. If the sum insured is insufficient then valuers/body corporate secretaries may have issues. With cross leased properties there will likely be separate insurers and in some cases no insurer(s) of some units. The terms of the cross lease will set out out each owner’s obligations in relation to damaged unit(s) and insurance. Usually insurance money is required to be spent on reinstatement. Owners need to be careful to understand obligations under the lease before entering into settlement(s) with insurer(s). There is apparently a written agreement between insurers as to how multi units are to be handled when there are multiple insurers. I have not seen a copy of the agreement. I understand that the insurer with the greatest exposure takes charge. Where the entire complex/all units are damaged beyond economic repair then insurers will try to have the complex rebuilt. However, each owner has separate rights under their insurance policy with their particular insurer. These rights cannot be overridden by the agreement between insurer(s). So with the AMI policy, as an example, the insured has the choice whether to buy another property or build elsewhere in addition to the choice to build on site. A choice to build/but elsewhere then affects the rebuild of all units. I expect that multi unit claims will create many disputes that will necessitate court involvement. Cross lease disputes will be particularly messy.
Here is a link to a presentation by Southern Response CEO, Peter Rose, at the recent “Seismics and the City” event held on 27 March 2015. Mr Rose considers Cancern and RAS to be excellent from the Southern Response perspective, however, I am not sure that is a positive recommendation for insureds. Mr Rose uses the phrase “qualitative easing” for Southern Response now considering information provided by insureds. Interestingly Southern Response has settled only 57% of its 7348 “overcap claims” more than 4 years after the 22 February 2011 earthquake. That leaves about 3160 unsettled. This number presumably excludes those claims that are still “under cap”. Apparently I am still “Lord Voldermort” to Mr Rose being the lawyer who shall not be named.
In East & anor v Medical Assurance Society New Zealand Ltd [2014] NZHC 3399 the High Court (Whata J) discussed the timing of payments by an insurer on reinstatement of a house and considered whether proposed concrete slab foundation remediation methods met the “as new” policy standard. The Court decided that the insurer was liable to pay the reinstatement costs up front and not as they were incurred. It decided that clear wordng was required in the policy to require an insured to spend the money before the insurer was required to pay. Witnesses for the homeowner apparently accepted that underpinning the foundation met the required standard. The insurer wanted to use LMG to relevel the slab. The judgment comments that the Council decision about whether to issue a building consent for a proposed repair method would affect the assessment of policy compliance. That view is wrong. This case is subject to an appeal by MAS to the Court of Appeal that is to be heard 1 May 2015.
In Kraal & anor v EQC & anor [2015] NZCA 13 the Court of Appeal upheld the decision of the High Court in Kraal & anor v EQC & anor [2014] NZHC 919 to the effect that the Council imposition of the notice under s124 Building Act 2004 preventing occupation/building work was not physical damage to the insured house so there was no cover from EQC/Allianz. This case was run as preliminary issue case for the owners by a law firm that acts for Southern Response. Surprisingly they do not appear to have run the argument that the inability to legally repair the house by reason of the s124 notice made the property a total loss. This is an argument approved of by Courts in USA and Canada, but has never had to be judicially decided in NZ yet. It is still an argument available to homeowners of properties the subject of s124 notices.
Leans of walls are a symptom of earthquake damage. This is know as wall verticality. We recently did a trial against Lumley General Insurance where the primary issues was whether the wall leans were caused by earthquake(s) and if so, what is the required remedial work and cost. The Court reserved its decision. The lean of walls is often an item overlooked by people assessing earthquake damage. It is important that it is not overlooked.
Thousands of people appear to still be trapped in the process and the victims of delayed and inadequate EQC assessments. EQC prioritises assessments for houses where it is sued. So the quickest way to get out of the EQC process is to sue. If through the Court process EQC then pays cap EQC will be liable for legal costs and disbursements. So, suing EQC is better economic choice.
There High Court judgments have ordered EQC to pay costs and disbursements to homeowners where EQC paid cap after being sued. These are Whiting & ors v EQC & anor [2014] NZHC 1736; Ryde v EQC & anor [2014] 2763 and van Limburg v EQC & anor [2014] 2764. EQC appealed each of these decisions to the Court of Appeal and Ryde and van Limburg cross appealed the Court’s decision to reduce the costs to 50%. The High Court had said that it would reduce the award by 50% because the insurer was still a party. The Court of Appeal heard the appeals on 11 March 2015. It is hoped that the Court of Appeal dismisses the EQC appeals and allows the cross appeals. By the court proceedings the homeowners obtained sums of money, so were successful and EQC should be liable for the full costs because its refusal to pay cap necessitated the court proceedings and in some cases the insurer was prepared to accept the house was a rebuild, but could not do anything by reason of the EQC attitude, so the insurer may not have a costs liability.
The closing submissions in the case of Kelly v EQC & Southern Response took place on 3 & 4 March 2015. This is the case notable for the defence by EQC and Southern Response that a weatherboard house in Burwood (TC3) with a post earthquake(s) floor differential of 88mm suffered no foundation damage in the earthquake(s) notwithstanding that the property moved downwards about 360mm and horizontally about 660mm and immediately adjacent houses suffered foundation damage. EQC and Southern Response also said that the floor differential was caused by the wind and a flax bush. EQC and Southern Response first said there was no foundation damage in September 2014 having accepted there was earthquake foundation damage for the previous 4 years. They chose not to call 10 people previously used by EQC and Southern Response who said there was foundation damage by earthquake and instead EQC and Southern Response and their lawyers rounded up a new gang of witnesses who tried to say there was no foundation earthquake damage. These people were Robert Davey (Opus); Anna Sleight (Tonkin & Taylor); Tim Day; Clive Anderson (Golders); Peter Duncan (Frontier). Nine lay witnesses also gave evidence of the state of the house and before and after the earthquake(s). The Judge was Mander J who used to work for Crown Law. It will be interesting to see how the Court deals with the overwhelming evidence of earthquake damage.
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