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Kelly v EQC & Southern Response – no appeal

The appeal period for any appeal from the judgment in C & S Kelly Properties Ltd v EQC & Southern Response Earthquake Services Ltd [2015] NZHC 1690 has expired with no party lodging an appeal.  There has been no agreement about the costs payable by EQC and Southern Response so the Court will now have to determine that issue.  Notwithstanding the recent MBIE report to the effect that 30 out of 32 hand selected properties that were jacked and packed by EQC were non-compliant with the building code apparently EQC still maintains that it can jack and pack this property.

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Failed work for EQC

Here is a link to a Stuff article on the comments by builders involved in doing building work for EQC and Fletchers.  Beneath the article are comments corroborating the content of the article that EQC and Fletchers are not blameless for the defective building work.  Both EQC and Fletchers ought to be legally liable for any defective building work.  I am aware that both have previously been sued for defective work.  I would not rely on either to remediate defective work and homeowners have no obligation to allow EQC or Fletchers to try to remedy defective work.

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MBIE Report on EQC Faulty Repairs

Below is an extract from the MBIE website about its report on faulty building repairs.  The report identified significant failings with the “jack and pack” method.  Here is the link.

Report into Canterbury residential repairs released

19 August 2015

The Ministry of Business, Innovation and Employment (MBIE) has released a report into the Building Code compliance of earthquake repairs to Canterbury homes.

The report follows an independent survey of 101 homes randomly selected from more than 2,700 addresses provided by EQC, Housing New Zealand, Southern Response and IAG. The survey also included a small sample of houses where homeowners had opted out of an insurer-led home repair programme.

The organisations were asked for addresses of homes with completed structural repairs that were exempt from a building consent under Schedule 1 (repairs and maintenance) of the Building Act.

Exempt repair work was considered to have a greater risk of non-compliance as it’s not subject to a council inspection and because, unlike cosmetic repairs, defects in structural repairs may be hidden from view and therefore harder for homeowners to identify.

Ninety of the 101 homes met the criteria and of these 32 had structural repair work carried out that was non-compliant with the Building Code. An additional 23 homes were assessed as having minor repair defects. The compliance of work assessed as a minor defect may be marginal and a strict application of the Building Code may deem the work to be non-compliant.

A key finding from the survey is that 30 of the 32 homes with non-compliant repairs involved floor re-levelling using the ‘jack and pack’ repair method.

A further finding is that the repair work to at least nine of the 32 homes was supervised by a Licensed Building Practitioner. MBIE is further investigating these builders.

Adrian Regnault, GM Building System Performance, MBIE, says “there are no concerns for the safety of occupants. The consequences of a poor ‘jack and pack’ are that the house would fall out of level over time or more quickly if there were another earthquake similar in intensity to the Canterbury Earthquakes.” A house that is out of level may have doors and windows sticking, and uneven benchtops.

“The level of non-compliance is disappointing. ‘ Jack and pack’ is a relatively simple repair job when done correctly and properly supervised. More complex structural repairs inspected in the survey were generally done well, which suggests some corners were cut on the smaller jobs and they lacked adequate supervision and oversight.

“It’s not uncommon in boom times to see tradespeople being exposed to work they may not normally do because of the sheer volume. During these times, greater vigilance is needed by Project Management Offices and contractors, to check that work is being carried out in accordance with their guidelines and repair specification, and that only staff experienced or trained for particular repair work, are doing that work.”

One of the report’s recommendations is for agencies and their Project Management Offices to rectify the issues identified. Mr Regnault says that almost all of the non-compliances are relatively easy to fix.

A further recommendation is for agencies and/or their PMOs to review all completed repair work that has been exempted from a building consent, targeting houses where the repair works involved jacking and packing, to ensure Building Code compliance.

 Refer to MBIE’s Building Performance website for a complete list of work that does not require a building consent.

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Failed remedial work continued

Stuff and the Press recently published the article here about the likely liability of Fletchers and insurers for defective earthquake remedial work.  It is unfortunate that those involved in the article did not accurately state the law.  Where an insurer chooses to do, or have paid for, remedial work under the insurance policy then it is liable for the quality of that work as if it was the builder.  There are a few Court proceedings already against insurers for defective building work.  Fletchers as the project manager owes obligations to the home owner to perform its role with reasonable skill and care.  That includes ensuring that the work complies with the building code.  The terms of any contract with EQC ought not affect Fletchers liability to the homeowner.

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EQC failed remedial work

Here is the link to the post on the EQC website about failed remedial work.  The houses the subject of the investigation will be the tip of the iceberg.  I do not recommend that homeowners rely on EQC to accurately scope and remediate the failings.  Better to engage an independent expert.

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Earthquake Insurance Statistics

Five Years On: How Insurance Claims Arising from the 2010-11 Earthquakes Have Been Dealt With

New Zealand’s proximity to the geologically active Pacific Ring of Fire leads to 20,000 recorded earthquakes each year. Most earthquakes are minor but annually around 200 are strong enough to be felt.

Between September 2010 and June 2011, Canterbury was hit by three major earthquakes. While such natural events are not uncommon in the country, the intensity of those earthquakes, and the fact that they occurred so close together, caused considerable damage to the region, destroying buildings, roads and infrastructure. It affected 460,000 people, and damaged 150,000 homes; 20% of which (30,000) were seriously damaged.

This earthquake sequence was the fifth-biggest insurance event globally since 1953. It is estimated that the total cost of the reconstruction will be around $20 billion, which is 10% of the country’s GDP: $13 billion (65%) of residential damage, $4 billion (20%) to restore commercial properties and $3 billion (15%) to repair and replace infrastructure.

Five years on, we look at how insurers, insureds and the Earthquake Commission (EQC) have coped with the deluge of insurance claims that ensued.

According to the Insurance Council of New Zealand (ICNZ), as of May 2015, private insurers have paid out almost $15 billion to settle claims, 60% ($9 billion) for businesses and 40% ($6 billion) for residential claims. A significant number of less straightforward claims have gone to Court.

According to data collated by ICNZ and The Canterbury Earthquake Recovery Authority (CERA), 71% of all “over cap” residential claims are now “resolved” and 23% are still “in resolution”. Of the 11,200 “over cap” claims that received a cash settlement, about 6,000 were from within the red zone.

The EQC has paid out $500 million for contents damage and loss to almost 184,000 claimants, with an average payment of $2,700.

If you have been affected by the Canterbury earthquakes and are struggling to reach a satisfactory settlement, contact Grant Shand for confidential and professional advice, and to find out which options are open to you.

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Another Cathedral Judgment

In a judgment 5 August 2015 in Church Property Trustees v Attorney General & Anor [2015] NZHC 1843 the High Court (Dunningham J) discussed the consequences of the breach of trust by the CPT in spending $4.7M of the insurance proceeds for the Cathedral on the cardboard cathedral in Latimer Square.  CPT had recently transferred funds to cover the payment, so there was no need for any orders against it.  The Court decided that the payment for Cathedral contents was not required to be used for the Cathedral only.  It also decided that the CPT was not in breach of its obligations by failing to insure the Cathedral for replacement cost.

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New red zone offer

Cera has published its later red zone offer.  Details are below.

Residential Red Zone Offer Recovery Plan

The Residential Red Zone Offer Recovery Plan has now been approved and released

The Residential Red Zone Offer Recovery Plan [PDF 716KB, 32 Pages]

The media release announcing The Residential Red Zone Offer Recovery Plan »

The Recovery Plan confirms the following Crown offers:

  • For all vacant red zone land: a new Crown offer at 100% of the 2007/08 rateable land value.
  • For all insured commercial red zone properties: a new Crown offer at 100% of the 2007/08 rateable land value and 100% of the 2007/08 rateable improvements value for the insured improvements, if the insurance benefits are transferred to the Crown, or the owners may choose not to accept any payment for the improvements and keep the benefits of their insurance claims.
  • For uninsured improved red zone properties: a new Crown offer at 100% of the 2007/08 rateable land value, with no payment for uninsured improvements. The owners may choose to relocate, salvage or sell any uninsured improvements, or they can elect for the Crown to demolish the improvements. The Crown will meet the demolition costs.

For other affected property owners the Recovery Plan confirms the following Crown offers:

  • For the ten privately-owned red zone properties at Rāpaki Bay: new Crown offers on the same basis as any new offers for vacant, uninsured improved and insured red zone properties, and the Crown will agree with the property owners to apply to the Māori Land Court to set aside the land as Māori reservation, if the owners wish to accept a Crown offer.
  • For other privately-owned red zone properties: the Crown will consider buying the properties, only if offered for sale by the owners, with payment on the same basis as the original red zone Crown offers (depending on the property category) for insured properties, underinsured properties, properties under construction and properties owned by not-for-profit organisations.

Next steps

The Recovery Plan enables the Chief Executive of CERA to make new Crown offers to the owners of vacant, insured commercial and uninsured improved red zone properties. The Chief Executive expects to be able to start this process within the next two weeks.

Related documents

Report on Decisions Made in Approving the Residential Red Zone Offer Recovery Plan
This paper outlines the Minister for Canterbury Earthquake Recovery’s decisions in approving the Residential Red Zone Offer Recovery
Plan, including changes made to the Draft Recovery Plan and the reasons for those changes.

Decisions Made in Approving the Residential Red Zone Offer Recovery Plan [PDF 110KB, 9 Pages]

Summary of the Public Submissions on the Draft Recovery Plan
This is a summary of all the public feedback received on the Draft Residential Red Zone Offer Recovery Plan. This was prepared for CERA by an independent research company.

Summary of the Public Submissions on the Draft Recovery Plan [PDF 735KB, 21 Pages]

Residential Red Zone Offer Recovery Plan: Draft
The Draft Recovery Plan identified the CERA Chief Executive’s assessment that new Crown offers should be made and as soon as practicable, if the Recovery Plan is approved. It identified five key criteria for new Crown offers, and the Chief Executive’s preliminary views on the quantum of new offers. The public was invited to provide written comments between 25 June 9 July 2015.

Residential Red Zone Offer Recovery Plan: Draft [PDF 1.6MB, 48 Pages]

Summary of the Public Submissions on the Preliminary Draft Recovery Plan
This is a summary of all the public feedback received on the Preliminary Draft Residential Red Zone Offer Recovery Plan. This was prepared for CERA by an independent research company.

Summary of the Public Submissions on the Preliminary Draft Recovery Plan [PDF 930KB, 30 Pages]

Residential Red Zone Offer Recovery Plan: Preliminary Draft
The Preliminary Draft Recovery Plan was the first opportunity for the public to provide views on whether the Crown should make new offers to buy vacant, commercial and uninsured improved properties in the residential red zone, and if so, how any offers should be structured. The public had from 5-19 May 2015 to provide written comments.

Residential Red Zone Offer Recovery Plan: Preliminary Draft [PDF 1.1MB, 36 Pages]

Direction
This Direction specifies the matters to be dealt with in the Residential Red Zone Offer Recovery Plan and that the responsible entity to develop the Recovery Plan is CERA. It was published on 23 April 2015 in issue no.41 of the New Zealand Gazette.

Direction to develop a Residential Red Zone offer Recovery Plan »

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