New Zealand: The process of insurance settlements

You've made it. After negotiating back and forth with your insurance company you have agreed on an amount to settle your insurance claim. Your claims manager says that they will send you a settlement agreement for you to sign and the money will be yours. Sounds so easy. Richard Lang and Janine Ballinger, of Duncan Cotterill, look at the process.

The settlement agreement arrives and it is definitely more of a legal document than you expected. While your insurance company has agreed to pay what you expected, there may be lots of other clauses in the agreement, there may be a statutory declaration, and it comes with a warning to seek legal advice.

What do you do? You need to do exactly what your insurance company has advised. You need to seek professional legal advice.

The terms and conditions contained in the settlement agreement depend on your circumstances, the level of damage to the property, and the way the claim has been agreed to be settled. It is difficult to compare your settlement agreement to your neighbours. Differences in circumstances and policy entitlements mean that little details can have a significant impact on your settlement outcome.

There are several issues to consider when you review the settlement agreement, among other things:

  • What claim does the agreement relate to? Is the agreement in settlement of all claims?
  • Is the settlement figure correct? Have the correct inclusions or deductions been made? For example, EQC payments received, insurance excesses, professional fees, consent fees, emergency works, landscape allowances, outbuildings, driveways and paths.
  • Who needs to sign? Does your mortgagee need to sign the agreement or approve it? Does your insurance payment get paid to you or your mortgagee?
  • What is the settlement date, i.e. when will you receive your funds?
  • What insurance will be available for your home following the payment? The agreements usually provide for your insurance to either be cancelled in full or cancelled in relation to the damage parts of your property. Can you obtain other insurance such as on-going fire cover?
  • How do you get further insurance cover for your property? In the case for a house that can be repaired, most agreements state that they will reinsure your property when you can show the insurance company that you have completed all of the required repair works and you notify them that the works have been completed.
  • Where you are rebuilding, will your insurance company offer insurance for your new home?
  • What is your future liability regarding EQC settlements? Usually if you receive any further payments from EQC that relate to the building, those payments must be forwarded onto your insurance company. Do you have to assign your EQC claims to your insurance company? If so, check that land claims are excluded.
  • Who is liable for future demolition costs? Where a property is deemed a rebuild such costs tend to stay with your insurance company, but note that they are entitled to demolish as and when they see fit. If this creates a problem you need to raise it with them and see if a future date can be agreed to.
  • Who has the salvage rights? You or your insurance company?
  • What about your temporary accommodation allowance or storage costs? Does your agreement specifically state that any unused portion remains available for you to use?

Once you are satisfied with the agreement, it is time to sign. Where a statutory declaration is required, you will need to see a lawyer, notary public, justice of the peace or court official to complete the declaration. A statutory declaration is a serious document and it is a criminal offence to make a false statement or declaration - penalties include imprisonment.

Statutory declarations usually concern the application of the insurance money you are receiving. You need to be careful that the declaration reflects your circumstances and your agreement with the insurer e.g. whether you are declaring that you intend to repair your property, reinstate your property, or purchase another property to the value not less than your insurance settlement offer.

You must comply with whatever terms and conditions your insurance company has placed in the statutory declaration. If you are not going to comply, you need to discuss this with your insurance company.

Even though you are nearly through the insurance process, the settlement agreement is really important and has far reaching effects. Take the time to fully understand what you are signing and seek professional legal advice as soon as you can.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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