Against a myriad of more immediate issues affecting Cantabrians and the insurance industry following the Canterbury earthquakes, both the insurance industry and law profession must continue to be alive to new issues as they emerge.
Three wearisome years have passed since that rude awakening on 4 September 2010, and many thousands of residential insurance claims have been filed in that time. While many Cantabrians continue to wait with ever-waning patience for settlement of those claims, life's other events wait for neither man nor insurer.
One issue that is likely to be encountered increasingly frequently the longer Cantabrians wait for residential repairs and rebuild, is how to deal with the 'ownership' of insurance claims, where the policyholder (or one of the policyholders) dies in the time between filing a claim for earthquake damage, and settlement of that claim.
It is common practice in post-quake Christchurch that, where a property is bought and sold, the benefit of outstanding EQC and private insurance claims are assigned to the purchaser. Even where repairs are completed prior to settlement, assignment is advisable so that the purchaser can still pursue a remedy for unsatisfactory repairs.
On the other hand, where an insured homeowner dies prior to settlement of the claims, the legal position in relation to outstanding earthquake insurance claims may be overlooked.
Where a property has been owned jointly and transfers to the survivor by survivorship, it might be assumed that the deceased's rights in relation to the insurance claims automatically pass to the survivor. Similarly, where a property is gifted by will, it could be considered to go 'without saying' that any outstanding insurance claims will also be transferred to the beneficiary under the will.
An insurance policy in two names will not necessarily mean the policy is held jointly. So, if the insured is named as Mr X and Mrs X, without more, the policy is deemed under written severally1. The relevant policy is the one on foot when the events happen. The combination of these facts means that should Mr X pass away, his rights under a pre-existing claim continue, and Mrs X might not receive the benefit of them, despite their intentions.
Unless a will provides otherwise (and it is unlikely to), rights under an insurance claim will pass to the residue of the deceased insured's estate. This scenario is problematic where the residuary beneficiary of the estate is not the person who takes ownership of the property, either by survivorship or by will. For example, it may be that the deceased's spouse takes ownership of the property, but the benefit of the insurance claim relating to that property falls to their children, or grandchildren, or even a third party.
The consequences could be devastating to the widow whose late husband has already arranged and paid for repairs out of joint savings, in reliance of later receiving a cash settlement from EQC and/or their private insurer, only for half of those insurance proceeds to fall to one or more unyielding successors after his death. Still worse is the situation in which it is discovered that the late husband was the only one named on the insurance policy.
While the potential for this scenario may seem relatively low, as Cantabrians grow older waiting for settlement of their claims, the conditions are ripe for that potential to increase.
Cantabrians would be wise to verify how their property is owned, and ensure that it is consistent with their insurance policies and wills.
If it is already too late, but all parties are agreeable, then deeds of assignment of EQC and private insurance claims, and a deed of family arrangement may be used to solve the problem. Other situations, including those involving non-family beneficiaries and relationship property claimants, may be more difficult to resolve.
The Canterbury Earthquakes have thrown into the limelight a great deal of practical and legal issues that have not previously been encountered, with new issues surfacing daily. This article identifies just one such issue, and highlights the dangers of assumption.
Footnotes
1Maulder v National Insurance Company of New Zealand Ltd [1993] 2 NZLR 351
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.
