The Christchurch earthquakes caused widespread rockfalls in the
Port Hills. The Council issued notices under s124 of the Building
Act 2004 that prevented some people from using or occupying their
homes. These notices may remain in place for many years.
One such notice was issued to Kraal and Irvine (Kraal) in
relation to their property at 119 Wakefield Street. The property
was then red zoned. The Government offered to purchase the property
but not at its replacement value. Kraal brought a claim against the
Earthquake Commission (EQC) and her insurer, Allianz, for
replacement cover under the Earthquake Commission Act 1993 and top
up cover for her full rebuild costs under her insurance policy (for
any amount not covered by EQC). On 6 May 2014 Justice Mallon issued
her decision in the case.
Because of the wording of the insurance policy it was accepted
by Kraal that if there was no EQC cover then there was no insurance
cover. The main issue was whether 119 Wakefield Avenue had suffered
natural disaster damage within the meaning of the EQC Act.
The term natural disaster damage included "any physical
loss or damage to the property occurring as the direct result of a
natural disaster". Kraal argued that her property had suffered
physical loss because the house could not be physically used or
occupied for the foreseeable future.
EQC and Allianz argued that the EQC Act covered loss or damage
to the physical integrity of the house and needed to be contrasted
with non-physical effects on the house (such as loss of use) which
may reduce its value or usefulness.
Justice Mallon agreed with the interpretation put forward by EQC
and Allianz. She held that the ordinary meaning of the words
physical loss was loss to the physical materials or structure of
the house. Kraal had suffered an economic not a physical loss.
Accordingly the Judge dismissed the claim against both EQC and
The decision has been received with concern by homeowners in the
Port Hills red zone who are yet to settle their insurance claims or
sell their properties to the Government. In our view given the
arguments presented to Justice Mallon the decision in Kraal is
However, all is not lost for other homeowners facing the same
issues with EQC and their insurers. This is because we consider
that there is an argument open to them that was not pursued in
Natural disaster damage in the EQC Act can include physical loss
or damage that has not occurred but is imminent. The evidence
before the Court in Kraal was that the s124 notice had been issued
because there was a risk of damage to the property from rockfalls
for many years to come. That risk arose as a result of the natural
disaster that was the Christchurch earthquakes.
Despite this Kraal did not argue that there was a threat of
imminent physical loss or damage. There are suggestions in the
judgment of Justice Mallon that she may have been receptive to an
argument along those lines. We believe that it is open to other
homeowners who are in a similar position to take this different
approach to their claims with potentially different and happier
Our litigation team specialises in insurance law and is acting
for many homeowners in dispute with EQC or their insurers over
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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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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