The plaintiffs own a property in Sumner, Christchurch. The
plaintiffs are prevented from occupying their home, not because of
earthquake damage to the structure of the home itself, but because
of the risk that rocks on a cliff face above the property will
dislodge and cause injury or death to persons in the property. As a
result of the risk of injury or death to persons in the property
from rockfall the Christchurch City Council has issued a notice
which prohibits the homeowners from using or occupying the home
(known as a section 124 notice).
Justice Mallon reviewed the expert evidence relating to the risk
of rock fall, and concluded that the occupation of the
plaintiff's house would not be permitted for the foreseeable
future. She noted that "the seismic profile is not anticipated
to reduce to pre-earthquake levels until 2021".
The plaintiffs' house insurance policy provided (as most
policies commonly do) that the house is covered for accidental
physical loss or damage unless the loss or damage is excluded by
the policy. Loss or damage arising from an earthquake, natural
landslip, or other type of natural disaster is excluded from cover,
except as provided in the Natural Disaster section. The Natural
Disaster section of the policy provides that if the house is
damaged by an earthquake then the insurer will pay the difference
between the cost of repair and the EQC cover, provided that there
is cover under the Earthquake Commission Act (EQC
Act). The plaintiff therefore needed to show that there
was cover under the EQC Act as a prerequisite for obtaining cover
under the insurance policy.
Under the EQC Act there is cover if the plaintiffs' house
has suffered natural disaster damage. As defined in the EQC Act,
natural disaster damage can be one of three things:
physical loss or damage to the residential building which
occurs as the direct result of a natural disaster;
physical loss or damage to the residential building that (in
the opinion of EQC) is imminent as the direct result of a natural
disaster that has occurred; or
physical loss or damage to the residential building (including
physical loss or damage to the residential building that is
imminent) that occurs as a direct result of measures taken under
proper authority to avoid the spreading of, or otherwise to
mitigate the consequences of any natural disaster, but does not
include any physical loss or damage to the property for which
compensation is payable under any other enactment.
The parties agree that the threat of rockfall is not imminent.
The plaintiffs' view is that the phrase "physical loss or
damage to the property" should include circumstances in which
a house is rendered uninhabitable because of the direct physical
threat from rockfall hazard created by a natural disaster event.
They say that their house practically and legally cannot be
physically used for the foreseeable future and this deprivation is
a "physical loss".
Justice Mallon noted that:
"The reasoning that a house connotes something that is
habitable and that, where a house has been rendered uninhabitable
because of a physical threat to it, the homeowners have suffered
loss, has some attraction. From the homeowners' perspective
they have "lost" their house because they can no longer
live in it... it is a loss that homeowners reasonably might expect
would be covered by the Act (and their insurance policy)."
However, she went on to say that despite that argument being
attractive "the focus here must be on the words in the
Justice Mallon decided that:
"In this case the loss suffered is loss of the ability to
exercise a legal right that is part of the bundle of rights
comprising the fee simple estate. It is not "physical loss ...
to the property". Loss in the context of the Act means loss to
the physical materials or structure of the building. That
interpretation is consistent with the natural and ordinary meaning
of those words in the context of the Act."
The section 124 notice therefore does not constitute loss of the
property, and the plaintiff is not entitled to insurance cover for
the loss of use of their home.
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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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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