The second major earthquake in Canterbury in February 2011 was
more devastating than the first in September 2010. Although it was
of a slightly lesser magnitude, it was shallower and centred nearer
the Christchurch CBD. This resulted in loss of life and greater
damage than occurred during the September earthquake.
The incidence of two major related loss events in a short period
has raised complex insurance coverage issues beyond those arising
from each loss alone. This is particularly so for those
policyholders who suffered both losses in the same policy year.
APPLICATION OF DEDUCTIBLES AND AGGREGATE LIMITS
The application of deductibles and policy limits can be dictated
in the policy by whether the events are in a series and arise from
the same source or original cause. We have had to obtain expert
geotechnical advice from earthquake specialists in order to advise
underwriters on this issue.
A further issue has been policy wordings that refer to a single
total sum insured across all the insured buildings in the policy
wording. Usually, when the cover is written, sums insured have been
allocated for each building and the premium has been calculated on
this basis. Can these sums insured be relied upon by underwriters
when the damage for a particular building exceeds that figure, but
is still within the total sum insured stated in the policy?
REINSTATEMENT OF SUM INSURED
Many policyholders have discovered they are under-insured.
Sometimes this has been deliberate, but often not. One of the
interesting aspects of such widespread damage is that sums insured
based on replacement cost valuations have proven to be woefully
low. The valuations may have been accurate for standalone damage,
but prove far from adequate when costs become inflated by the sheer
scale of the surrounding damage.
Many policyholders are trying to apply the reinstatement of sum
insured condition found in most commercial property policies to
obtain a top-up in cover between the September 2010 and February
2011 earthquakes. The standard wording of this condition is
difficult to interpret. Just when is the amount by which the sum
insured is depleted by the loss "automatically"
reinstated? This becomes difficult in instances where no repairs
had been started on the damage caused by the September 2010
earthquake before the February 2011 earthquake hit, causing more
damage and in many cases, total loss.
One of the unusual aspects of the Christchurch earthquakes was
the large amount of liquefaction that occurred, particularly in
residential areas. Many houses suffered minor and reparable damage
but the land has sunk and is no longer suitable to support houses.
As insurance policies do not insure land, what is the underwriter
obliged to pay when the house is reparable but will probably have
to be abandoned because the land won't support it anymore?
A multitude of issues have arisen under business interruption
policies. The most difficult is whether the policy only covers
interruption caused by the damage to the insured building or
whether interruption caused by the wider area damage and consequent
loss of attraction can be taken into account.
A further issue is whether the cover available under sub-limited
extensions can be "stacked". The widespread nature of the
damage often meant more than one extension continued to apply over
a period of time. Once one 10% sub-limit was exhausted, can you
move on to the next one?
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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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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