2012 was a much quieter year in Canterbury, at least in
seismological terms. The last earthquake of any magnitude was in
December 2011. The dwindling sequence of aftershocks has given
insurers and builders confidence to move ahead with the settlement
of claims by reinstatement. It is also fuelling increasing
frustration by policyholders at the slow pace with which building
The Canterbury Earthquake Recovery Authority (CERA) made a
series of announcements over the course of the year, zoning
properties into red and green. Those zoned red are subject to the
Crown offer to purchase, at 2007 rating values, with the threat of
compulsory acquisition for those not wanting to sign up.
Properties zoned green can be redeveloped. However, the green
zone has been sub-divided into three sub-categories depending on
the extent of land damage. These range from Technical Category (TC)
1, where the houses can be built with ordinary foundations, through
to TC3, where the local authority requires geo-technical
investigation and specialist foundation design.
Unsurprisingly, issues have arisen between the owners and
insurers of TC3 properties. A particularly difficult issue is in
determining what cover is provided by the Earthquake Commission
(EQC) for damaged land. All properties with policies of fire
insurance automatically have cover for land provided by the EQC.
That cover is capped at the value of the land damaged by
The EQC is showing reluctance to meet the cost of land repairs.
Its view seems to be that insurers should bear the cost of
foundations as part of the house repair. That ignores the fact that
repairing the land by compacting and strengthening it would mean
ordinary foundations would suffice. Insurers are taking assignments
of the rights policyholders have against EQC to test this
Insurers have had to deal with houses in the hill suburbs
subject to the threat of damage by falling rocks. That has brought
into question whether policies that cover physical loss are
triggered. We are aware some insurers are treating such houses as
total losses on the basis that the owners are prohibited from
living in them and there is no short or medium term prospect of
them being able to return.
Policyholders with houses in the Residential Red Zone continue
to argue that the fact they are not able to repair their properties
means they have suffered total losses, irrespective of the actual
damage suffered. Insurers are holding the line that houses that are
not actually destroyed should not be treated as such. That position
is to be tested by the High Court in a case scheduled for hearing
in March 2013.
Intractable cases are moving inexorably towards the courts and
the Ministry of Justice is fast-tracking earthquake-related
litigation to hearing. One case that has been heard –
Turvey Trustee Limited v Southern Response Earthquake Services
Limited  NZHC 3344 – involved the issue of
reinstatement of an old house with period features. The owner
wanted replacement on an identical basis. The court took a
pragmatic and reasonable approach. Plaster ceilings and cornices
could be replaced with polystyrene equivalents. Hardwood floors and
other features that were painted could be replaced with softwood.
Exposed and polished floors had to be replaced with something
equivalent, though the owner had to accept that the precise wood
may not be available in 2012.
Insurers have seen an upsurge in claims being prosecuted by
claims management companies. Our expectation is that as the pace of
construction increases, and homeowners can see progress, these
companies will have a harder time attracting clients.
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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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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