Australia: Canterbury Earthquakes Residential Issues

Insurance Update (Australia)
Last Updated: 14 April 2013
Article by Peter Leman

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 is occurring.

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 earthquake.

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 point.

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 [2012] 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.

© DLA Piper

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 this publication.

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

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