In July 2019, the Supreme Court in Xu v IAG confirmed that EQ insurance claim assignees are only entitled to be indemnified under the assigned insurance claim. This means that assignees of private insurance house claims are only compensated for their actual loss; usually the reduction in market value of the property due to the EQ damage or depreciated replacement or repair costs, which allows for the age and condition of the property. This latter measure can be significantly less than the full replacement cover generally allowed for in the original house insurance, depending on the age of the property.
Because of this, we have been predicting another wave of litigation arising out of the 2021/2011 Canterbury earthquakes, when new homeowners find themselves with no access to the original home insurer and out of pocket to undertake further earthquake repairs.
EQC has confirmed that when an EQC claim is assigned, the new homeowner may have the same entitlements under the EQC Act as the previous owner and can receive any remaining entitlement. While this is positive for new owners, EQC's position is that its liability is still capped at $100,000 plus GST per event so, if the earthquake damage is more extensive and exceeds EQC's liability, or EQC has already settled the claim up to cap, there may still be a shortfall if repairs required.
If you are looking to purchase a house in Canterbury you should
undertake proper due diligence and seek legal advice to understand
your possible rights, benefits and obligations relating to EQ
claims that could be assigned to you as new homeowners.
When looking to buy a property in Canterbury you should:
- Get a property inspection report including finished floor levels and ensure the inspection includes the subfloor. This is important because, if you need to reopen an assigned claim, EQC may ask for disclosure of the pre-purchase reports that could indicate any damage known to the you at the time of purchase.
- Ask about the EQC claims and request all of the EQC Scopes of Works;
- Ask if the previous homeowner has used the cash settlement funds paid by EQC to do the repairs.
Further, it is now 10 years since the February 2011 earthquake. A lot of properties have been sold more than once in that time. You should ensure that the EQC claims have been properly assigned from one owner to the next over that time. For further information on assignment of claims please have a look at a fact sheet provided by EQC: https://www.eqc.govt.nz/sites/public_files/documents/factsheet/Assignment-of-claims-with-earthquake-damage-factsheet.pdf
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.