By Andrew Hooker* (email)
The earthquake claims arising out of the Christchurch earthquake are now slowly being considered by many insurance companies, and there are a number of themes that are arising.
As predicted in an article immediately after the first earthquake, disputes are arising over cash offers being made by insurance companies. There are numerous cases in which insurance companies are assessing claims, coming up with an estimate for reinstatement or repair to a building and making a cash offer to the client. As the New Zealand Law Society recently warned, people must be careful before accepting these offers. You are entitled to get a second opinion, and if you believe the offer is too low, do not accept the offer unless you are completely satisfied that the figure offered will be enough.
Insurance companies seem to be overlooking the real meaning of “replacement”.
For many years, insurance companies have provided better and better benefits in terms of what you are covered for. Most good house policies these days provide cover for full replacement, often regardless of the amount.
There are technical limitations in which the insurance company is not obliged to replace exactly the same as before and may use modern materials. But that does not mean that the insurance company can downgrade your house. For example if your house was built with cedar weatherboards, that is what you are entitled to.
The insurance company cannot obtain a quote or insist that you use a cheaper substitute.
Like for like, not a cheap facsimile
Similarly with aesthetic matters such as native timbers. If your house has features including native timbers, then that is what you are entitled to. Unless those timbers are no longer commercially available, the insurance company must replace with the original material. The fact that it will cost more is no excuse. The insurance company promises that you could replace like with like, and where those materials are available, it is obliged to do so.
In a leading case, the judge ruled that the use of materials more consistent with the architectural style of, and originally used in, the damaged building, instead of cheaper more modern materials, was not extravagant or unreasonable in view of the insurer's obligation in the policy to pay the cost of reinstatement in a condition ``equal to'' the original structure. Thus the insured was entitled to use tongue and groove timber for internal walls, rather than Gib board which was cheaper
If the insurance company elects to actually rebuild your house, the insurance company cannot force you to sign an agreement in which you are limiting its exposure to a fixed figure. If the policy does not have a sum insured limit, and the insurance company decides that it will rebuild your house, it must do so. What it costs is the insurance company’s problem, not yours.
No "sum" policies
Do not be forced into signing an agreement with the insurance company agreeing that the insurance company will rebuild your house up to dollars XYZ. If your policy does not have a sum insured limit, then the insurance company must rebuild regardless of the cost.
Cases are starting to come out in which the insurance companies are taking a position on whether the second earthquake was a separate event. You can bet your bottom dollar that when they talk to the reinsurance companies, they will be treating it as a separate event, and for the purposes of policy coverage such as alternative accommodation, that must be the case.
So what if your house was uninhabitable after the September earthquake? And if you were in the process of repairing your house so you could move back in, and it would have been inhabitable had the February earthquake not occurred, do you have another claim?
It seems, depending upon your actual policy wording, that you may well be able to claim again. The mere fact that that the house was not inhabitable at the time of the February earthquake does not in itself mean that there will not be a second claim. If the house would have been inhabitable by now but for the February earthquake, you may well be entitled to a second benefit. It will depend upon the words of your actual policy but don’t accept the insurance company’s word for it.
Storage costs claimable
In relation to contents claim, storage does appear to becoming an issue.
Insurance companies are strictly enforcing policy clauses in relation to storage costs. So if property has been removed from your house by the insurance company and placed in storage, some insurance companies are saying that the storage allowance has been used up and you must now meet that cost. That may well be the case, but be careful to analyse how the policy benefit was spent, whether the charges were reasonable, and whether there has been any unnecessary delay by the insurance company in repairing your house. It may be that the insurance company has an obligation to continue paying or that the amount being claimed as storage costs is partly attributable to other expenses.
All of the above examples identify one issue. Do not feel that you have to accept the decision that the insurance company makes or the offer made to you.
Do not be forced or pressured into accepting such an offer, and do not be scared to obtain independent advice from either a quantity surveyor, a builder or a lawyer. Many insurance policies on the market these days are very generous in their terms. You are entitled to the benefit of those policies. The insurance companies are not doing you any favour merely by honouring their contractual obligations, so don't feel guilty about insisting on every last cent.
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*Andrew Hooker a lawyer specialising in insurance law and a director of Claims Information Specialists Ltd, running an insurance information web site www.
8 Comments
Andrew, this kind of information is important and a good public service - it contributes to general financial literacy and empowers people to deal with insurance companies in a less 'in the dark' way.
Too often we watch media coverage where people claim to have been unaware of this kind of information being out there and then being 'duped' by insurers - it is good to know that if people bother to look they can find the help.
Thanks. I gen many many inquiries from Christchurch people and there are many themes. I try to keep an updated list of FAQs on my site at www.earthquakeclaims.co.nz
A question for Andrew:
Our "full replacement" policies state something along the lines that "if your house is destroyed, we will build you a new own".
There is no mention of timeframe, however you would expect that the the timeframe would have to be reasonable.
Could you please advise if there is any requirement for the replacement to be built within a reasonable time? Or can they continue to do as they are at present (9 months after properties were destroyed) continue to say they are inundated with claims and not even have sent assessors to some properties?
It makes no sense if insurance companies can simply delay rebuilding for a prolonged period (maybe 3 years or more??) and by doing so save themselves millions - earning interest on the money they should have paid out.
(I am not talking about areas where there is significant land damage but those in areas where only the building was significantly damaged due to its type of construction).
Surely if payments are not made or rebuilds not done in a reasonable time then the insured should be entitled to compensation? Are there penalties for insurers? Is the Government doing anything to sort out this ticking time bomb as particularly rental insurance begins to expire for many in just 3 months?
I have heard of some insurance companies offering cash settlements well above indemnity in order to avoid rebuilding. Is there a precedent for making cash payments of the full replacement cost rather than the lower indemnity amount?
There is a general duty on insurance companies to carry out repairs within a "reasonable time". I suspect that in deciding what is reasonable you'd have to take account of the current crisis, but in the end they have to act with reasonable speed.
If challenged the insurance company would need to provide evidence that they acted with due diligence in the circumstances that prevailed and didn't just sit on their hands.
I am enjoying your articles.
Our house was 50% damaged (to be rebuilt) in September, resulting in an over cap payout from EQC and contents and top up from our insurance company. The rest of our house was totalled in February, resulting in another EQC claim with over cap payment coming and contents and top up from our insurance company. If we had not had the February earthquake, we would have had to have moved out of our house for the rebuild. We moved out on Feb 22nd as our home is too dangerous to be in.
My question is, are we elligable for 2 accommodation payouts? We are about to start renting as we have exhausted our family and friends and need our own space to lick our wounds. Our insurance company is dragging things out and I cannot see our home being rebuilt within a year. We have no land damage, the house fell as it was very old.
The house was built with double brick cavity with lime mortar in the late 1860's. It was fully restored with kauri flooring and extensive native timbers. It fell down as did many buildings in Christchurch of similar construction. Even the recent addition that survived September couldn't cope with the force of 2.1g in February..
When I said 'top up from insurance' I was refering to the fact that when our house is rebuilt, if that cost is more than EQC's contribution, then my insurance company will top that up. I don't get the money. My insurance company is getting the EQC money, not me.
Do you consider it unfair that because I have a full replacement policy on my old house, it will be replaced?
Question for Andrew: Fixed Sum policy, multiple events
I have a nominated replacement value policy on my home i.e. "Full Replacement" up to a maximum specified amount. My policy also states that I have automatic reinstatement of cover. There has been damage from three different insurance events, each being less than the nominated sum on the policy, but in total the damage from the three claims is more than the nominated sum.
My question is, since my policy was reinstated each time, do I get paid for the damage attributable to each event - each of which is less than the maximum stated on the policy - but which in total add up to more than the maximum sum stated on policy?
I take from your comment Andrew that:
"You can bet your bottom dollar that when they talk to the reinsurance companies, they will be treating it as a separate event, and for the purposes of policy coverage such as alternative accommodation, that must be the case """ " " "
means presumably it is possible that the maximum on my policy applies to each event, and therefore is cumulative when there are mulitple events given the policy being "reinstated" after each event?
This would make a significant difference to my payout .
Any clarification greatly appreciated.
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