By Andrew Hooker* ( email )
The claims keep rolling in, and the lessons are being learned.
The thing about the Christchurch earthquake is that it has raised issues never seen before in New Zealand; like, how can a house be a total loss when it looks hardly damaged at all? And, once your insurance company declares your house a total loss, can they reuse parts of it when rebuilding?
Normally when your house is 'munted' - to coin a Christchurch word - it looks that way.
Commonly this will be from a major fire or flood. But there are many houses that are beyond economic repair as a result of the earthquake that look at first glance to be OK. They are, however, unrepairable because of structural damage.
A total loss in an insurance sense is a simple mathematical calculation.
If the cost to repair is more than the replacement cost, less any salvage recovery, it will be total loss. No emotion, just maths.
So, if a house has severe structural damage, like a broken slab, or internal deformation, it may be cheaper to just bulldoze it and start again than to try to repair it.
That raises another question. What types of repairs are permitted?
Obviously if your insurer wants to repair rather than replace, the repairs must be legal. But legalities aside, what if your insurance company wants to repair and the repairs will have a detrimental effect on the value or integrity of your house. Enter the grey zone.
You’re not insured for economic loss, and so if your repaired house is worth less because it has been repaired that’s not your insurance company’s problem.
But what if the proposed repairs will still leave a damaged but patched up house? That’s not replacement and you can argue that it is not acceptable under a replacement policy.
There are a number of cases coming to light where insurance companies are proposing to repair 'broken' houses by injecting a type of resin under the house to re-level it, kind of like a 'permanent' hydraulic jack. While this technology seems to have been proven in some situations overseas, it raises some very interesting questions:
• If my house has partly subsided, and the slab has cracked, should I have to accept a 'patch up' in the form of this product, where my house will still have a cracked slab, and a foreign material underneath it holding it up?
• What is the life expectancy of this solution? If it was say, 50 years only, then is that really 'replacement' or 'repair' to as-new, when most houses are measured on a 100 year life or more?
• Is this product suitable for the soil/ground type in my case?
• What is the maximum extent of subsidence that this product will work on?
No simple answers here, just the usual issue where insurers offer full replacement and then try to deliver with a second-best patch up.
Another developing theme is the tendency for insurers to declare a house a total loss, and then try to reuse parts of the old house in the replacement.
You see, when there is a fire or a flood that is unlikely to be an option. But a total loss house in an earthquake claim may have large portions that are unharmed.
The answer is simple. Once the insurance company chooses to write the house off - and they will only do that if repairs are uneconomic - they must give you new-for-old. Not second hand, even if it comes from your existing house.
Finally there is the ever vexing issue of discharges.
Often the insurance company will want you to sign a document in which you agree to limit the insurer’s liability to a fixed amount.
It is questionable whether an insurer can demand a discharge be signed in any situation. But when your policy has no sum insured limit, then the insurer can’t force you to agree to one.
Resist this pressure or you risk being out of pocket when the reinstatement escalated above the original estimate.
The earthquakes are a learning curve for all of us. Just remember, you don’t have to accept your insurer’s statement of your rights. Take your time to review and if necessary seek advice.
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*Andrew Hooker is a lawyer specialising in insurance issues at Hooker Law. He also runs an insurance information web site www.
1 Comments
Thanks for your input Andrew. Another complication is having a damaged property in the Red Zone, where repairs even if economic aren't going to happen. Our insurer has to come up with a "notional" cost of repair, which presumably includes the costs of building/resource consents required, even though these would not be granted. Variation 48 would then come into the equation - our garage/sleepout to comply with this, would then breach the recession plane. It all gets very murky and somewhat surreal.
In my view well informed homeowners with robust independent assessments should be able to get satisfactory settlements from their insurers. A credible threat to litigate opens up a potentially very costly test case for insurers, and bearing in mind home-owning judges may have some sympathy for the insured, I doubt insurers will have much stomach for a court battle unless they were pretty confident of winning. So my 5c worth - get informed, become confident and assertive and you stand a good chance of getting what your total replacement policy entitles you to. Others may view this differently and I would be interested in their thoughts.
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