In this article we review a recent Court case concerning insurance and EQC cover for red zoned properties facing rockfall risk and assess whether a different approach might result in a successful claim.
The Christchurch earthquakes caused widespread rockfalls in the Port Hills. The Council issued notices under s124 of the Building Act 2004 that prevented some people from using or occupying their homes. These notices may remain in place for many years.
One such notice was issued to Kraal and Irvine (Kraal) in relation to their property at 119 Wakefield Street. The property was then red zoned. The Government offered to purchase the property but not at its replacement value. Kraal brought a claim against the Earthquake Commission (EQC) and her insurer, Allianz, for replacement cover under the Earthquake Commission Act 1993 and top up cover for her full rebuild costs under her insurance policy (for any amount not covered by EQC). On 6 May 2014 Justice Mallon issued her decision in the case.
Because of the wording of the insurance policy it was accepted by Kraal that if there was no EQC cover then there was no insurance cover. The main issue was whether 119 Wakefield Avenue had suffered natural disaster damage within the meaning of the EQC Act.
The term natural disaster damage included “any physical loss or damage to the property occurring as the direct result of a natural disaster”. Kraal argued that her property had suffered physical loss because the house could not be physically used or occupied for the foreseeable future.
EQC and Allianz argued that the EQC Act covered loss or damage to the physical integrity of the house and needed to be contrasted with non-physical effects on the house (such as loss of use) which may reduce its value or usefulness.
Justice Mallon agreed with the interpretation put forward by EQC and Allianz. She held that the ordinary meaning of the words physical loss was loss to the physical materials or structure of the house. Kraal had suffered an economic not a physical loss. Accordingly the Judge dismissed the claim against both EQC and Allianz.
The decision has been received with concern by homeowners in the Port Hills red zone who are yet to settle their insurance claims or sell their properties to the Government. In our view given the arguments presented to Justice Mallon the decision in Kraal is correct.
However, all is not lost for other homeowners facing the same issues with EQC and their insurers. This is because we consider that there is an argument open to them that was not pursued in Kraal.
Natural disaster damage in the EQC Act can include physical loss or damage that has not occurred but is imminent. The evidence before the Court in Kraal was that the s124 notice had been issued because there was a risk of damage to the property from rockfalls for many years to come. That risk arose as a result of the natural disaster that was the Christchurch earthquakes.
Despite this Kraal did not argue that there was a threat of imminent physical loss or damage. There are suggestions in the judgment of Justice Mallon that she may have been receptive to an argument along those lines. We believe that it is open to other homeowners who are in a similar position to take this different approach to their claims with potentially different and happier outcomes.
Our litigation team specialises in insurance law and is acting for many homeowners in dispute with EQC or their insurers over earthquake claims.
If you wish to discuss the issues arsing in this article or if you have other insurance law issues please do not hesitate to contact a member of our team.
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