"Highlighting the inadequacies of the way in which the earthquakes of 2010-2012 were handled by the insurance industry! "


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Homeowners yet to settle with their insurer for their earthquake damaged homes have finally been given certainty in respect of contingencies and professional fees by the Court of Appeal judgment of Avonside Holdings Limited v Southern Response Earthquake Services Limited [2014] NZCA 483 (Avonside) released this week.


In Avonside, the house was a total loss and the insured elected under the policy to buy another house.  The sum payable by Southern Response under the policy for this election was the cost of buying another house up to the “cost of rebuilding the same house on the same site”.  The High Court had found that this did not include any contingency sum. Most building contracts will include such a sum to allow for costs which although not anticipated are very likely.  The High Court considered that because there was no actual rebuild in a “buy elsewhere” election the amount was not payable.

The Court of Appeal determined that in calculating the rebuild cost of the house, a contingency amount was payable by Southern Response and the measure of professional fees payable was the actual costs required to rebuild the house on the same site. This amounted to an additional $271,200.00 payable to the insured, on the basis of a 10% allowance for contingencies and a 10% allowance for professional fees.

This is an important decision for homeowners, as insurers across the board have to date refused to include a contingency fee and a full allowance for professional fees as part of the calculation of the rebuild costs where the insured elected to buy another house.

While the case of Rout v Southern Response Earthquake Services Limited [2013] NZHC 3262 had earlier determined that insurers were to pay a 10% contingency fee for the “buy another house” option, insurers still refused to do so and maintained that the earlier High Court decision in Avonside (which held a contingency was not payable) was the applicable law.  As the issue has now been unequivocally determined by the Court of Appeal, insurers should not be in any doubt that contingencies and full professional fees are to be included in the calculation of notional rebuild costs.


The one part of the Avonside decision that does not favour homeowners relates to the amount payable for repairable outbuildings and other external works (such as driveways, fences, garages and paths). The argument advanced for Avonside was that the insured’s entitlement was to be assessed on the basis of rebuilding the entire “house” which was defined to include those external items. This was so whether those parts were repairable or not.

The Court did not accept this and held that if in the rebuilding process, an “as new” property could be produced by repairing and reinstating external works rather than rebuilding those items from new, then that is the way that the sum is to be calculated.


Sophie Goodwin, AssociateDuncan Webb,  PartnerLane Neave LawyersEmail:

Tel:    +64 3 379 3720

Fax:   +64 3 379 8370

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.


Author: Sarah-Alice Miles

Love to write, create and watch the clouds move across the sky - these days in the Netherlands. 'Art allows us to find ourselves and lose ourselves at the same time'.

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