The High Court has today given the go-ahead for EQC to settle land claims for increased flood vulnerability by payment of the loss of value to the land – at least in some instances. The key decisions of the Court were:
- Increased flood vulnerability is a kind of natural disaster damage to land which EQC should compensate for by remediation or payment.
- Where a house has subsided with the land and the land and building has become vulnerable to flooding this is damage to the land but not to the building.
- Sometimes, but not always, EQC can compensate by paying the loss in the value of the land, rather than reinstating the land.
- The Court did not approve the proposed policies of EQC as “lawful” or consistent with the EQC Act, but did find that it was proper for EQC to develop and publish guidelines for the settlement of flood vulnerability claims provided the guidelines:
(a) Require good faith by EQC;
(b) Are not applied mechanically;
(c) Do note exclude relevant factors;
(d) Entitle owners to provide further information, or an alternative exploitation of existing information;
(e) Do not prevent owners challenging EQC’s decision in Court.
- EQC is obliged to either repair damage, or make the proper payment and homeowners are entitled to sue EQC in the same way that they would sue an ordinary insurer.
- EQC have largely got what they wanted in this litigation, but it is not quite a free pass. There are three things that EQC will be nervous about.
(a) First, the Court did not approve the Policy, they simply said that it was proper for EQC to have one. This means that it is still open for owners to challenge the detail of the policy itself, such as how it measures flood vulnerability, or how it calculates the amount of compensation;
(b) Second the Court said that settling claims by paying compensation on the basis of a loss of value is proper on in “appropriate circumstances” such as where repair of the land is not feasible, or the land has been sold. Where the owner intends to repair the land then the cost of repair will be the proper measure.
(c) Third, EQC can be sued like an ordinary insurer. That means that they must act as if the EQC Act were an insurance policy and it must be followed strictly. EQC must not only act reasonably, it must act correctly.
- The Insurance Council is also likely to be generally happy with the outcome. Importantly it won the argument that where a house has subsided with the land this is land damage (which EQC is liable for) and not building damage (which insurers are liable for).
- The fact that the Court did not approve the Policy, but simply said it was proper for EQC to develop such policies is also consistent with the Insurance Council position.
- Homeowners will be relieved that the Court has issued a decision and that EQC can finally move towards the settlement of the claims. However they will now need to be vigilant to ensure that EQC treats them fairly and that the basis upon which their land claim is settled is fair. In particular:
(a) They will need to ensure that the degree to which they are flood vulnerable is properly captured and that the largely unreliable LiDAR data is not the sole basis of measurement;
(b) They will need to carefully scrutinise the basis upon which they are offered compensation.
(i) If they intend to repair the land then they should make sure they are offered the cost to remediate the land;
(ii) If repair is not feasible, or owners have no intention to repair they will need to ensure that a loss of value payment is a fair reflection of the actual loss of value.
Duncan Webb / Sophie Goodwin
Partner / Associate
Phone: 03 364 6456
Mobile: 021 244 3346