the insurance fiasco

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

Kraal v Earthquake Commission CA281/2014 [2015] NZCA 13 [13 February 2015]- Summary by Sarah Miles

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The outcome of this case has devastating consequences for property owners in similar positions. 305 red zoned Port Hills properties are subject to s124 notices. There were 454 red zoned properties eligible for a Crown pay-out at 2007 values, of these some 369 have settled. (See ‘Ruling on rock-fall a blow for Port Hills’, Cecile Meier, The Christchurch Press, Feb 20, 2015).  Some private insurance companies chose to pay full replacement but IAG has said that the remaining s124 notices would reflect the Court of Appeal’s decision (see below). An unenviable position for any property owner especially as they have suffered just as much as other people who have been adequately covered by the EQC Act. In order for the Kraal’s to appeal the latest decision financial support of other homeowners is required. If more homeowners contribute, then that per-house rate can adjusted and part of the contribution be reimbursed, so that if we have 60 homeowners, the contribution is only $500 for example. The plan would be that with the trust fund in place, we can prosecute the appeal to hearing.  Once the Court of Appeal delivers its decision, hopefully in favour of the Kraal’s, then they can pursue full indemnity costs against the Respondents, EQC and Allianz without calling upon the trust fund.  The funds held in trust would then able to be repaid to the contributing homeowners.

If you are prepared to contribute, could you please record your commitment to Helen at the following email :

In Kraal v Earthquake Commission & Allianz New Zealand Ltd, the plaintiffs own a property in the Port Hills in Christchurch. They have been prevented from occupying their home by a notice issued under section 124 of the Building Act 2004 (s124 Notice). The Notice was issued due to the risk that rocks on a cliff face might dislodge and roll down causing injury or death to persons at the property. The plaintiffs argued that this risk of rock fall and/or the effect of the s124 Notice amounted to ‘physical loss or damage to the property’ covered by the EQC Act and the natural disaster extension of their policy of insurance with Allianz. They maintained that this phrase extended to circumstances where the house was rendered uninhabitable due to a direct physical threat from the rockfall hazard (created by the earthquake) and/or because the house cannot be legally used for the foreseeable future. The Crown offered to purchase the property from the Kraal’s based on a 2007 valuation. EQC declined to pay for losses resulting from not being able to occupy the home and Allianz declined to indemnify them, under their insurance policy.

The High Court determined whether the lawful prohibition to occupy a mostly undamaged house, due to the risk of rock fall, amounts to ‘physical loss or damage to the property’ under the cover provided by the EQC Act. The Court also determined what is considered ‘damage’ to the property under Allianz’s top-up cover for the peril of earthquake.

The High Court determined that, under the EQC Act, the words ‘physical’ and ‘to’ were crucial in the phrase ‘physical loss or damage to property’ and held that they indicated, on a natural and ordinary meaning, a requirement that some physical harm must happen to the materials and structure of the building, and possibly imminent threats of such damage. The loss of use claimed by the plaintiffs did not constitute ‘damage’ under the policy.

The Plaintiffs Appealed:

The Court of Appeal held that the issue of loss  under the ECA is ‘essentially an exercise in statutory interpretation’. The Court went on to consider the definitions of ‘natural disaster damage’, ‘physical’, ‘to the property’, ‘damage’, ‘loss’, ‘imminent’. They concluded that the event must still cause physical loss or damage to the property. Taking into consideration the history of the EQC legislation the Court concludes that “history tends to support the interpretation put forward by EQC rather than the Kraals.  It indicates an intention to cover events which damage land or the materials or structure of buildings, and to extend that to situations where physical damage is imminent.” They conclude that the plain meaning, the context, legislative history and relevant authorities in New Zealand, Australia and England all support an interpretation in which there must be “a physical disturbance to the materials or structure of that building, and the ECA does not extend to a claim for losses arising from an event which has not physically affected the body of the property“. Because EQC is held not to be liable coverage under their private insurance contract with Allianz  is not triggered and the Kraals loose their appeal.

Cases Sited

Moore v Evans [1917] 1 KB 458 (CA).
Pilkington UK Ltd v CGU Insurance plc [2004] EWCA Civ 23, [2005] 1 All ER 283.
Promet Engineering (Singapore) pte Ltd v Sturge (The "Nukila") [1997] EWCA Civ 1358, [1997] 2 Lloyd's Rep 146 (CA) at 151.
Transfield Constructions Pty Ltd v GIO Australia Holdings Pty Ltd [1996] NSWCA 538, (1997) 9 ANZ Insurance Cases 61- 336 (NSWCA).
Allstate Exploration NI v QBE Insurance (Australia) Ltd (2208) 15 AnZ Insurance Cases 61-773 (VCA).
O'Loughlin v Tower Insurance Ltd
Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262.
Earthquake Commission v Insurance Council of New Zealand Inc [2014] NZHC 3138.
Kuwait Airways Corporation v Kuwait Insurance Co SAC [1996] 1 Lloyd's Rep 664 (QB).

Other Resources

Author: Sarah-Alice Miles

Love to write and create - these days living in the Netherlands. 'Art allows us to find ourselves and lose ourselves at the same time'.

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