Do not be afraid to ask for a cash advance – otherwise known as a partial payment or an interim payment. Your policy may entitle you to an advance to pay for certain services such as professional fees and supplies and for any additional living expenses you may have incurred. Of course it is likely that the insurer will argue that you are not entitled to a partial payment. But the question becomes should a debtor (the insurer) hold onto money that it agrees it owes e.g. the insurer’s current assessment of the value of the cost to repair or rebuild your property. Once they have made an offer, they know that they are going to have to pay you at least that sum – whether you agree on the sufficiency of the sum or not.
In the insurance claims world, insurance companies are fully aware that it is very profitable to “play the float.” Even the most famous insurer admits that “playing the float” is very profitable, see http://www.propertyinsurancecoveragelaw.com/2009/03/articles/insurance/playing-the-float-and-the-wisdom-of-warren-buffett/ and that’s why they hang onto your monies. The float is composed of two things: claim reserves and premium reserves. Claim reserves are the assets set aside to satisfy all claims that likely will be made as of the current date. Premium reserves are the assets set aside representing prepaid premiums that have not been earned yet. Claim reserves can be long, short or in-between, under usual circumstances residential claims are short e.g. one year. Investing the claim reserves usually reflects the length of time it will take until ultimate payoff. As we are seeing the insurers are viewing ultimate payoff as being several years away.
Earnings financed by float are divided into two segments — non-speculative, and speculative. The non-speculative returns on float reflect what can be earned by investing in high quality bonds that match the time period over which the float exists. Short for premium reserves, longer for claim reserves. So, the value of float is the “Present value of (investment earnings of high quality duration-matched assets plus underwriting gains [or minus losses])”. “Write insurance, gain float, invest cleverly against the float, and make tons of money.”
However an insurance company that does not promptly pay undisputed benefits that can be determined under a property insurance policy is not acting in good faith. There is an absolute need for the law in New Zealand to reflect a public policy that all insurers should pay claims as soon as they can determine the amounts due, despite the fact that there may be disagreement between the parties. Partial payments of amounts determined to be payable should be the standard, and extreme penalties should be the norm for slow paying insurers seeking to wrongfully profit from playing the float.
I think it unlikely that our courts would allow the insurance industry to get away with paying nothing, four and a half years after the Christchurch earthquakes, by simply relying upon the argument that partial payments are not mentioned in the policy or that they have not reached agreement with you yet or that an award has not been entered nor a judgement. Particularly in light of the fact that many people are suffering severe consequences from the ongoing delays such as continued requirement to meet mortgage payments, rental payments on temporary accommodation, rates on unliveable properties, storage costs etc.
Can you imagine how ridiculous it would look as judges start asking the counsel for the insurer, “so Mr. So and So , you mean to tell me that your client (Insurance Company X) has no legal accountability for not paying for anything on her (the insured’s) five hundred thousand dollar earthquake damaged home because she disputed fifty dollars regarding the price of carpeting in one of the bathrooms?” I cannot imagine any respectable insurer or Judge for that matter openly claiming that the insurer has no legal obligation to pay anything until all the claimed benefits are determined – can you?
Well the good news is there are stories out there of Cantabrians who have already secured partial/interim payments. Of course the insurer usually ‘tries it on’ in order to avoid payment – it messes with their float after all. I see these payments referred to by insurers, amongst those who have had them as “out of policy” payments. Some clients have had interim payments based on the insurers assessment of repair costs on the home before an agreement as to the real, complete costs are agreed or forced upon the insurer. Of course the other trick is that the insurer offers to pay “the fair value of the loss based on the present value of the home” but that is not what a partial or interim payment is. The present value of the home is the market value of the home, excluding the value of the land – that is, a cash settlement. So don’t fall for that one. Ensure that you make it clear that the payment is not accepted by you on the basis that it is in any way an indication that you agree with their repair strategy either in the past or at the current point. And reiterate that the payment is not accepted as being tied to a present day or indemnity value of the home.
They’ll also try to tell you that the policy states that it is their obligation only to pay costs as they are incurred and because you have not incurred the costs relating to the remediation of the home you are not entitled to any payment. Well that’s not what my policy reads. My policy states that these costs will be covered by the insurer as long as they were necessarily and reasonably incurred – including costs associated with architects, engineers, surveyors, building consultants, legal and council fees.
They may even use this as an excuse to send out a property valuer to establish the present value of your property which may well be much lower than their current established repair or rebuild assessment. Beware, if they are going to make an interim payment they may also ask for your EQC payment at this time – you are not obliged to give it to them as they have not begun any remediation on the property and probably do not even have drawings, consents, or any solid indication of a start date, particularly if you are still in disagreement about their repair strategy/costs, etc. So hang onto your EQC payment.
If they agree to a partial payment, they may even try to tell you how you must use the money eg. to use it only to rebuild/repair the house. My belief is that this approach has no validity and that it is better not to accept any ‘conditions’ placed on a payment. It’s your money, after all.
Another note of caution – the insurer may try to ask you to sign a discharge agreement – I personally would never sign a discharge – this will only complicate matters further down the line. You do not have to sign a discharge. Where a minimum interim sum (not necessarily agreed between the parties) has been reached by the insurer, an insurer should make an advance to help the insured during their time of need. For them to avoid doing so will only go toward adding to their chances of incurring a ‘breach of good faith’ law-suit further down the road.
And of course an insurance company that delays payment will be subject to paying interest or compensation for late payment, lawyer’s fees and costs, later on in the process and just because they say ‘no’ once, or are quiet on the matter, is no reason not to keep asking.
I am aware of a number of people who have received partial payments from a major insurer and I know of lawyers in town who have been helping clients with these payments too. So go for it. It’s your funds they are holding. They are never going to invite you to ask! Check with your legal advisor to see if you are entitled to one.