thechristchurchfiasco

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

MBIE – A Seismic Slight of Hand and at Worst Fraud?

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And it’s happening right under your nose.

For me, throughout the post-earthquake phase, probably the most critical and cynical practice that I have witnessed taking place right across the city during the course of the settlement of insurance claims, is that of the intentional use of the MBIE Guidelines by the insurance industry (and their complicit ‘independent experts’) as opposed to the standard implicit in the contractual wording contained in most homeowners’ insurance policies – the Building Code. The industry may be saving itself billions of dollars at the expense of a naïve, trusting or uninformed but vulnerable population.

The insurance industry has either conveniently or negligently extended the use of the MBIE Guidelines to scope repairs for the reinstatement of property to include properties which are over the EQC cap.(i.e. properties that have sustained more than $100,000 worth of damage). See my previous post https://thechristchurchfiasco.wordpress.com/2015/03/01/mbie-guidelines-sarahs-view-on-the-matter/. This behaviour often results in a devastating consequence for the policyholder.

I have watched this travesty take place in the assessment of my own property claim with State Insurance/IAG and in the statistics I am gathering. I believe they have sought to systematically reduce the value of the ‘repair’ scope by hundreds of thousands of dollars-worth of damage by the use of the Guidelines, all the while asserting that they are assessing the property to the ‘policy standard’.

The way it appears to work is this – In the initial phases, an insurer may send an engineer or a loss-adjustor to the property. This person commences scoping your property based upon the MBIE Guidelines – no discussion takes place with the homeowner, no explanation of the MBIE Guidelines is presented and the work required to ’repair’ your property is established to that standard. The standard falls outside the Building Act 2004. Unless the homeowner is alert, he/she will not even pick up on what is taking place right under their noses. The truth of the matter is – the MBIE Guidelines set a minimum standard of repair, for the Earthquake Commission (EQC) to use for ‘under-cap’ damaged properties under of the Earthquake Commission Act 1993 but they fall outside the Building Act and Building Code. They are not the law nor are they policy standard in the case of a claim against the insurer. It is not obligatory on the insurers to do this so why do they do it?

The diagram below – which is produced from MBIE’s own literature sets out the position clearly:triangle (2)

Using these lesser standards will mean that aspects of homeowners’ repairs may be seriously compromised as MBIE solutions produce different, cheaper and less robust methodologies of repair and the statistics show this to be over-whelmingly the case.  This brings me to the next point – we are already seeing the consequences of MBIE repairs. All over the city repairs are failing. The quality of the housing stock in the City has been seriously compromised, and there will be another round of major battles between homeowners and insurers, including EQC, as homeowners try to recover from the loss of equity in their properties (perhaps collectively) and to rectify ‘failed repairs’.

Differences in quality arising from the MBIE Guidelines can be seen in ‘remediation’ of concrete slabs or piles, differences in the bracing requirements for the building, acceptance or not of packing under bracing plasterboard sheets, quality and/or replacement of wall linings, the extent of structural analysis and design used for the reinstatement, use of inferior ‘repair’ strategies such as epoxy resin injection or low mobility grout in cracks and under slabs, the amount of slab replacement required or considered acceptable, what constitutes a ‘when new’ construction tolerance and the list goes on and on. Even whether or not the local authority is required to inspect that the work meets the Building Code, is up for grabs…… Every one of these differences affects the quality of the homeowner’s ultimate repair, their settlement amount and ultimately, the future quality, desirability and value of their property.   All the while the insurers are saving money. The consequences are dire as evidenced by this article:  http://www.stuff.co.nz/business/71021676/eqc-foundation-repair-shortcomings-revealed

Also worth noting is the fact that not content with shafting you once, over the last three and a half years the MBIE Guidelines have been revisited on three separate occasions – each time to a ‘looser’ and cheaper standard in engineering terms and insurers have instructed their engineers  in some instances (as has my insurer, State Insurance/IAG) to down-grade their initial assessment and scope in line with the MBIE downgrades also – in bad faith. They have done this while also maintaining that their assessment is to the policy standard. We can certainly conclude that it is a ‘double standard’. By scoping a repair to the cheaper MBIE standard, the property may also remain ‘under-cap’ or an insurer can avoid the cost of a ‘rebuild’ by claiming that the repair cost is far less than the rebuild – when often, if assessed correctly, a proper repair would be far more expensive.

The obligations of the private insurance industry are referred to in the MBIE guidance document. It states:

“8.1.2 The following are the obligations of private insurers:

  1. The reinstatement requirements of the private insurer will depend on the terms of the contract between that insurer and the insured person.
  2. These obligations can vary between insurers and even between different policy wordings provided by the same insurer. For example, it is understood that one insurer provides two different policies which respectively require it to:
  • repair the building to the state it was in before the damage or pay the cost of repairing, allowing for depreciation and wear and tear, or
  • repair or rebuild or to an ‘as new’ condition. “

For those of you who have not yet had repairs carried out my suggestion would be that you make sure that you understand the standard of reinstatement required for your property. Print off the relevant segment of your policy and hand it to any professional who comes anywhere near your property and make sure they know that you know.

As shown clearly in the attached video from the Ministry of Business, Innovation and Employment – the guideline document is not mandatory and the contracts with insurers at the time of the earthquakes take precedence once the EQC cap is exceeded. The MBIE guidance does not replace or supersede any private contractual agreement between the owner and insurer. Be sure that the tolerances for floors and walls referred to in any repair strategy are to the Building Code not the MBIE Guidelines.

Many of the engineers working for insurers, often working for construction companies that have ‘partnered’ with the insurer, seem to be under the misapprehension or (more likely) the instruction that figures provided in the MBIE Guidance across the technical categories (TC1, TC2, & TC3) are indicative of whether a structural repair may be or is, necessary. This is incorrect. The figures prescribed in the document were not intended to be prescriptive. These figures do not indicate if a repair should or should not be undertaken in accordance with the home owner’s insurance policy, they are there to merely supply ONE methodology for how one might go about that repair should it be undertaken.  Your insurance policy probably requires something better. You need to ask the question why would your insurer choose the cheapest route rather than the correct route to repair your property? Bad faith?

Here is a clip which explains the position of the MBIE Guidelines and its position within the legal frame work.

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Author: Sarah Miles

Trained as a lawyer, psychotherapist and mediator. My goal is to make my voice heard for the causes in which I believe so as to improve and contribute to a more sustainable and equitable society. I believe in the enormous power of the human spirit and the power within each of us to effect major change. "The only triumph over evil is for good men [and women] to do nothing". https://thechristchurchfiasco.wordpress.com/

4 thoughts on “MBIE – A Seismic Slight of Hand and at Worst Fraud?

  1. You say: the biggest target left standing will be the Council, whose only hope is that consent wasn’t applied for.
    Remember leaky homes themselves were consented and inspected by councils and followed building codes (of the day). I do not believe the codes are any more sensible now than they were then.
    Only believe professionals YOU trust. Forget letters after names, promises and legal recourse.

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  2. Interestingly MBIE puts the following in its “INFO SHEET – TC1, TC2 & TC3 FOUNDATIONS – 31 JANUARY 2013
    http://www.building.govt.nz/UserFiles/File/Publications/Building/info-sheets/tc1-tc2-tc3-foundations-info-sheet.pdf

    “What is guidance?
    Advice on what should be considered in the specific design and construction of structures to assist in achieving compliance with the Building Code. Guidance is issued under section 175 of the Building Act 2004. BY FOLLOWING THE DESIGN SOLUTIONS PROVIDED IN THE GUIDANCE, THE BUILDING WORK WILL COMPLY WITH THE BUILDING CODE.”

    Which is quite debatable to say the least.

    Where will Christchurch homeowners with repair disasters end up:

    Engineers engaged by insurers/PMOs will say they followed the MBIE guidelines, as they were instructed to by Insurers and MBIE. MBIE will say it was the Engineering professionals, as the MBIE guidelines say, who had to ensure any repairs meet the Building Code. Contractors for unconsented work, if they still exist, will say they followed the MBIE guidelines. Contractors for consented work, if they still exist, will say they followed the expert advice which was also signed off by Council. Insurers will say they employed PMOs and professional Engineers to make recommendations. The Politicians will be long gone, along with EQR and many other contractors.
    The biggest target left standing will be the Council, whose only hope is that consent wasn’t applied for.
    Watch out CCC! Leaky Homes is coming your way.
    Watch out engineers and your professional indemnity insurers.

    My recommendations: employ and instruct your own engineers to make recommendations on “as when new” repairs (or whatever the exact standard is in your policy) that comply with the Building Code and Act. Suggest to them, when making expert recommendations to you, to flick through the MBIE ‘guidelines’ and put them in the bottom drawer, and work directly with the Building Code. Always get your work consented even if it technically doesn’t need to be. Yes this will cost you money. But no-one is going to be looking out for you. Not EQC. Not your Insurer. Not the contractors or professionals employed by EQC or your insurer. Only homeowners can look out for themselves.

    The earthquakes were, and possibly still are, the biggest opportunity for a widespread upgrade to Christchurch’s generally substandard, unhealthy and energy inefficient housing stock to “as new” with Insurers picking up the tab. IMO this has been the biggest public policy failure of the century, brought about by the conflict between the government as a major insurer, designer of building standards and keeper of Insurance Contract statute.

    e.g. FROM AUSTRALIA:

    INSURANCE CONTRACTS ACT 1984 – SECT 13

    The duty of the utmost good faith
    (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.

    (2) A failure by a party to a contract of insurance to comply with the provision implied in the contract by subsection (1) is a breach of the requirements of this Act.
    ….

    Thank you Sarah for all your good work for the Christchurch community by providing this blog and your books. I look forward to hearing the outcome of your case in the High Court next month.

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    • Jeremy a nice concise precis. I agree with you. I’m afraid now the only recourse is class/representative action. In a court of law I do not believe that the MBIE Guidelines have a chance of success. The contract between homeowner and insurer is clear – no where in that contract does one find the words MBIE Guidelines and clearly MBIE themselves acknowledge that they are not mandatory and an insurance contract may provide for a higher standard. So I hope people begin to team up and take on these institutions together -alone we will not see change but together we can have a profound impact. Thanks for your input.

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