MBIE Guidelines- Sarah’s view on the matter

An insurance policy constitutes the rights and entitlements for the policyholder under the insurance contract. The courts have long insisted that the parties are to be confined within the four corners of the contract in which they have chosen to enshrine their agreement. Nowhere in my contract with State Insurance or in your contract will you find reference to the MBIE Guidelines – they are neither provided for or even anticipated. The Guidelines were

The Chalice, brushed Indian Ink by Sarah Miles

‘dreamt up’ in 2010.

Clearly a private insurance policy standard provides for a higher threshold than the MBIE Guidelines. The Guidelines are in direct conflict with the underlying standard in the insurance policy of reinstatement “to a condition as similar as possible to when it was new” or words to that effect.

History of the Guidelines:  The Department of Building and Housing published guidance on the repair and reconstruction of houses damaged by the Canterbury earthquakes in 2010. The guidelines were conceived in association with EQC, an engineering advisory Group and the Ministry of Building, Innovation and Engineering  (MBIE).  The guidelines provide Guidance on repair and replacement of not only foundations but also chimneys, roof structure, wall structure, roof and wall claddings and outbuildings.

The DBH document was issued as a guidance document under section 175 (chief executive may publish guidance information) of the Building Act 2004.

The Act states “Any information published by the chief executive under this section—

            (a) is only a guide; and

            (b) if used, does not relieve any person of the obligation to consider any matter to which that information relates according to the circumstances of the particular case“.

It must be noted that the methods and solutions presented in the Guidelines are not mandatory and as (b) above indicates, must be considered in light of a private insurance contract. Although these guidelines may be indicative of possible solutions to damaged dwellings they cannot and do not override the provisions of any insurance policy where damage is deemed to be above the quantum covered by EQC.  EQC cover per dwelling is $100,000. It is to be noted that the Guidelines do not provide adequate solutions for the repair of much of Canterbury’s older housing stock e.g. rubble foundations. The repair solutions recommended for foundations do not take into account the land bearing capacity of the ground upon which the foundations sit, yet land capacity is a critical consideration for any repair methodology later adopted.  Simply put, the guidelines have enabled insurance companies to employ people with little knowledge of engineering to make judgement calls about foundation repairs and other structural repairs.

The EQC Act clearly states that the insurance of any residential building, residential land, or personal property under Section 22 (i.e. voluntary insurance against natural disaster damage) shall be subject to the conditions set out in Schedule 3, unless as “otherwise provided in the contract of insurance”.[1]

The relevant provisions of the  EQC Act 1993 are s2, 18, s22, s27, s30 and Schedule 3 of the Act. The Guidelines arguably relate to the Act in that they created a method of reducing the possible cost of repairs in the event of a major natural disaster.  One might argue that they are enforceable only by EQC and only in respect of repairs which are under the EQC ‘cap’.

Schedule 3 of the EQC Act  (s9, Replacement of Property),  states that EQC does not have a responsibility to replace or reinstate exactly or completely, but “only as circumstances permit and in a reasonably sufficient manner” unless the property is insured against natural disaster damage for its replacement value to a specified replacement sum which exceeds the EQC cover in which case the property will be treated as though it had never been insured under the EQC Act.

It appears that the MBIE Guidelines were created to enable EQC to replace and reinstate property only to a level  it sees as being to a “reasonably sufficient manner“.  There is currently a class action planned against EQC to test this standard of repair. The EQC Act makes it clear that any property insured above the EQC caps are to be dealt with under the auspices of the applicable private insurance contract. There was never an intention or instruction to extend the use of the MBIE Guidelines to private insurance contracts that exceed the EQC cover limits.

Since the implementation of the Guidelines, they have undergone several revisions – all of the revisions have led to a lowering of the level of the EQC insurance policy requirements for ‘under- cap’ EQC repairs (i.e. less than $100,000 worth of damage) as well as a lowering of the standards set out in the Building Code and have resulted in successive reductions to the standards set out in the building code.

The MBIE Guidelines contradict the requirements of the Building Act 2004 and are not part of legislation or the manufacturer’s specifications for particular products associated with repairs thereby denying insured policyholders their rightful entitlement under the Building Act and their insurance policy.

In the Building Code it states that all damaged and subsequently repaired elements shall comply with Clause B1 (Structure) and B2 (Durability) of the Building Code 2004 to substantially the same extent as they complied when they were new. This shall be established by rational analysis (i.e. specific engineering consideration). All replaced or newly introduced structural elements shall fully comply with B1 (Structure) and B2 (Durability) of the NZ Building Code. Demonstration of compliance of replaced and new elements shall be by rational analysis (i.e. specific engineering consideration). All structural work requiring consent must comply with the NZ Building Code.

One has to come to the conclusion that the private insurance industry has conveniently, mistakenly or negligently adopted the use of the Guidelines to all property, under EQC cap and over EQC cap properties (I.e. properties that have sustained more than $100,000 worth of damage and which revert to a private insurance contract for repairs).

The Guidelines were never  intended to supersede the wording of private insurance policies, but to provide EQC with the flexibility of repairing under cap properties in a “reasonably sufficient manner“. This is likely to be the subject of a legal class action as the general feeling it that there should be no distinction between the level of repairs to damaged property. As matters stand it logically will result in a different standard of repair for under-cap and over-cap repairs’. This is hardly an equitable situation. This point can be further strengthened by reference to wording within the Guidelines themselves e.g. on page 5  of  Part A : Section 2: Foundation Assessment Criteria and Approaches in Revised Guidance on Repairing and Rebuilding Houses Affected by the Canterbury Earthquakes relating to Foundation Assessment Criteria and Approaches it clearly stated:

“Some insurance policies may require a higher standard of reinstatement than suggested by column 2 of table 2.3″. [2]

Clearly that the Guidelines themselves have left provision for the need to take private insurance contracts above the EQC cap into account.

In our particular situation over the last four years State Insurance has used the MBIE Guidelines and their various revisions to down-grade a repair/rebuild strategy – each time to a ‘looser’ and cheaper standard in engineering terms – this is both incorrect and in bad faith. I am interested to hear whether other policyholders have had similar experiences? As a result we are beginning to see more and more of the problems http://www.stuff.co.nz/the-press/news/66816055/Shoddy-quake-repairs-revealed I predicted early last year (see  https://thechristchurchfiasco.wordpress.com/2014/05/18/my-next-prediction-a-man-made-disaster-in-christchurch-part-i/.

[1] EQC Act 1993 s27

[2] p 14 & 15  DBH Guidelines

http://insurancewatch.org.nz/docs/resource/Clarification%20of%20Tolerances%20-%20ADNZ%20MBIE.pdf

http://www.stuff.co.nz/the-press/business/the-rebuild/66881822/John-Key-says-shoddy-quake-repairs-should-be-fixed

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My Response to Duncan Webb’s article on the Gaps between EQC and insurance obligations

This blog uses as its base an article written by Duncan Webb on Stuff (see http://www.stuff.co.nz/the-press/opinion/9224350/Gaps-between-EQC-insurance-obligations). I wrote a comment on the bottom of his article which the Press would not print it so I will put it here.

It seems to me that the main issue is the interpretation of ‘reinstatement‘ and reconciling the:
1. Earthquake Commission Act 1993;
2. Individual Insurance policies which in the main state that a property should be brought back to a condition ‘as new’ and;
3. The DBH ‘Guidelines’.
There are several sections in the EQC Act 1993 that are of relevance including sections 2, 18, 22, 27, & 30 for those of your who wish to look at the legislation for yourselves. But here I will concentrate on Schedule 3 of the EQC ACT 1993, which states:

9 Replacement of property
• (1) The Commission may at its option replace or reinstate any property that suffers natural disaster damage, or any part thereof, instead of paying the amount of the damage, but—
• (a) the Commission shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner; and
• (b) to the extent that the damage is to residential land and consists of or results from ground-forming materials or other debris on the land (including as a consequence of a natural landslip), the Commission shall not be bound to replace or reinstate other than by removal of the debris.
(2) If the Commission elects to replace or reinstate any property or wishes to consider whether it shall so elect, the insured person shall furnish the Commission with such plans, specifications, measurements, quantities, and other particulars as the Commission may require. No acts done or caused to be done by the Commission with a view to replacement or reinstatement shall be deemed to be an election by the Commission to replace or reinstate.

In my opinion s27 also makes it clear that EQC uses Schedule 3 as the justification for the use of the DBH Guidelines in the repair to properties.  Upon closer reading of the EQC Act, where the property is found to have damage which is below the EQC caps, the Commission is entitled to enforce the Schedule 3 qualifications – which, in this instance, clearly include the DBH Guidelines.
If the damage is over cap then under s30 (3) of the Act – the wording and standards associated with the homeowner’s insurance policy apply – in most cases, this will be to the ‘when it was new standard’.
Consequently it would appear that the EQC Act is designed to offer a lesser level of damage repair to under cap properties and hence settlement. This also explains why there is so much pressure put on the industries working for EQC (engineers, quantity surveyors et.c.) to ensure the damage assessments fall under the cap because then the level of repair is to a lesser standard and the insurance liability is also less. It is also an explanation as to why there has been so much manipulation of the apportionment process – EQC and the private insurers have been in many cases, negotiating amongst themselves to achieve a situation whereby the properties always fall under the ‘caps’ – which means that the DBH Minimum Building standards can be justifiably used. This probably requires a legal challenge – and is perhaps, a perfect legal class-action scenario.
The question then becomes ‘is it reasonable that a Government has carefully manipulated its liability in terms of the kind of repair response post disaster that it will offer? Particularly that it has done this ‘after the event’! And it will continue to produce DBH Minimum Standard Guidelines. It smacks of doubtful and downright dishonest behaviour as the Government attempts to save itself money. Suddenly we find a situation in which insurers and EQC start negotiating the apportionment of damage per event. I have heard of many people who submitted more than one claim but have been told by these bodies that they have only one claim now, despite having lodged three. I myself have evidence in my own file of EQC and the private insurers negotiating amongst themselves as to which percentage of damage they would rather have apportioned to which event. Why are they doing this you ask? Well quite simply, where they can keep the damage under the EQC cap their liability for the repairs is considerably less – it saves them big bucks. Yet again it is the homeowner who is cheated.

Insurance Policy Wording
Where the insurance policy states that the building must be reinstated to ‘a condition as similar as possible to when it was new’ (or similar wording), a reasonable Court should interpret this in a clear manner, excluding the provisions made in Schedule 3 of the EQC Act 1993 – which also then excludes the DBH Minimum Standard Guidelines.
The statement in the document on ‘status’ of the MBIE document ‘Guidance: Repairing and rebuilding houses affected by the Canterbury earthquakes’ makes it clear that ‘ While the Ministry has taken care in preparing this document, it is only a guide and, if used, does not relieve any person of the obligation to consider any matter to which that information relates, according to the circumstances of the particular case’. We can safely assume, in my opinion, that a pre-existing insurance contract would be a ‘matter to which that information relates’ and would override the minimum standard guidelines.
Case law will ultimately determine that standard. But based on what we have seen in cases such as Turvey the Court has indicated that it has to be to the ‘when it was new’ standard.
(See https://thechristchurchfiasco.wordpress.com/2013/04/07/turvey-trustee-v-southern-response-earthquake-services-limited/) and the O’Loughlin cases (See https://thechristchurchfiasco.wordpress.com/2013/04/21/oloughlins-v-tower-insurance-limited-summary-of-findings-relating-to-the-red-zone/),

DBH Guidelines
The DBH Guidelines are therefore not consistent with the provisions of:
a) most insurance policies which require the building to be reinstated to ‘as when new’; or
b) Standard building ‘best practise’ within the licensed building practitioner obligations; nor
d) the Building Act 2004.
But they are consistent with Schedule 3 of the Earthquake Commission Act 1993 (See http://www.legislation.govt.nz/act/public/1993/0084/latest/DLM305968.html primary definitions). However they arguably do not override the Insurance policy wording once the damage is over the EQC threshold. Hence the guidelines had to state that the solutions are not mandatory as they do not override the provisions of our insurance policy.
When the size of this insurance ‘fraud’ is finally realised by the affected population, I suspect that the ramifications will be both political and legal.
There are also some interesting questions around the complicity of the Professional societies/institutions involved in the generation of the guidelines.

Simon Munro of law firm Anthony Harper has stated that “I do not agree with Duncan’s views regarding EQC’s obligations under the Earthquake Commission Act 1993.

The “as new” standard is set out in the Act (in paragraph (a)(ii) of the definition of “replacement value” in section 2 of the Act, which must be read in conjunction with section 18 of the Act). The part of the Act that Duncan refers to (taken from Clause 9 of Schedule 3 to the Act) appears to be relied on by EQC to the exclusion of sections 2 and 18, and as a general description of their obligations (which should only be applied if circumstances do not permit exact or complete reinstatement).

It is a fundamental principle of statutory interpretation that an Act must be read as a whole, and when the Act is read as a whole (rather than the words in Clause 9 of Schedule 3 being taken in isolation) our view is that:

1. The standard of repair provided for in the Act requires EQC to replace or reinstate the building to a condition substantially the same as when it was new, modified as necessary to comply with any applicable laws. The costs in doing so must be reasonably incurred.

2. The Act also contemplates circumstances that do not permit exact or complete reinstatement. This might arise, for example, where building materials or methods have evolved, or where products are no longer available, or no longer comply with current building standards. In such circumstances the Act states that EQC is only bound to replace or reinstate as circumstances permit and in a reasonably sufficient manner.

This is untested in the courts, and is therefore one of the issues that we are looking to resolve in bringing a group action against EQC.”

This is another view point. Not one I agree with. I think our Government knew what it was doing when it drafted the legislation and I know that Mr Gerry Brownlee sees the DBH Guidelines as sitting quite comfortably with the legislation. But there are many ways to skin a cat – either legal challenge is worth a go in my opinion.

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