Where your policy provides that the insurer will repair your home to a condition “substantially the same as new” what does it mean? The case of East v Medical Assurance New Zealand Limited recently considered this question.

The insurer argued that the standard of repair was that in existence when the home was first built. The homeowner argued that the standard was when the home was repaired or rebuilt (i.e. modern standards).

The Court agreed with the homeowner, holding that “as new” contemplates a restoration to a condition as new at the time of the rebuild or restoration and in accordance with contemporary building standards.

The Policy

The policy stated:

the insurer will “cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws”.

The Decision

The Court held that the policy wording meant that the insurer was required to restore the home to a condition as new at the time of the rebuild/repair and in line with current building requirements. This was because:

The policy had been changed prior to the earthquakes to refer to “as new” rather than “when new”. This change clearly contemplated restoration to a condition as new at the time of the restoration.
“As new” also naturally implies rebuild or restoration in accordance with contemporary standards. This was also reinforced by the policy wording requiring the insurer to meet current statutory requirements.

However, as the word “substantially (the same as new) was used, the policy did not mean completely new. Nonetheless, it did require that modern materials be used and that the restoration meet minimum building requirements.

As a result of the Court’s interpretation, in the context of the specific foundation works being considered, it was held that the Court must be satisfied on the balance of probabilities (more likely to be true than not true) that the foundation works proposed by the homeowner were necessary to meet current Building Code standards.

Section 112 of the Building Act

The Court also expressly considered section 112 of the Building Act, a section which is often misinterpreted as allowing a lower standard of repair.

In short, section 112 provides that, when a building is altered (e.g. repaired), a Council in granting a building consent for the repairs must be satisfied that, after the repairs, the building will continue to comply with the Building Code to at least the same extent as before the repairs.

The insurer’s expert argued that this meant any repair only had to comply with the Building Code to at least the same extent as it had done before the repairs. In other words, if the damaged area did not meet the current Building Code at the time of the earthquakes, the insurer was not required to pay to upgrade the damaged area to ensure that it now met the relevant requirements.

The Court disagreed, recognising that s112 does not negate the requirement that any repair must still comply with the current Building Code. Instead, s112 simply means that there is no additional obligation to upgrade other undamaged areas to meet the current Building Code (except in certain limited aspects, such as fire safety).

Discussion

This case was appealed by the insurer to the Court of Appeal which agreed with the homeowner that the standard is when the home was repaired or rebuilt (i.e. modern standards). The Court specifically noted that there was no rational basis for limiting the homeowner’s right to compliance costs to those in existence when the house was built rather than in 2015 when restoration work was likely to be carried out.

The Court of Appeal also found that it was irrelevant that the foundations themselves were not damaged in the earthquake (most damage was caused by post earthquake settlement). The Court held it would be artificial to separate damage to the house from the foundations when they are “part of an integrated whole”. It was particularly relevant that unless the foundation were addressed as part of the repairs, the house would not be restored to a condition substantially the same as new in accordance with current Building Code requirements.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. If we can assist in any way please do not hesitate to contact Paul Cowey at Parry Field Lawyers (348-8480), paulcowey@parryfield.com

In the case of East v Medical Assurance New Zealand Limited, the question of when an insurer has to make full payment to a homeowner to settle their earthquake damage claim was considered.

The insurer argued that it did not have to make payment until the homeowner actually incurred the cost of repairs/rebuilding. The homeowner argued that the insurer had to make payment in advance of the works. Read more

In the recent case of Avonside Holdings Ltd v Southern Response (SR), the Supreme Court agreed with the Court of Appeal’s earlier decision that SR was liable to include a contingency sum and professional fees when settling Avonside’s insurance claim on the basis of the notional cost to rebuild Avonside’s existing property. Read more

In the recent case of Skyward Aviation 2008 Ltd v Tower Insurance Ltd, the Court of Appeal considered whether, on the basis of Tower Insurance’s policy wording, the insurer or the insured customer had the right to decide between settling the insurance claim by rebuilding on site, rebuilding elsewhere, or buying elsewhere where the property had been deemed not “economically repairable”.

The Court held that, on the policy wording, the insured customer had the right, not the insurer.

Background

The case concerned a Christchurch property located in the “Red Zone”. The owner had accepted CERA’s offer to buy the land. It had settled with EQC and had attempted to settle its insurance claim with Tower.

Tower maintained it had the right to decide how the insurance claim was settled, the insured argued otherwise.

The Policy wording

The key policy wording provided:

HOW WE WILL SETTLE YOUR CLAIM

We will arrange for the repair, replacement or payment for the loss, once your claim has been accepted.

We will pay:

the full replacement value of your house at the situation; or
the full replacement value of your house on another site you choose. This cost must not be greater than rebuilding your house at the situation; or
the cost of buying another house, including necessary legal and associated fees. This cost must not be greater than rebuilding your house on its present site; or
the present day value;

as shown in the certificate of insurance.

We will only allow you to rebuild on another site or buy a house if your house is damaged beyond economic repair

In all cases:

we will use building materials and construction methods commonly used at the time of loss or damage.

We are not bound to:

pay more than the present day value if you have full replacement value until the cost of replacement or repair is actually incurred. If you choose not to rebuild or repair your house or buy another house we will only pay the present day value and the reasonable costs of demolition and removal of debris including contents;
pay the cost of replacement or repair beyond what is reasonable, practical or comparable with the original;
repair or reinstate your house exactly to its previous condition.

The Decision

In holding that the insured customer had the right to decide how the claim was settled, the Court noted the following aspects of the policy in support (emphasis ours):

Tower reserves the right to pay only present day value “if you [the insured] choose not to build or repair your house or buy another house …
Tower reserves the right to disallow the insured from either building on another site or buying a house if the existing house is not damaged beyond economic repair. This right of veto could only be exercisedonce the insured had made the underlying choice. In other words, it assumes that the insured is generally at liberty to make the choice, then restricts the insured’s ability to choose options two (build elsewhere) or three (buy elsewhere) to the case where the existing house is not economically repairable
The second alternative provides for full replacement value of the house “on another site you [the insured] choose” – that is, it is the insured’s right to choose.

Will this decision apply to other insurers?

Yes, if the relevant parts of the policy wording is the same or very similar. The Court held that “An insurer cannot rely on a general statement of economic desirability to override the express or clearly implied provisions of its policy.”

The Court indicated however that the position may be otherwise if the policy expressly states that the insurer has the right to choose between the alternative bases for payment.

What if the insured customer does not intend to rebuild or buy elsewhere?

The Court agreed that, on Tower’s policy wording, Tower was only liable to pay the “present day value” of the home until the insured incurred the cost of buying or rebuilding elsewhere. “Present day value” included an allowance for depreciation and deferred maintenance and was limited to the market value of the property less the value of the land.

In other words, if the insured wanted a cash settlement, Tower was not liable to pay more than “present day value”.

What if the property is “economically repairable”?

The Court indicated that, if the property was “economically repairable”, Tower was entitled to insist on repairing or rebuilding on the same site.

In addition, Tower was entitled to control the repair work for the reason that the cost of repair was at Tower’s risk (so it would want to control the cost) and to decide whether repairing or rebuilding is ultimately the better option.

This decision was appealed by Tower to the Supreme Court and heard in November 2014. The Supreme Court dismissed Tower’s appeal holding that, where Tower has decided not to rebuild or replace a house, Tower’s payment obligation is determined by the choice the homeowner makes as to whether to rebuild the house, replace it on another site or buy another house.

If we can assist in any way with your insurance claim, please don’t hesitate to contact Paul Cowey at paulcowey@parryfield.com.

In Part I of our series on EQC and Land Damage Settlements, we looked at what the EQC Act provides in general in respect of “land damage” and what it is. In this Part we examine what EQC’s obligations/rights are under the Act in respect of settling land claims. Read more

In April 2013, EQC released two guides for settlement of earthquake land claims (flat land and hill properties), together with sample Land Settlement Packs. The Guides note that they are a summary of EQC’s obligations and that the provisions of the EQC Act 1993 will be “applied by EQC at all times.”

This article looks at what cover the EQC Act actually provides for “land damage” and what qualifies as “land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

1. What general cover is provided under the EQC Act for earthquake related land damage?

2. Is EQC responsible for covering all areas of a property where there is land damage?

3. What level of “insurance” cover does EQC provide for land damage?

4. What qualifies as “physical loss or damage”?

5. What types of “physical loss or damage” does EQC cover?

1. What general cover is provided under the EQC Act for earthquake related land damage?

The EQC Act provides that, where a home is insured against “natural disaster damage”, the land on which the home is situated is insured against:

any “physical loss or damage” to the land occurring as a direct result of a natural disaster (such as an earthquake); and
Any “physical loss or damage” to the land occurring as a direct result of measures taken under property authority to avoid the spreading of, or otherwise reduce the consequences of, any natural disaster (e.g. land works necessary to redirect flood run-off).

2. Is EQC responsible for covering all areas of a property where there is land damage?

No, EQC only covers damage to the following areas of land:

a) the land under the house;

b) all land within 8m (extending outwards) of the house or outbuildings such as any garage (but excluding artificial surfaces such as asphalt or concrete);

c) the main access way to the house (excluding coverings such as asphalt or concrete) from the boundary of the land (so long as that access way is situated within 60m of the house);

d) the land supporting the main access way;

e) bridges and culverts situated within the above areas; and

f) retaining walls and their support systems within 60m of the house which are necessary for the support or protection of certain specified areas of land (e.g. the house or garage).

EQC does not cover certain things that are on the land, such as trees, plants, lawn, paving and driveways.

3. What level of “insurance” cover does EQC provide for land damage?

Qualifying properties are insured for an amount equal to the lowest of the value of:

a) a parcel of land that is the minimum lot size under your district plan.

i. In Christchurch, if your property is zoned as Living Zone 1, the minimum lot size is 450m2.

ii. If your property is in Christchurch’s Living Zone 2, the minimum lot size is 330m2.

b) An area of land of 4000 m2; or

c) The area of land that is actually physically lost or damaged.

These values are the maximum amounts EQC could be liable to pay, rather than what you will automatically receive from EQC.

In the case of bridges and culvert and retaining walls, EQC is only liable to pay up to the “indemnity value”of that property (e.g. this is often described as the property’s “market value” at the date of the loss or the property’s value allowing for its age and condition immediately before the loss or damage happened).

EQC advises that payment of claims for land (where EQC considers its maximum liability has been reached) will be based on a professional valuation.

In each case, EQC’s excess is deducted off each land claim (if the claim is $5,000 or less, EQC will deduct an excess of $500. If the claim is more than $5,000, EQC will deduct 10% of the claim up to a maximum of $5,000 per claim).

4. What qualifies as “physical loss or damage” in the context of “natural disaster damage”?

This is not defined in the EQC Act.

In the case of Earthquake Commission v Insurance Council of New Zealand Incorporated & Orrs [2014] NZHC 3138, the Court held that, for land damage to qualify as “natural disaster damage” for the purposes of the EQC Act, there must be:

a physical change or loss to the land that has occurred or is imminent as a direct result of the earthquake. Put another way, some type of disturbance or loss to the physical integrity of the land; and
which adversely affects the uses or amenities that could otherwise be associated with the land (i.e. building on it/habitating on it).

5. What types of “physical loss or damage” does EQC cover?

This is again not specified in the Act. EQC has however identified nine types of land damage on the flat residential land in Canterbury. Seven are said to be apparent from looking at the land:

Cracking caused by the sideways movement of land, often towards water;
Cracking caused by backwards and forwards ground movement;
Undulating land (e.g. uneven settlement of the land, often as a result of sand and silt being pushed up or settlement of liquefied soils below the ground);
Ponding (due to lowering of the land in areas which results in water “ponding” in places where previously it did not);
Localised settlement resulting in drainage issues (e.g. drains flowing the wrong way due to land settlement;
Groundwater springs (new springs flowing over the ground where previously they did not); and
Pushed up sand and silt, either under a house or over a large area.

Two further types are not necessarily visible but have increased the future vulnerability of the land to liquefaction or flooding:

increased liquefaction risk (the ground surface has subsided closer to the water table than previously, reducing the ground crust thickness and therefore increasing the risk of liquefaction occurring); and
increased flooding vulnerability (the ground surface has again subsided making it more at risk of flooding if the land is situated near a water way).

In the case of Earthquake Commission v Insurance Council of New Zealand (referred to above) however the Court held that “circumstances where one or more earthquakes have caused physical changes to the land only and such changes have caused the residential building to reduce in height and adversely affected the uses and amenities that could otherwise be associated with the residential building by increasing its vulnerability to flooding events does not include “Natural disaster damage” (emphasis ours).

EQC advises that it assesses Increased RIsk of Flood/Liquefaction utilising drilling data, aerial laser levels taken after each major earthquake/aftershock which record changes in land elevation, and Water Table Levels.

In the Port Hills, EQC has identified other types of damage such as:

- Debris material (e.g. rock fall and cliff collapse) being deposited on the land where this materially affects the physical use of the land;
- Land cracking/bulging/undulations and loss of land as a result of land moving vertically and/or horizontally downslope where the land no longer occupies the space it did before the earthquakes, where this materially affects the physical use of the land.
- Land damage as a result of impacts from rock fall and cliff collapse.

This post provides a general outline of what the EQC Act provides for “land damage” and what qualifies as“land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

If we can assist in any way with your land claim, please don’t hesitate to contact Paul Cowey at paulcowey@parryfield.com.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

You may have heard that trusts are a good protector of homes against relationship property claims. Indeed they may be – but they are not watertight protection. There are various ways that a trust can be attacked. It is therefore important to be aware of these situations so that you are less likely to fall victim to one of them.

Transfers of relationship property to a trust

If you have:

Transferred “relationship property” to a trust since the beginning of your marriage or de facto relationship; and
That transfer has defeated the claim of your partner i.e. they cannot claim an interest in it because it is now owned by a trust rather than their partner

then the Court can require you to compensate your partner or order the trust to pay income to him/her.

One of the key pitfalls to be aware of is that a family home is always classified as relationship property. So, if you decide to protect your home and transfer it to a trust after you are already living together with your partner in the property, this may be too late. The home has already become the family home and your partner may have an entitlement under this scenario.

Transferring property in order to defeat your partner’s claim

This is a broader test than the previous one. If there has been a transfer of property made (it is not restricted to trusts) in order to defeat any person’s relationship property claim, then the Court can overturn this transfer.

The property need not be relationship property at the time it is transferred to the trust. What is needed is:

That the home would have been relationship property on separation if it had not been transferred into a trust. Therefore, a transfer shortly prior to the beginning of a de facto relationship or marriage may even satisfy the test, as long as the intention requirement (below) is met; and
When you transferred your home to a trust, you must have had knowledge of the consequences of that transfer i.e. that you might be depriving your partner (or soon to be partner) of a share of an asset which they may have an entitlement to. You do not need to have a conscious desire to remove that asset from the Court or your partner.

Your trust is declared a “sham”

The Court can declare a trust to be a sham if there is evidence that the settlor (the person who effectively set up the trust) never really intended the trust to take effect.

This is a hard test to prove as most people do not set out with this intention. However, the following factors could assist with a sham trust argument:

The home has been transferred to the trust at less than full market value;
The settlor continues to treat the trust property as his own;
There are no trustee meetings;
The other trustees are rarely consulted;
No occupational rent is paid to the trust if the home is used by the settlor (though the trust might receive occupational rent by way of the settlor meeting trust debts, such as a mortgage);
The trust bank account is rarely used; or
The settlor does not ever turn his/her mind to the interests of other beneficiaries.

If the Court declares the trust to be a sham, it does not exist. The property in the trust will be treated as the settlor’s own property, which in turn can potentially be categorised as relationship property.

Illusory trust

An illusory trust is when a trust is declared to not exist because the settlor is able to control the trust entirely for his/her benefit. In particular, there is no way for the beneficiaries to hold the trustees accountable. Under the trust deed, the trustee (who in this case will also be a settlor and beneficiary) may have unrestricted powers, even though this may be contrary to the interests of other beneficiaries.

If the Court declares that the trust is illusory, it will have the same effect as a sham trust. The property will return to the ownership of the person who settled the trust.
The way to ensure that this argument is never raised is to consult with your lawyer about trustee powers at the time when the trust is being formed to ensure that they are balanced and reasonable.

Constructive trust

Finally, a Court can declare a “constructive trust” over a trust asset if:

Your partner has made a contribution (in more than a minor way) to maintaining and enhancing the property;
At the time, you both expected that your partner would share in the property and this expectation is reasonable; and
The contribution must greatly outweigh the benefits received. i.e. the contributions your partner made (money, time, labour etc) need to exceed the benefit of occupying the property.

This argument is more likely to be raised where the parties have lived in the trust property on a long term basis and the partner has made significant contributions during this period.
If a constructive trust is declared, the Court may grant the applicant an ownership interest by declaring that the trust holds the property on trust for the applicant in such shares as it determines. When assessing what share of the property your partner may be entitled to, the nature and value of the contributions will need to be considered.

What can you do to prevent the likelihood of any of these grounds of attack being successful?

The best protection that you can have against attack is to enter into a property agreement within the first 3 years of your relationship, declaring that your interest in the trust and its assets are your separate property.

Other measures include:

Consulting with your lawyer about the desired purposes of the trust, trustees, beneficiaries and terms of the trust prior to formation;
Ensuring that your home is transferred to a trust prior to commencing a relationship (if at all possible);
Understanding and carrying out your trustee duties with diligence – e.g. ensure that meetings are had and minutes taken, use the trust bank account for the payment of outgoings, have financial accounts prepared;
Consider whether you and your partner should be paying occupational rent to the trust when occupying trust property;
Do not allow your partner to make any major contributions to the property e.g. provide finance or labour for extensive renovations, unless there is legal documentation in place to record the arrangement;
Consider renting out the property to someone else rather than living in it together.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Hannah Carey at Parry Field Lawyers (348-8480) hannahcarey@parryfield.com

Disputes about which country or city a child should live in after parents separate (relocation disputes) are becoming more common. Travels costs have become cheaper, meaning that an increasing number of people move overseas for work or to live closer to family members. Inter-cultural marriages have also increased. Even within New Zealand, people may want to move cities/towns for a variety of reasons – work, finances or to be closer to family support. In these situations, what are each parent’s rights and obligations and how important are the views/wishes of the child?

Who has the right to decide where a child should live?

Both parents generally have a right to determine questions about important matters affecting their child. One of these matters is any proposed changes to a child’s place of residence. Therefore, if one parent wishes to relocate elsewhere in New Zealand or overseas with the child, they will either need the consent of the other or an order of a court before doing so.

This means that in the first instance both parents of the child should discuss any intended move by one parent and try to reach agreement.

What happens if the parents/guardians can’t agree on where a child should live?

If the parents can’t agree, there are two options;

a) The parents can request counselling through the Family Court. The Court will provide 6 free sessions of counselling to see whether any agreement can be reached; or

b) Apply to the Court for directions/an order as to where the child is to live. If this option is chosen, the court may still refer the parties to counselling in the first instance.

A court hearing can be a long and costly experience, so it always preferable if parents can come to their own decision as to where a child is to reside.

How does the court primarily decide where a child should live?

The child’s welfare and best interests is the first and most important consideration. This will involve a fact-specific enquiry, focusing on the individual circumstances of the parents and child.

In that context, the Court will consider eight general key principals set out in the Act, assessing their relevance against the circumstances of the particular case (e.g. not all will necessarily be taken into account).

These eight principals are:

(a) Parents and guardians have primary responsibility for their children’s care, development and upbringing.

Because parents have a shared responsibility for their children, any arrangements for their care should involve input from both parents.

(b) Parents and guardians have responsibility to agree arrangements for their children

Parenting is to continue to be a shared responsibility notwithstanding parental alienation or separation. Where parents live some distance apart (especially where they live in different countries) making and implementing arrangements for shared care or contact are likely to be more difficult.

(c) There should be continuity of care arrangements and the need for continuing relationships with wider family/whanau.

This principle stresses the need for continuity in arrangements for the child. Relocation to a different town, city or country is likely to involve discontinuities in the child’s education, friendships, family and local community.

(d) The child should have continuing relationships with both parents.

(e) There should be co-operation and consultation between parents and guardians.

Consultation may be more difficult if the child moves some distance away. It is likely that the role of the contact parent will be harder to sustain because of the geographical distance.

(f) Relationships with extended family/whanau should be preserved and strengthened.

(g) The child’s safety must be protected.

The safety of the child from violence will largely depend on the people with whom the child will be associating in the new location and the degree to which parents, step-parents, family and other carers will be able to ensure the child’s safety and protection.

(h) The child’s identity, culture, language and religion should be preserved and strengthened.

Are there any other factors the court will take into account?

Yes, while the Court must take into account the eight principals set out above (where relevant), it is not prevented from taking into account any other matters relevant to the child’s welfare and best interests.

Other relevant factors have been held to include:

The relocating parent’s capacity to value the input of the other parent, and to facilitate and encourage contact by the other person;
The non-moving parent’s capacity to demonstrate continued interest in the children after relocation;
The extent and focus of the conflict between the parents, either underlying or resulting from a decision to relocate;
The practical consequences of relocation (transport, costs accommodation) and of declining relocation (financial and employment consequences for both parents;
The distance between the two parents homes currently and post-relocation;
The impact of granting (or declining) relocation on the children’s family and social support networks;
Cultural and spiritual considerations;
The children’s previous living arrangements (ie, number of previous moves) and the suggested new living arrangements (ie, whether the children have lived there before);
The merit and reasonableness of the parent’s wish to relocate;
The emotional wellbeing or psychological welfare of a parent;
The nature and quality of the child’s relationship with each parent and the extent to which that relationship maybe affected by relocation;
The wishes and needs of the child or children; and
The impact on the children of granting or declining relocation.

What if a parent has reason to believe that the other parent may take a child out of the district or country without their consent?

If you believe on reasonable grounds that the other parent may take your child out of the district or New Zealand without your consent, you can apply through the Family Court for an Order Preventing Removal of child from the district/or New Zealand. If the order is made, the other parent will not be allowed to remove the child from the defined area without the Court or the other parents’ permission. Where an order is made that the child not be removed from New Zealand, a listing is placed on the child’s passport which will prevent them from leaving the country.

If you are applying for this order on an urgent basis, you will need reasonable grounds before a judge will make the order. This could include evidence such as the other parent purchasing plane tickets for the child, packing up their possessions or telling people that they are leaving.

Relocation disputes can involve a number of difficult issues. If you are intending to relocate or your child(ren)’s other parent is, we strongly recommend that you seek advice from your lawyer as early as possible.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Family matters, please contact Hannah Carey at Parry Field Lawyers (348-8480) Hannahcarey@parryfield.com

1. What is the extent of EQC’s obligations?

If you are insured with EQC, your home is secured against damage caused by natural disaster for its “replacement value” (generally up to a maximum of $100,000 plus GST).

The Policy

The Decision

Section 112 of the Building Act

Discussion

Background

The Policy wording

The Decision

Will this decision apply to other insurers?

What if the insured customer does not intend to rebuild or buy elsewhere?

What if the property is “economically repairable”?

Transfers of relationship property to a trust

Transferring property in order to defeat your partner’s claim

Your trust is declared a “sham”

Illusory trust

Constructive trust

What can you do to prevent the likelihood of any of these grounds of attack being successful?

Who has the right to decide where a child should live?

What happens if the parents/guardians can’t agree on where a child should live?

How does the court primarily decide where a child should live?

Are there any other factors the court will take into account?

What if a parent has reason to believe that the other parent may take a child out of the district or country without their consent?

1. What is the extent of EQC’s obligations?

Christchurch CBD

Christchurch – Riccarton

Rolleston

Hokitika

Auckland