EQC and earthquake land damage settlements – Part II – EQC’s obligations 27 Jun 2013
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.
[caption id="attachment_1701" align="alignright" width="232" caption="Qualifying land damage (click to enlarge)"][/caption]
1. Does EQC have to pay me for my land damage?
No, EQC can decide to replace or reinstate any property that suffers natural disaster damage, or any part of it, instead of paying the amount of the damage.
2. Does EQC have to repair my land damage?
No, EQC can decide between settling any claim by:
to the extent which is it liable under the Act.
3. If EQC did repair my land, are there any limits on what EQC has to do?
Yes, EQC is not required to:
Reinstate or replace “exactly or completely, but only as circumstances permit and in a reasonably sufficient manner”; or
Reinstate or replace the land other than by removing debris if the land damage consists of, or results from, ground forming materials (e.g. rocks or soil) or other debris on the land.
4. If EQC pays me cash, how is that payment calculated?
There are two possibilities:
- If a claim cannot be settled promptly because of circumstances relating to the cause of the earthquake damage, EQC may in its discretion settle the claim on:
the basis of the value of the property at the time of the settlement of the claim (notwithstanding the fact that the value is higher than the value at the time the earthquake damage occurred)
- Subject to that proviso, EQC may settle any claim on:
the basis of the amount it would have cost to replace or reinstate the property at the time of the earthquake damage.
in both cases up to EQC’s maximum liability.
The Guides indicate that, in most circumstances, EQC will settle claims on the basis of the cost of repairing the land. However, EQC have subsequently indicated that in the case of Increased Vulnerability to Flooding claims, EQC may only take that approach if repairs are technically feasible, can lawfully be undertaken (e.g. obtain a resource consent), are not disproportionately expensive and are likely to be carried out by the homeowner.
5. What types of repairs will payments be based on?
The Act does not specify the repair methods.
The Flat Land Guide indicates that, for flat land damage, EQC will usually use the potential repair methods set out in the Guide. These include:
Cracks – fill with bentonite/cement slurry
Undulation – releveling/building up the ground
Ponding – releveling/building up the ground and/or installing drainage
Settlement - releveling/building up the ground
Springs – Installing drainage
Pushed up sand and silt - remove the ejected material (by hand or using an excavator) and dispose of it offsite.
The potential repair methods set out in the Port Hills guide include:
Removing rocks, boulders and cliff collapse material offsite;
Earthworks to re-level uneven ground;
Earthworks to fill cracks;
Engineering design and earthworks to retain land;
Engineering design and earthworks to reshape the slope or construct a retaining wall;
Engineering design and earthworks to reinstate a retaining wall.
6. How will EQC settle my claim where my land damage consists of an increased risk of flooding or liquefaction?
No clear guidance is given in the Flat Land Guide on this issue.
EQC has indicated that, where land repair is not possible or unlikely to occur for practical reasons (see above under point 4), EQC will pay the reduction in the value of the damaged land.
7. Does the EQC Act actually allow EQC to settle claims based on “the reduction in value of the damaged land”?
The option is not expressly provided for in the Act. Instead the Act provides for the options set out at point 4 above.
However, in the case of Earthquake Commission v Insurance Council of New Zealand, the Court held that residential land insured under the Act is insured on an "indemnity basis", being the amount required to restore the homeowner to the position he/she would have been in prior to the earthquakes had the earthquake damage to the land not occurred. That amount is capped at EQC's maximum liability for land (see point 3, Part 1 of this topic).
Within "indemnity value", the Court held that one option available to EQC is to settle land claims by way of a payment representing the loss in market value of the damaged property (up to EQC's limits). However, the Court also held that it is not the only way, or in fact always the most appropriate way, to measure a homeowner's loss. Sometimes the cost of repair or reinstatement is a more appropropriate measure of loss. EQC must consider all relevant circumstances (such as whether repairs can and will be carried out, if the homeowner has already sold the property without carrying out repairs and the comparative cost of repairs versus paying loss of market value).
8. Does the EQC Act cover the situation where repairs are considered "impossible" or "unlikely to occur for practical reasons"?
No, the Act does not.
The Act does say that EQC is not bound to repair or restore damaged property “exactly or completely, but only as circumstances permit and in a reasonably sufficient manner”. However, this does not expressly refer to impossibility or impracticability preventing repair.
These limitations are also only provided where EQC decides to actually repair “instead of paying the amount of the damage”. Where EQC pays the amount of the damage (as it has indicated it will do so in most cases), no such limitation is provided.
9. What are EQC's obligations where EQC decide that my repairs are unlikely to be carried out or are impossible?
(i) Impossibility or impracticability due to cost
If EQC says the repairs will be too expensive/exceed EQC’s maximum liability, EQC’s obligation under the Act is to pay up to its maximum liability.
(ii) Impracticability for other reasons
If EQC says the repairs are unlikely to occur for practical reasons, we consider that, in most cases, EQC’s obligation will be to either:
- Settle the claim the basis of the value of the property at the time of the settlement of the claim; or
- Settle the claim on the basis of the amount it would have cost to replace or reinstate the property if repairs were carried out (e.g. a “notional” repair).
The Act does not restrict EQC to actually carrying out the repairs. Instead, EQC has the alternative option of cash settling the claim.
The Act also does not allow EQC to avoid settling a claim simply on the basis that repairs may never be carried out.
(iii) Impossibility for other reasons
If EQC says the repairs are impossible, EQC’s liability is likely to be determined by such things as:
the reason the repairs are said to be impossible,
when EQC became aware of this, and
whether EQC was actually repairing the property when repairs apparently became “impossible”.
Each case is likely to turn on its own facts and this issue may ultimately need to be decided by a Court.
10. What if the cost to repair my land is more than EQC’s maximum liability?
EQC will need to pay you its maximum liability less its excess.
If you then carry out the repair works, you will be responsible for making up the difference in cost (unless some part of it is also covered by your insurer, e.g. some insurers cover retaining walls up to certain limits).
11. What if you can no longer see the land damage?
Most land assessments have taken place/are taking place some considerable time after the earthquakes. Land damage may be less obvious (e.g. it may have been covered up by plants/grass) or homeowners may have needed to carry out temporary repairs for safety/convenience (e.g. Filled in cracks).
The Act does not expressly address this situation.
In terms of the Guide, it says that:
“EQC will assess damage at the time of the assessment.
Where the land has, or will in the short term be, “self-repaired”, then no land damage repair will be costed. Self-repair can in some circumstances happen where:
a) natural processes occur over the course of time (e.g. cracks self-repair by being filled with soil)
b) the house has been (or will be) demolished and/or reinstated, e.g., construction equipment (such as heavy trucks) on the site re-compacts the surface soil and closes cracks.”
12. Is EQC correct to only assess land damage now?
Possibly not. The Act says that EQC shall determine the amount of any damage “as soon as reasonably practicable”.
Although the Canterbury Earthquake (Earthquake Commission Act) Order 2012 changed this requirement in certain situations (if EQC decides to settle a claim by actually repairing/replacing), it did not take away EQC’s obligation to determine damage as soon as reasonably practicable.
In our view, it is questionable whether EQC has met its obligations when assessing land damage more than two years after the relevant earthquakes.
For this reason, we consider EQC should always take into account suitable evidence (such as photographs or videos) of the land damage at the time of the earthquakes, as that may be relevant as to:
the full nature/extent of the initial damage,
whether land is truly likely to have “self-repaired” (see further below); and
what therefore is the most suitable repair solution.
13. Can EQC decline cover where the land has or will apparently “self-repair”?
The Act does not provide for the case of “self-repair”.
We think that EQC’s obligations will be decided by such things as:
- the nature and extent of the original damage (e.g. its severity); and
- the manner of the apparent “self-repair.”
Some different scenarios
(i) Land which has not yet self-repaired but which EQC says will “self-repair” in time.
In our view, where land damage has not, at the time of inspection, actually “self-repaired”, EQC is still responsible to either repair the damage or cash settle the claim.
Until the land has in fact “self-repaired”, physical damage remains.
(ii) Land damage which seems to have “self-repaired” but, due to its initial severity, may not in fact have done so.
Certain types of land damage may seem to have “self-repaired”, at least on the surface of the land, but in fact may still exist (e.g. a fissure may have filled in on the surface/been grown over but continue to exist under the ground surface).
This may not be obvious without proper investigation/testing.
Where land is unlikely to have “self-repaired” (and expert evidence may be required on this point), EQC should assess the extent of that damage. If qualifying land damage remains, EQC should either repair the damage of cash settle the claim.
(iii) More minor land damage which appears to have “self-repaired”
Where land truly has “self-repaired” (e.g. surface cracking has filled in/been grown over), we agree that in many instances EQC will no longer be responsible under the Act.
In this case, it is unfortunately no longer apparent that the land has suffered “physical damage” which requires repair.
14. Can EQC decline cover where land has been repaired already?
The Act does not expressly cover this situation.
In EQC’s guide, “Householder’s Guide to EQ Cover”, it states:
- you can make temporary repairs for safety or to prevent further damage or discomfort;
- keep everything that is replaced and keep a copy of the bill;
- if you can, take photographs of the damage before you clean up or move anything;
- do not start any repairs without the approval of EQC unless they are to essential services;
- tell EQC everything you know about the damage and how it happened and give EQC any documents it asks for, for example, repair quotes and invoices;
- Depending upon the circumstances, EQC may settle your claim … after you have found out the cost of repairing or replacing the damaged property, by paying you that amount, either before or after the repairs are carried out or you have replaced the property.
These comments suggest that, in some circumstances, EQC will pay for repairs carried out by/on behalf of homeowners.
We think EQC’s obligations ought to be decided by such thing as:
- What evidence exists of the damage before repair;
- the extent of the repairs carried out;
- the reason for the repairs (e.g. safety or to prevent further damage);
- what evidence exists of the repairs; and
- what actual costs were spent in carrying out the repairs.
If we can assist in any way with your land claim, please don’t hesitate to contact Paul Cowey at email@example.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.