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).
Under the Earthquake Commission Act 1993 (‘the Act’), this means that EQC is liable to pay any costs “reasonably incurred” to replace or repair the damaged part or parts of your home to a condition which is “substantially the same as but not better or more extensive” than its condition “when new”.
In other words, EQC does not automatically have to pay for repairs which give you a home which is better than what you would have had when it (or any part of it) was originally built. However, you are entitled (subject to certain conditions) to receive repaired property which is largely the same in appearance, quality and working order as it was “when new”.
Consequently, you are not limited to receiving what is known as an “indemnity” payment, whereby an insurer is only responsible for paying for the cost of repairing your home to the condition it was in before the damage (which in most cases will be less than new).
2. Are there any limitations on EQC’s repair obligations?
The Act (Schedule 3, section 9) provides that, if EQC chooses to repair or replace any part of your home, rather than cash settling your claim, EQC are not obliged to replace/repair it “exactly or completely” but only as “circumstances permit” and “in a reasonably sufficient manner”.
3. Does this mean that EQC do not have to repair my property to its “when new” condition after all?
This issue hasn’t yet been heard or decided by the Court which means that we cannot definitively say how it will be interpreted. However, based on the following, we don’t think it substantially limits EQC’s obligations.
The Act must be read as whole. It is incorrect to apply aspects of the Act in isolation or in a vacuum.
In our view Schedule 3, section 9 means that if EQC chooses to repair your property (rather than pay you a cash sum) and circumstances do not permit an exact/complete replacement, EQC do not have to give you exactly what you had before but only what can be achieved in the circumstances and which is carried out in a “reasonably sufficient manner”.
The starting point in the Act is that homeowners are insured (by EQC) for the reasonable cost of repairing their home to substantially the same condition as “when new” (up to the limits in the Act).
The Act provides that this is modified by Schedule 3, section 9 (“subject to”). Consequently, the two must be read together to understand how Schedule 3, section 9, actually “modifies” EQC’s “when new” obligation.
The key terms of Schedule 3, section 9 are:
It applies where EQC chooses to repair or replace, rather than paying the amount of the damage;
If EQC chooses to repair or replace, EQC does not have to replace or repair “exactly” or “completely”. As Schedule 3, section 9 expressly qualifies EQC’s “when new” repair obligation, we consider that “exactly” or “completely” therefore refer back to what was/is there when new.
In other words, EQC does not have to replace or repair the damaged property precisely or totally as when it was new (e.g. an exact replication using the same materials).
In this context (where EQC are not replacing or repairing damaged property precisely or totally as when it was new), EQC is instead only obliged to do what the “circumstances permit” and
in a “reasonably sufficient manner”.
In other words, when choosing a substitute product or repair methodology, EQC is only required to find/use one which is permitted by the circumstances (i.e. complies with the current law, able to be sourced etc), and to ensure that the repairs/replacement is done in a “reasonably sufficient manner”.
We note further that:
The Act provides elsewhere that EQC’s liability is, in some cases, limited to the cost of repairing damaged property to the state it was in prior to the damage (for example, where EQC chooses to relocate a damaged home, rather than repair it on site/cash settle a claim) and allowing for depreciation and wear and tear (e.g. retaining walls).
As the Act expressly allows for that lower standard elsewhere, this indicates that the standard of repair being referred to in Schedule 3, section 9 is something different. As outlined, we consider that standard is “when new”.
This is supported by the fact that Schedule 3, 9 refers to EQC being obliged to repair or replace “in a reasonably sufficient manner” (a way of doing something), rather than to a “reasonably sufficient condition” (the state of something with regard to its appearance, quality, or working order).
It is apparent from other references in the Act that “manner” is not the same thing as “condition” as the two are used to refer to separate ideas in the same section, e.g. Schedule 3, section 10 provides that where EQC relocate a damaged home, they are only obliged to:
“Reinstate the building to the same condition as the building was in immediately before the natural disaster damage occurred, except that the Commission shall not be bound to reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner”.
Consequently, we consider that Schedule 3, section 9, is not qualifying/limiting the overall quality/standard of repair. It simply allows EQC to substitute different products/repair methodologies from what was used when the home was originally built.
Finally, the Act which the EQC Act replaced in 1993, expressly stated that homes were only insured for their “indemnity value” (e.g. the cost of repairing the home to the state it was in before the damage allowing for depreciation and wear and tear).
It is therefore clear that the deliberate inclusion of “replacement value” in the EQC Act, rather than the former “indemnity value”, represents a higher standard of repair under the EQC Act.
4. Do the repairs have to comply with current building regulations?
Yes. The Building Act 2004 provides that all work which is required to repair damage to a home is ‘building work’ and needs to comply with Building Code requirements, whether or not a building consent is required.
5. Does EQC have to pay for the cost of the repairs complying with current building regulations?
Yes, as a general principle.
The EQC Act provides that:
EQC’s obligation to replace/repair a person’s home to a largely new condition (but not better or more extensive than what the home was like when new) is modified “as necessary to comply with any applicable laws” (which would include current building regulations).
The cost of such compliance is EQC’s responsibility – EQC is responsible for paying any costs “reasonably incurred” to comply with any applicable laws in relation to the replacement or reinstatement of your home.
In other words, while in general EQC are not obliged to repair your home to a condition which is better or more extensive than what it was like originally when new, this limitation is modified where it is necessary for the repairs to comply with any applicable laws.
Consequently, this mean that you may end up with something which is better than what you had before. This is because, although your home (or part of it) may have complied with building regulations at the time it was built, this may not be the case now. Therefore EQC may have to pay for additional work to be done to ensure that any repair to the relevant part of your home complies with current regulations. This may include paying the cost of upgrading non-earthquake damaged aspects if those aspects need to be upgraded as part of completing the repair of your earthquake damage. In other words, if your earthquake damage cannot legally be repaired without also upgrading non-earthquake damaged aspects, EQC may be responsible to meet those costs too.
However, that doesn’t mean that your entire home has to be fully upgraded to comply with the performance requirements of the Building Code. In general, only the relevant repairs have to comply with the scope of the Building Code that applies to that particular type of repair. With the exception of such things as ﬁre safety, the balance of your home only needs to comply with the Building Code to the same extent as it did before the earthquake.
Be aware however that, if your home (or part of it) did not comply with building regulations at the time it was built or no building consent was obtained when required, you may have to contribute to the cost of any additional work required to ensure that your repairs comply with current building regulations. This is particularly if the failure to obtain a building consent/comply with the relevant regulations caused or increased the earthquake damage to your property.
6. Is EQC responsible for paying any other costs?
Yes. Under the Act, EQC is also responsible for paying any costs “reasonably incurred”:
To demolish your home (or any part of it) and remove debris but only to the extent that such was required to enable your property to be repaired/replaced;
To pay architects’ fees, surveyors’ fees and council fees.
7. Can EQC decide whether to repair my home or pay me a cash sum instead?
Yes. Under the Act, EQC can choose between settling your claim by payment, replacement, or repair.
8. Will I have to pay anything towards the cost of repairs?
Possibly. EQC is only responsible under the Act for covering damage to your home which occurred “as a direct result of a natural disaster”. Consequently, if you have damage to your home which was not caused by the Christchurch earthquake (e.g. pre-existing damage) but which is also being repaired as part of your earthquake repairs, you may have to meet the cost of that. However, this is not always the case. If your earthquake damage cannot be repaired without the non-earthquake damage aspects also being addressed, EQC may still be responsible to pay (see point 5 above for example).
Likewise, if your home (or part of it) did not comply with building regulations at the time it was built or no building consent was obtained, you may have to contribute to the cost of any additional work required to ensure that your repairs comply with current building regulations (again see point 5 above).
Finally, if you want (and EQC agrees) repairs carried out differently to what EQC proposes (and is liable to provide) or additional work done, you may need to meet any extra cost arising from such. For example, if you want rooms repainted in a different colour to what they are currently and that will require additional work (e.g. additional coats of paint), you may be liable to meet that cost.
9. Are there any time frames?
The Act provides that EQC shall settle any claims “as soon as reasonably practicable” but no later than one year “after the amount of the damage has been determined”.
Under the Canterbury Earthquake (Earthquake Commission Act) Order 2012 however, this provision was amended to provide that, where EQC elects to settle a claim by reinstatement, EQC is not required to settle claims within the original one year time frame provided under the Act. Nonetheless, the Order provides further that this does not exempt EQC from the requirement to determine damage “as soon as reasonably practicable” and EQC must still make any payments it is liable to pay “as soon as reasonably practicable”.