In a recent High Court decision – Whiting v The Earthquake Commission  NZHC 1736 – EQC was ordered to pay a proportion of a homeowners’ legal costs, following settlement of the homeowners’ legal claim against EQC and the homeowners’ insurer.
- The homeowners sued EQC and its insurer alleging failure to settle their claims in relation to earthquake damage caused to their house. EQC had proposed to settle on the basis that the homeowners’ claim was “under-cap”.
- EQC subsequently agreed the homeowners’ claim was “over-cap” and the homeowners then settled the balance of their claim with their insurer. The homeowners discontinued their legal claim and sought a contribution towards their legal costs from EQC.
On what basis did the homeowners seek costs?
- The homeowners alleged that EQC’s actions in not promptly meeting its obligations under the EQC Act forced them to file legal proceedings. The proceedings were ultimately successful in that they caused EQC to change its position and meet its obligations. In turn, that enabled the homeowner and their insurer to settle their insurance claim. Had EQC acknowledged that the damage was over cap prior to the homeowners filing legal proceedings, the plaintiffs would not have incurred significant legal and expert fees.
- EQC argued that it should not have to pay costs as it did not admit the homeowners’ claim, EQC had not breached its obligations under the EQC Act, and it settled the homeowners’ claim outside the legal proceedings and in the same way as it otherwise would had the proceedings not been filed. EQC also claimed the homeowners should pay some of EQC’s costs.
What did the Court decide and why?
- The Court held that EQC had to pay some of the homeowners’ costs, capped at 50% of “scale” costs (scale costs are a proportion of the actual costs incurred by the homeowners, calculated in accordance with a set scale).
- In reaching its decision the Court considered the following questions:
- What was the position as between EQC and the homeowners at the time the legal claim was filed?
- What were the homeowners attempting to achieve by filing a legal claim?
- Was it reasonable for the homeowners to commence legal proceedings?
- Why did EQC not settle the homeowners’ claim before April 2014?
- Did EQC’s settlement of the claim represent a vindication of the homeowners’ decision to issue proceedings?
The Court held it was not unreasonable for the homeowners to file legal proceedings.
- Representations made by the EQC assessor at the time of the opt out inspection was that EQC’s position was firmly held. The inspection therefore was not to try and resolve issues in dispute between the homeowner and EQC, nor was it a “joint review”, as later suggested by EQC.
- The homeowners had provided engineering reports to EQC supporting their position that their claim was over-cap shortly after the opt-out inspection – February 2013 – but it was not until April 2014 that EQC acknowledged the homeowners’ claim was over cap. Prior to that time, EQC continued to maintain its position that the claim was under cap. This supported the homeowners’ claim that, at the time they filed legal proceedings, the provision of the reports to EQC would have made little difference to EQC’s position. Accordingly, it was not premature for the homeowners to file proceedings at the time of the opt-out inspection.
It was not clear why EQC had not been able to settle the claim earlier:
- While the fact that EQC was dealing with an unprecedented number of claims should not be forgotten, it did not absolve EQC of responsibility in the circumstances of the case. Specifically the Judge said, “While regard must be had to the operational environment in which EQC is required to discharge its obligations, the circumstances of each individual case must be assessed on its merits in terms of whether EQC has settled the claim as soon as reasonably practicable.”
- EQC had provided a lack of information as to why it took 15 months after the legal claim was filed to recognize that its position was incorrect and the claim was over cap. It also had not indicated why it later changed its position from its original position (that the claim was under cap). It was not clear on the information provided by EQC why it could not, at a much earlier time, have changed its position, preferring instead to wait until preparations for a trial were well underway.
EQC’s change of position did justify the homeowners’ decision to file proceedings:
- EQC’s change of position confirmed the reasonableness of the homeowners filing proceedings. It was a significant change of position and came after a lengthy period of EQC holding a contrary view.
It would not be just for the homeowners to pay EQC’s costs.
- While the homeowners did not obtain satisfaction from EQC for the full amount claimed (they sought three over cap payments), they substantially succeeded when EQC accepted that the damage to the property was over cap thereby triggering the insurer’s obligation to settle the claim under the terms of its insurance policy
Why were full costs not awarded?
- The homeowner had not provided any information as to whether its insurer had paid some of its costs or not when the homeowner reached settlement with the insurer. Given this lack of information, the Court held that the homeowner could not receive 100% of its “scale” costs but rather 50%, as the Court accepted that it would be incorrect for the homeowner to receive a “double up” contribution to its costs from its insurer as well as from EQC.
Will costs always be awarded against EQC for a similar type of claim?
- Not necessarily. If a Court considers that a homeowner unreasonably filed proceedings (i.e. before it was clear that EQC was unlikely to change its position) or EQC reasonably defended the proceedings, then costs may not be awarded. Similarly, if the homeowner discontinued the proceedings for another reason other than a successful outcome then costs may not be ordered.
If we can assist in any way with your insurance claim, please don’t hesitate to contact Paul Cowey at email@example.com.