For those waiting to settle earthquake claims, the six year limit to get judgment against your insurer is looming. This article considers the time limit, answers some key questions and proposes some options.
What is the time limit?
An insurer can defend a claim if it is filed in Court more than 6 years after the date of “the act or omission on which the claim is based” (Limitation Act 2010). For pre 1 January 2011 claims, time runs from “accrual of the cause of action” (Limitation Act 1952). This is unlikely to make much difference. So the time limit for claims is likely start expiring on 4 September 2016.
If no Court proceedings are filed and a time limit defence is successfully raised by an insurer, the claim will be struck out by the Court. The insurer can then refuse to pay anything.
Why have a time limit?
The law has long required those seeking justice not to sleep on their rights. Delays in bringing an action can mean loss of witnesses, dimming of memories, and losses that could be avoided by bringing a dispute to Court promptly. Defendants should not have claims hanging over them indefinitely, which they may need to hold insurance cover for. For insurance claims, the time limit for taking action has long been 6 years.
When does the 6 years start running from?
Probably the date of the earthquakes. The New Zealand Courts are yet to consider this issue for earthquakes. English cases suggest that under insurance policies, contractual rights exist from the moment an insured event happens. Therefore the time limit would run from the date of the relevant earthquake.
Some commentators believe time should run from the date an insurer declines a claim, or ignores it. A New Zealand decision about an illness policy did hold that the time limit started when the insurer made a decision to decline a claim. But the English decisions seem to fit better with earthquake claims. It would be difficult to be precise about when an insurer has “declined” a claim. What about reasonable delay? What about just being unreasonable? No claimant will want to spend days in Court arguing about whether their claim is allowed to be in Court at all.
What is the relevant earthquake?
This will depend on which quake caused the damage. EQC has allocated damage based on broad percentages. Where it really matters however, it will be necessary to prove more precisely exactly what damage was caused when. It may be difficult to determine this. The Court may need to decide based on expert evidence, photos, computer modelling etc.
My insurer has delayed my claim. Will this affect the time limit?
Unlikely. As the time limit for property insurance claims is likely to run from the date of the relevant earthquake, conduct of the insurer is usually irrelevant. If earthquake damage was hidden, and came to light later, that may qualify as late knowledge and postpone the start of the 6 year limit. It is unclear whether EQC waiting for 6 years to decide that a claim is over cap would prevent an insurer relying on the 6 year limit.
Can the government use Limitation Defences for EQC or Southern Response?
The government is able to use Limitation defences, but it is uncertain if that applies to EQC. EQC is not an insurer, instead it offers a statutory scheme of insurance. But the Courts have applied Limitation defences to similar claims “by analogy” in the past, so it is likely they could be used for EQC.
Limitation defences will apply in the usual way to the AMI policies that Southern Response took over.
What happens if the six years runs out?
If proceedings are not issued before 4 September 2016, no damage from the 4 September 2010 earthquake would be payable. A claim for February 2011 damage could still be made. But a lot of effort would be needed to prove the exact cost of the damage caused in September, which would then be deducted from any pay out.
Claimants can still attempt to negotiate with their insurer after the time limit expires. But if they will not pay, Court action cannot be taken. This will leave claimants with no negotiating power and no options.
Can a Court extend the 6 year limit?
No. The limit is set by Statute. The Court can use a late knowledge period to postpone the starting of the 6 year limit in certain circumstances. The period then usually runs from the date when the claim was known, or could have been discovered, e.g. in sexual abuse claims and some latent defects in buildings. Generally, neither silence by the insurer or entering into negotiations will be enough.
Does the time limit automatically apply?
No, the time limit only applies if an insurer raises it as a defence. Insurers can agree to a “standstill”, or they can agree not to use a Limitation defence for a period of time. Such a “Waiver” must be clear and unequivocal, making it unfair for an insurer to later try to rely on a limitation defence.
We have written to the Minister responsible for EQC and to the Insurance Council of New Zealand. We asked them to give a public waiver, and asked for written confirmation that neither will raise the 6 year limit to try and avoid paying valid claims. We are awaiting their response. There are several possible outcomes:
(a) No response.
This would signal insurers (and their reinsurers) want to rely on limitation defences. The only safe way to protect claims will be to file Court proceedings. Legal costs may be partly recoverable from the insurer.
(b) Insurers refuse to offer a waiver to all claimants, telling them to seek a waiver one by one.
But if waivers are to be freely offered, why require people to write in one by one? This will involve many insurer’s hours which could otherwise have been spent solving outstanding claims. Some claimants will do nothing and fall through the cracks. The individual waivers granted by insurers may be adequate, or they may not. Claimants without legal advisors are unlikely to know until it is too late. Claimants with legal advisors will have to foot the bill for seeking and receiving an appropriate waiver. These legal costs may be partly recoverable from insurers.
(c) Insurers could offer a blanket waiver for say two years.
This would need to be clearly and publicly stated. It could postpone the date for filing Court proceedings until 4 September 2018.
(d) The government could bring some clarity.
It is not likely that Parliament could act, or a Court decision could move through the appeals process in time, given the September 2016 deadline.
I have signed an agreement but have not been paid.
If the insurer has agreed to the claim and signed an agreement the positon may be different. A contract to pay the cost of rebuilding a house will usually become its own cause of action. If an insurer fails to perform under that contract, the limitation period would usually run from the date of that breach. Note however that while this will often be the case, it will depend entirely on the wording of the agreement and the promises the insurer has made.
How do I avoid missing out if insurers will not give up the limitation defence?
The Limitation Acts provide that time stops running when the claim is filed in Court. Any claim will need to be filed in Court within 6 years from the date of the relevant earthquake, so by 3 September 2016 or 21 February 2017.
Where there is uncertainty as to which earthquake caused the relevant damage, it would be safest for claimants to file their claim before 4 September 2016.
If you have not yet settled your earthquake claim, do not leave it too late to seek competent, professional advice. Claimants may be able to recover a part of their legal costs from insurers. Good advice may also help you settle your claim well before the relevant time limits. But either way, the September 2016 time limit will soon be upon us.
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