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 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 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).
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), firstname.lastname@example.org