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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.

Please click here to see the 2 attached letters:

  1. Open letter to: The Honourable Gerry Brownlee
  2. Open letter to: T Grafton / N Mereu

If we can assist in any way with your insurance claim, please do not hesitate to contact us at insurance@parryfield.com.

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. Read more

In April 2013, EQC released two guides for settlement of earthquake land claims (flat land and hill properties), together with sample Land Settlement Packs. The Guides note that they are a summary of EQC’s obligations and that the provisions of the EQC Act 1993 will be “applied by EQC at all times.” 

This article looks at what cover the EQC Act actually provides for “land damage” and what qualifies as “land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

1. What general cover is provided under the EQC Act for earthquake related land damage?

2. Is EQC responsible for covering all areas of a property where there is land damage?

3. What level of “insurance” cover does EQC provide for land damage?

4. What qualifies as “physical loss or damage”?

5. What types of “physical loss or damage” does EQC cover?

1. What general cover is provided under the EQC Act for earthquake related land damage? 

The EQC Act provides that, where a home is insured against “natural disaster damage”, the land on which the home is situated is insured against:

  • any “physical loss or damage” to the land occurring as a direct result of a natural disaster (such as an earthquake); and
  • Any “physical loss or damage” to the land occurring as a direct result of measures taken under property authority to avoid the spreading of, or otherwise reduce the consequences of, any natural disaster (e.g. land works necessary to redirect flood run-off).

2. Is EQC responsible for covering all areas of a property where there is land damage?

No, EQC only covers damage to the following areas of land:

a) the land under the house;

b) all land within 8m (extending outwards) of the house or outbuildings such as any garage (but excluding artificial surfaces such as asphalt or concrete);

c) the main access way to the house (excluding coverings such as asphalt or concrete) from the boundary of the land (so long as that access way is situated within 60m of the house);

d) the land supporting the main access way;

e) bridges and culverts situated within the above areas; and

f) retaining walls and their support systems within 60m of the house which are necessary for the support or protection of certain specified areas of land (e.g. the house or garage).

EQC does not cover certain things that are on the land, such as trees, plants, lawn, paving and driveways.

3. What level of “insurance” cover does EQC provide for land damage?

Qualifying properties are insured for an amount equal to the lowest of the value of:

a) a parcel of land that is the minimum lot size under your district plan.

i. In Christchurch, if your property is zoned as Living Zone 1, the minimum lot size is 450m2.

ii. If your property is in Christchurch’s Living Zone 2, the minimum lot size is 330m2.

b) An area of land of 4000 m2; or

c) The area of land that is actually physically lost or damaged.

These values are the maximum amounts EQC could be liable to pay, rather than what you will automatically receive from EQC.

In the case of bridges and culvert and retaining walls, EQC is only liable to pay up to the “indemnity value”of that property (e.g. this is often described as the property’s “market value” at the date of the loss or the property’s value allowing for its age and condition immediately before the loss or damage happened).

EQC advises that payment of claims for land (where EQC considers its maximum liability has been reached) will be based on a professional valuation.

In each case, EQC’s excess is deducted off each land claim (if the claim is $5,000 or less, EQC will deduct an excess of $500. If the claim is more than $5,000, EQC will deduct 10% of the claim up to a maximum of $5,000 per claim).

4. What qualifies as “physical loss or damage” in the context of “natural disaster damage”?

This is not defined in the EQC Act.

In the case of Earthquake Commission v Insurance Council of New Zealand Incorporated & Orrs [2014] NZHC 3138, the Court held that, for land damage to qualify as “natural disaster damage” for the purposes of the EQC Act, there must be:

  • a physical change or loss to the land that has occurred or is imminent as a direct result of the earthquake.  Put another way, some type of disturbance or loss to the physical integrity of the land; and
  • which adversely affects the uses or amenities that could otherwise be associated with the land (i.e. building on it/habitating on it).

5. What types of “physical loss or damage” does EQC cover?

This is again not specified in the Act. EQC has however identified nine types of land damage on the flat residential land in Canterbury. Seven are said to be apparent from looking at the land:

  • Cracking caused by the sideways movement of land, often towards water;
  • Cracking caused by backwards and forwards ground movement;
  • Undulating land (e.g. uneven settlement of the land, often as a result of sand and silt being pushed up or settlement of liquefied soils below the ground);
  • Ponding (due to lowering of the land in areas which results in water “ponding” in places where previously it did not);
  • Localised settlement resulting in drainage issues (e.g. drains flowing the wrong way due to land settlement;
  • Groundwater springs (new springs flowing over the ground where previously they did not); and
  • Pushed up sand and silt, either under a house or over a large area.

Two further types are not necessarily visible but have increased the future vulnerability of the land to liquefaction or flooding:

  • increased liquefaction risk (the ground surface has subsided closer to the water table than previously, reducing the ground crust thickness and therefore increasing the risk of liquefaction occurring); and
  • increased flooding vulnerability (the ground surface has again subsided making it more at risk of flooding if the land is situated near a water way).

In the case of Earthquake Commission v Insurance Council of New Zealand (referred to above) however the Court held that “circumstances where one or more earthquakes have caused physical changes to the land only and such changes have caused the residential building to reduce in height and adversely affected the uses and amenities that could otherwise be associated with the residential building by increasing its vulnerability to flooding events does not include “Natural disaster damage” (emphasis ours).

EQC advises that it assesses Increased RIsk of Flood/Liquefaction utilising drilling data, aerial laser levels taken after each major earthquake/aftershock which record changes in land elevation, and Water Table Levels.

In the Port Hills, EQC has identified other types of damage such as:

    • Debris material (e.g. rock fall and cliff collapse) being deposited on the land where this materially affects the physical use of the land;
    • Land cracking/bulging/undulations and loss of land as a result of land moving vertically and/or horizontally downslope where the land no longer occupies the space it did before the earthquakes, where this materially affects the physical use of the land.
    • Land damage as a result of impacts from rock fall and cliff collapse.

This post provides a general outline of what the EQC Act provides for “land damage” and what qualifies as“land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

If we can assist in any way with your land claim, please don’t hesitate to contact Paul Cowey atpaulcowey@parryfield.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.

Please refer to our New Zealand Lawyers Articles for a post on important tax issues surrounding the earthquake

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