Tag Archive for: Insurance

Are you in the business of constructing property? Maybe instead your own property needs to be repaired, renovated or rebuilt? Whatever the scenario, ensuring you have adequate insurance in place to cover the risks allocated under your construction contract is vital.

Construction is booming in Canterbury, both new builds and repairs. Construction contracts allocate risk between owners, contractors, sub-contractors (and earthquake insurers) during construction, and beyond. Do you understand what risks the parties in the construction process, including you, have taken on and is there adequate insurance in place to cover those risks?

This article looks at these issues and answers some of your key questions in respect of them.

1. What kind of risks do I need to be aware of?

For Homeowners/the owner

  • Your existing home/building being damaged by your contractor;
  • Your existing home/building being damaged by sub-contractors;
  • New building work being damaged by your contractor or sub-contractor;
  • New and old building work being damaged by you;
  • New and old building work being damaged by an insurable event (accident, third party, natural disaster);
  • Latent defects in the building work – design flaws, faulty workmanship;
  • Damage to plant, machinery, your own materials and vehicles;
  • Being indirectly liable for other people’s faults

For Contractors

  • The Existing structure being damaged by the negligence of self or sub-contractors
  • The Contract works being damaged by the negligence of self or sub-contractors
  • Existing and contract works being damaged by accident, third parties and natural disasters
  • Consequential loss resulting from damage – delay, cost of rescheduling, need to redo undamaged work to fix damage
  • Continuing liability beyond project completion date for latent defects by self and sub-contractors
  • Damage to or loss of plant, materials, machinery or vehicles owned by the principal, you and sub-contractors
  • Damage to third parties or their property: trespass to land, nuisance, liability for fire, negligence, breach of statutory duty
  • Health and Safety and other statutory obligations (e.g. Consumer Guarantees Act, Fair Trading Act, Building Act and Resource Management Act).
  • Liability to your employees.

2. How do I know what risks I’m actually taking on?

If you have a building contract, this is the first place to start. Have you checked it to see what risks you are responsible for? Even where one of the New Zealand Standard contracts (i.e. NZS 3910) is used, the Standards can vary as to what risks are covered and by who.

If you are unsure of what your risks are, take professional advice on your build contract.

Where there is no building contract or the contract makes no provision for a risk, the basic rule is that the contractor bears the risk in respect of permanent and temporary structures until completion, subject to a couple of exceptions such as damage by the homeowner/principal.

3. Do I have to insure against my risks?

No, not unless your building contract requires you to. You therefore also need to check to see who, if anyone, is responsible for insurance? Again, the New Zealand Standard contracts can vary as to what insurance is to be taken out and by whom.

However, even if the contract does not require you to take out insurance (or there is no build contract), you need to consider whether you can afford to cover your risks without insurance? If the worst case happens – a fire, natural disaster, leaky building – what would it mean for you and for the building project? Likewise, if you are homeowner/principal, consider the same if your contractor does not have adequate insurance.

4. I’m the owner, won’t my home/property insurance policy simply cover me?

No, most home/general property insurance policies do not cover construction risks. If your property is being repaired/altered, make sure you contact your insurer to let them know and to find out what you need to do to ensure the relevant risks are covered off.

5. Is it enough just to take out a general “All risk” insurance policy?

Not necessarily. The key question is whether your specific insurance cover actually covers the risks you have taken on and to what extent?

Does it adequately reflect your contractual obligations, the value of works, plant, materials, equipment etc? Does it cover additional costs, e.g. demolition of damaged structures, removal of debris, site preparation, professional fees, cost inflation etc?

For contractors, you need to focus on the risks you are responsible for and which, if they occur, may make it difficult for you to complete the work (i.e. financially or otherwise).

For the principal/homeowner, you need to focus on ensuring your responsibilities under the build contract are covered, as well as those taken on by the builder which may impact on completion of your build (even if those are to be insured by the builder).

Included within these checks is being aware of what risks are excluded under the build contract. For example, a contractor may limit its liability as to what works it is responsible for, the amount (i.e. a cap on liability), and the time period they are liable for. This means those risks pass to the homeowner/principal. Have you checked that any excluded risks are also covered by your insurance?

Again, if you are unsure, take professional advice. There is no point paying for an insurance policy which will not deliver when you need it to. It is better to know in advance what your policy will and will not cover in the event of a claim, than to find out later.

6. Are there any time limits on how long the policy covers me for?

Yes, Contract Works policies, for example, include a time limit as to when coverage stops. This is often the date of practical completion, use by the owner, Code Compliance or a set date.

Why is this important? Chiefly because there may be a period of time when certain risks are not insured, i.e. if there is a gap between the Contract Works policy ending and a new home insurance policy being taken out by the homeowner. Some insurance companies will not grant a new policy to the homeowner/principal until Code Compliance is obtained, which may be after the Contract works policy expires.

Has the policy also been extended to cover the maintenance period? Delays in completion may mean the policy expires before the work is finalised.

For Contractors who have professional indemnity insurance, have you checked how long your policy will remain in place? If it ends when the building works are complete and/or on the winding up of your business, you may not have cover for the possibility of future/ongoing claims in respect of the work.

7. What about the excess – who pays this in the event of a claim?

If it is you under the Contract, you need to check how much it is so you can factor this into your budget. If there is no contract or it is silent as to the excess, the general rule is that the party who takes out the insurance is responsible for the excess.

8. If a claim is made and my insurer pays out, what happens to the insurance proceeds?

Where your build contract obliges you to insure, there is an implied obligation to use any insurance pay out to fix the insured loss or damage. Some contracts also expressly state this. This again underlines the importance of ensuring any insurance cover is adequate otherwise your own funds may be needed to top up any shortfall to complete the work.

Who the funds are actually paid to depends on a number of things. For example, if the insurance policy is in the names of both the homeowner/principal and contractor, the proceeds can be paid to either party.

Correspondingly, if the principal/homeowner has a mortgage, the proceeds may be paid to the bank under the terms of the mortgage and the Property Law Act 2007. If that situation is relevant to you, have you checked with your bank whether they will re-advance the funds to enable completion of your building work?

9. Summary

Before you embark on a building project, make sure you know the risks you are taking on, your insurance obligations, and what your policy actually covers you for. Even if you are not obligated to take our insurance, consider – can I afford to complete this project without insurance if the worst case happens?

If are you are unsure of what your obligations are under your build contract or whether your insurance cover is adequate, take professional advice. Don’t leave it until a claim is made to find our whether your insurance cover adequately protects you or not.

If we can assist in any way with a building or insurance matter, please do not hesitate to contact us at insurance@parryfield.com.

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

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 Decision

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), paulcowey@parryfield.com 


The ADLS (Auckland District Law Society) Deed of Lease is the document most commonly utilised for commercial tenancies. An updated version (6th edition) has recently been released.

The updated lease contains a number of key changes which, if left unamended, could prove problematic for landlords and/or tenants. We summarise some of those changes/issues below.

We always recommend that, before you sign a new Agreement to Lease, you forward it to us for our review – as once signed, it sets the terms of the Lease in stone, potentially having significant consequences down the track.



The Lease now makes it clear that the tenant is responsible for meeting (part of) the insurance excess in respect of a claim – increased to a maximum of $2,000 (previously $500). The parties can of course negotiate a different excess amount, and some landlord will require tenants to meet the whole of their excess, which can be significant, particularly for earthquake damage.

It is important that Landlords ensure they can meet the insurance obligations set out in the lease and, if not, make specific changes to the documents which reflect the true insurance position.  While the lease does provide that the Landlord will not be in breach if insurance cover becomes unavailable (other than because of the Landlord’s act or omission) the Landlord must still use all reasonable endeavours on an on-going basis to obtain cover.  There are also additional obligations to advise the Tenant when cover becomes unavailable and to give reasons, as well as provide the Tenant with reasonable information relating to the cover on request.

The types of “optional” insurances that the Landlord may insure against – loss of rent, loss to fixtures and fittings and public liability – have been moved to the First Schedule and, if not specifically deleted, mean a landlord may be obliged to effect insurance that they do not have in place.

Landlords should also be aware that, as a result of the Canterbury earthquakes:

  • they may be unable to obtain certain types of insurance (eg full replacement cover);
  • the annual insurance premiums are likely to have increased significantly; and
  • they may be liable for an excess much higher than the $2,000 set out in the lease.

This reiterates the need for even the Agreement to Lease to accurately reflect the landlord’s specific circumstances.

Lack of Access in an Emergency

New provisions have been included in an attempt to address situations such as the “red zone” in Christchurch where the leased premises were either not damaged or only partly damaged but could not be accessed by the tenant and the lease remained on foot.

In such cases, there is now to be an abatement (reduction) of a fair proportion of rent and outgoings where the tenant is unable to gain access to fully conduct its business because of reasons of safety of the public or the need to prevent any hazard, harm or loss that may be connected with the emergency.  These provisions only apply however if the lease has not been cancelled as a result of the premises being totally or substantially destroyed.

The new provisions specifically include as reasons of safety/need to prevent harm:

  • a restricted access cordon;
  • prohibition of the use of the premises pending completion of structural engineering or other reports; and
  • a restriction on occupation of the premises imposed by any competent authority.

In these situations, the lease also now provides that either the landlord or tenant may cancel the lease if access cannot be gained for a period specified in the lease (the default period being nine months) or if the party cancelling can at any time prior to cancellation establish with reasonable certainty that the tenant will be unable to gain access to the premises for that period.

Landlords need to consider their insurance position if rent is abated in circumstances where there is no damage to the premises – i.e. can they in fact cover this risk when most loss of rental policies only respond to actual damage to the premises?

Legal Costs

Previously the tenant was liable to pay the landlord’s costs for the preparation of the lease and any variation or renewal of it. Now each party is to meet their own costs unless the lease specifies otherwise.

The landlord’s costs of providing consent and legal costs relating to enforcement are still chargeable.

Rent reviews

If no rent review date is specified in the lease (again, including the Agreement to Lease), the default position is now that there are no reviews. Previously, the default position had provided for a rent review on each renewal date. There is also no default review upon a lease renewal – again, a review on that date will need to be specified.

In addition, the lease now provides for a choice between market rent review or CPI rent review (or a combination of both throughout the lease term). Both forms of rent review will operate as “ratchets”, even if a CPI rent review follows a market review.

Premises Condition Report

A Fifth Schedule has been attached being a Premises Condition Report which, if completed, provides evidence of the condition of the premises at the commencement date of the lease. The intention is to avoid disputes as to the condition of the premises at the end of the lease.


Clause 16 of the First Schedule provides for an estimate of the Outgoings as at the Commencement Date.  This may not always be easy to ascertain with any degree of certainty and it may be prudent to consider deleting this part.

Maintenance and Improvements

The re-decoration clauses in the lease now clarify that replacement items (eg floor coverings) are to be to a same or better quality, specification and appearance as before.

The landlord also now has an express obligation to keep the building weather-proof.

The 6th edition makes it clear that the landlord is responsible for the maintenance and replacement of “building services” – which are those services provided by the landlord as an integral part of the building – e.g. water, gas, electricity, lighting, air conditioning, heating, lifts and escalators etc. The cost of replacing these are not recoverable by the landlord as an outgoing – the rationale being that this is consistent with the expectations of a tenant who pays rent for premises with a level of services enabling that tenant to use the premises for it’s specified business use.

Make good/reinstatement must now occur by the end the lease term – not within a reasonable time thereafter, as had previously been the case.

If the landlord requires access to the premises to comply with the requirements of any statute or regulation (such as bringing a building up to building code) then the tenant must grant such access, but an abatement (reduction) of a fair proportion of rent and outgoings will apply if the tenant’s use of the premises is “materially disrupted”. The landlord can require the tenant to vacate the premises altogether while repairs are being carried out.

There is also a good faith requirement on the part of the landlord, supposedly to ensure that there is reasonable co-operation with the tenant in terms of timing and extent of work. Particularly where upgrades to meet the Building Code are involved, timing may be very important – e.g. avoiding the Christmas season for retailers.

The improvements rent percentage has been deleted, partly out of fear that landlords may try to inappropriately pass expensive building strengthening costs onto tenants under the clause. This does not, of course, stop the parties themselves specifying what terms should apply if building strengthening/improvements are in fact contemplated during the term of the lease.

Related to the above, clause 13 of the Outgoings Schedule now specifies that the costs of upgrading the building to comply with the Building Act 2004 are not an outgoing recoverable from the tenant.

Counterpart clause

A counter part clause is now included which means that, in essence, the Lease can be signed concurrently by the Landlord and the Tenant in their respective lawyers’ offices.


This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com

If your business suffered damage in the Christchurch earthquakes, negotiating a successful insurance claim will be vital for the viability of your business going forward. We have a free checklist of basic information you need to collect to begin making an insurance claim.

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Early in February we started a series of blogs on legal issues that arise from the Christchurch earthquakes.  At that time we did not know that another one was upon us.  With the destruction caused by the second earthquake a plethora of issues are bound to affect a multitude of individuals and businesses.In this podcast we discuss business interruption insurance.

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