QUESTION
We have a client with a large portfolio of individual homes, and they have opted to insure these on defined perils cover and indemnity values.
All of the houses' indemnity values exceed $300,000, so we have charged full NHI levies as we feel the client is entitled to the $300,000 building cover cap limit under the Act.
The underwriter has instead advised that, as the insurance cover is defined perils/indemnity value, that the levies and cap are based on sqm x $2,500.
This is resulting in the insurer restricting the building cover cap to below the entitlement under the Act and below the sum insured. Our review of the Insurer's guide shows that Option 2 applies, but that states,
"...the size of the dwelling is only used to calculate the building cap if the specified sum is less than $2,500 multipled by the insured floor area. "
Can they restrict the NHI cover in this way, or should they only be doing this where the sum insured is below $300,000?
EXPERT ANSWER: Lynne Robinson
From the information provided, it is not possible to provide a full and accurate response to your scenario. If you would like to contact us directly so that we can gather the additional information necessary, please contact us at nhcover@naturalhazards.govt.nz.
We can, however, provide some general advice that may assist you.
Where there is no replacement sum insured specified in a house insurance policy (that includes a fire insurance contract), then either section 36 or section 37 of the NHI Act will apply to determine the amount of the building cover cap.
Section 36 of the NHI Act only applies if the house insurance policy sets out a ‘specified amount for natural hazard cover’ under the NHI Act. This ‘specified amount for natural hazard cover’ is different to the ‘indemnity value’ that the house is insured for. Where the insured person chooses to have a ‘specified amount for natural hazard cover’ set out in their house policy, then the building cover cap for the residential building will be that specified amount, subject to it being between (or equal to) the minimum and maximum amounts described below:
• the insured floor area multiplied by $2,500 plus GST (the minimum amount the building can be insured for under section 36(2)(a) of the NHI Act), or
• the number of dwellings multiplied by $300,000 plus GST (the maximum amount the building can be insured for under section 36(2)(b) of the NHI Act, or
Section 36 does not apply if the house policy does not specifically state a ‘specified amount of natural hazard cover’ that the residential building is to be insured for under the NHI Act.
Where sections 35 and 36 of the NHI Act do not apply (i.e. the house policy does not specify a replacement sum insured or a specified amount for natural hazard cover under the NHI Act), section 37 will apply to determine the building cover cap.
Section 37 provides that if neither section 35 nor 36 applies, then the building cover cap for the residential building is the number of dwellings in the residential building multiplied by $300,000 plus GST.
