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A client has agreed to purchase a house over which the seller holds home insurance.

When the property goes unconditional the purchaser wishes to undertake some building/renovation work prior to settlement. Both parties agree to this but now there is a question over how to insure it as neither parties insurer seems overly keen.

I recall some legislation in New Zealand that enables the purchaser to arrange insurance from the date the property goes unconditional (as opposed to the latter settlement date). This on the basis that the purchaser presumably has some financial interest over the property. In the event of a claim, this specific piece of legislation allows the parties to choose which policy to claim under but they can't claim under both.

Our thoughts are that we can quote this legalisation to the purchaser©s insurer in the hope that they agree to a home insurance offer. We recognise that we may also need to arrange some contract works insurance to cover them for the building©s works.

Reply: Crossley Gates

There is no legislation that applies to this situation. Rather once an agreement goes unconditional, the purchaser must purchase and so is at risk of financial loss if the building suffers an insured peril. The purchaser ought to be able to insure against this in the usual way.

The legislation you are thinking of is the Insurance Law Reform Act. This says the vendor’s policy is for the benefit of the purchaser. But this insurance may not be sufficient and may not cover construction.

Reply: Richard Woodcock 

The reason the insurers are “not keen”, is because it is fraught with potential problems. If this were a client of mine, I'd advise them strongly to stay away until the house is theirs, settled. A problem avoided is 100 times better than a problem fixed.

March 2020

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