The courts have resolved a large number of contentious insurance disputes arising out of Canterbury earthquake claims. These have involved both private insurance policies and the interpretation of EQC’s statutory obligations.
However, the Christchurch High Court’s earthquake list remains busy, with a large number of new claims filed towards the end of 2017 to avoid potential statutory time bars seven years after the first earthquake.
Latest annual High Court figures show that, as at September 30, there were 518 unresolved claims remaining on the High Court earthquake list, which make up approximately 50% of the total claims listed to date.
Government action
The newly appointed Greater Christchurch Regeneration Minister, Megan Woods, has confirmed that as at October 2017 there were approximately 3000 unresolved claims sitting with EQC. Some of these are claims for re-repairs following alleged inadequate remedial works. With an independent inquiry into EQC in the pipeline, it is likely that EQC will be supported in its efforts to resolve claims and take an increasingly active claims-management role.
The Government has also signalled its intention to push for resolution of earthquake claims through the establishment of a specialist tribunal, although no formal steps have yet been announced.
Assignment of claims
The assignability of “full replacement” insurance claims has become a significant issue as unrepaired or partially repaired property in Canterbury is sold and transferred to new owners. Last year, the High Court in Xu & Diamantina Trust Limited v IAG New Zealand [2017] NZHC 1964 confirmed the existing position established by the Court of Appeal in Bryant v Primary Industries Insurance Co Ltd, which held that an insured cannot assign rights which are personal to the insured and have not arisen as at the date of assignment.
What this means in practice is that an insured cannot assign a right to reinstate a property to an “as new” standard and be paid the actual cost of the work. An insured may assign a right to indemnity value, which is a right to receive a cash payment without preconditions. However, a right to reinstate and be paid the actual cost is a personal right that belongs only to the insured and cannot be assigned without the insurer’s agreement.
The assignee cannot claim the actual costs of a repair or rebuild because that right is triggered only when the original insured reinstates the property.
The Xu case was appealed and has now been heard by the Court of Appeal. The Court of Appeal will not be bound to follow its own decision in Bryant. The industry will be monitoring the outcome closely.
Statutory time bars
September 2017 saw a flurry of activity as insureds scrambled to avoid the need to pre-emptively file proceedings to avoid risking the loss of their rights because of a potential statutory limitations defence. In the previous year, insurer members of ICNZ gave a joint undertaking not to plead such a defence to proceedings filed before September 4, 2017, being the seven-year anniversary of the first Canterbury earthquake.
Many insureds sought and obtained a further extension prior to that date. However, unlike the previous, these arrangements were not facilitated on an industry-wide basis. Insurers have taken divergent approaches. Some are dealing with insureds requests on a case by case basis. One insurer has refused to extend the deadline for assigned claims. Others may look to follow suit in September 2018 when the extension is up for discussion again.
One insurer has issued a statement that it considers the limitation period to run from the date that the insurer settles or rejects a claim rather than from the date of the earthquake event. While there is merit in this approach, the start date for the period remains uncertain and will be affected by the policy wording. It is possible that we will see the defence raised for the first time in 2018 by an insurer.
Key themes arising from case law
In 2017, the High Court released two judgments which found substantially against the insureds: Sadat v Tower Insurance Ltd [2017] NZHC 1550 and He v Earthquake Commission [2017] NZHC 2136. In the Sadat case, the Court recognised an established principle that insureds must prove the claimed loss and must also prove that the event in question was covered by the policy. The insureds in both cases failed because they were unable to establish that damage to their house had been caused by earthquake and not by pre-existing issues such as subsidence and inadequate foundations.
These cases serve as a warning to insureds of the risks involved in litigating a claim without careful consideration of the available evidence. In both cases, the claimants failed to overcome the conclusion supported by reasonably clear documentary evidence that their properties had suffered from pre-existing damage. These cases may reflect a growing unease by the Courts towards insurance claimants who, for whatever reason, insist upon litigation in the face of clearly problematic evidence.
The duty of good faith
The industry awaits further judicial guidance on the mutual implied duty of good faith in contracts of insurance which was recognised by the High Court in Young v Tower Insurance [2016] NZHC 2956. The Young case established that, as a bare minimum, the duty included an obligation on insurers to disclose all material information that it knew or ought to know, act reasonably, fairly and transparently and to process a claim within a reasonable time. The court gave no further detail of what other obligations fell within the duty. It is likely that litigation in 2018 will include allegations of a breach of this duty and we expect to see further case law on its extent and application.
