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Monday, April 8, 2013

Red Zone court decision–the view of the Insurance Council

The Insurance Council of New Zealand (ICNZ) issued a media release (dated 5 April) on the interim court decision concerning the Red Zoned Dallington couple. The ICNZ’s view is here, and reproduced below.

There is an error of fact in the ICNZ release, perhaps an accident, a misreading, or an attempt to confuse or mislead.  The fourth paragraph of the ICNZ release states:

The Court also noted that the offer to buy houses in the Red Zone at the 2007 valuation had not been shown to be less than the market value at the time of the earthquakes.

The Court made no such blanket statement. What the judge said related specifically to the property in question. This is from para (b) of the Summary of Findings in the Interim Decision (emphasis added).

In any event, no economic loss to the house was proved to arise from the creation of the red zone, given that the creation was accompanied by a CERA offer to buy the house at the 2007 valuation, which has not been shown to be less than the market value at the time of the earthquakes.

As you can see, the comment about there being no economic loss refers specifically to the O’Loughlan’s house. For the court proceedings a valuation of the property was produced, and it was this that was used to measure whether there had been a loss of value for just that one property. For the full story Section [85] of the interim judgement is the basis for what was said.

Also a little wide of the mark is the final paragraph of the ICNZ media release:

The Insurance Council said it was also useful that the judgment had found that in the event of any rebuild of a property outside of the Red Zone that costs should only be based on the costs of rebuilding on a good site. Further, if a rebuild of a comparable home is required, then it need not be identical to the existing home in terms of the position, dimensions, building design and finish to the previous house.

The information is taken from paragraph (g) of the Summary of Findings.  The Court found this to be the case with regard to Tower, the O’Loughlans, and the specific policy issued by Tower to the O’Loughlans. It is likely to apply to other claims in regard to assessing rebuild costs on good, rather than bad sites (but perhaps not applying to those who have not taken the Crown offer as they still own the land and the rebuild is not hypothetical?). The other issues will be dependent upon the wording of the contracts provided by other insurers, and individual contracts still have to be assessed in the context of the specific policy between the insurer and the property owner. The Court decision does not override these.  It will be interesting to see how individual insurers try to interpret the decision.

Click on the link for the full text of the media release.

The Insurance Council of New Zealand today welcomed the interim judgment in the Christchurch High Court today in the case between Tower Insurance and the O’Loughlins.

“The interim judgment brings certainty and clarity about properties in the Red Zone. There has been a belief among some of those in the Red Zone that houses that were repairable in the zone should be replaced and treated as total constructive losses,” Chief Executive of the Insurance Council, Tim Grafton, said.

“This judgment brings much needed clarity to the situation for both insurers and the insured and that is welcomed,” he said.

Importantly, the Court found that the creation of the Red Zone does not create a loss which requires an insurer to rebuild a repairable property. It also confirmed that claims were limited to physical loss or damage to the house and not economic loss arising from the Red Zone designation.

The Court also noted that the offer to buy houses in the Red Zone at the 2007 valuation had not been shown to be less than the market value at the time of the earthquakes.

The Insurance Council said it was also useful that the judgment had found that in the event of any rebuild of a property outside of the Red Zone that costs should only be based on the costs of rebuilding on a good site. Further, if a rebuild of a comparable home is required, then it need not be identical to the existing home in terms of the position, dimensions, building design and finish to the previous house.

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