Cash Settlements

Peter Woods10 September 2015

• EQC Building Claims• EQC Land Claims• Insurance cash settlements

Earthquake Commission Act 1993• Section 2 - Replacement value means—a) In relation to a residential building, any costs which would be reasonably

incurred in respect of—i. Demolition and removal of debris, to the extent that is essential to

enable the building to be replaced or reinstated; andii. Replacing or reinstating the building to a condition substantially the

same as but not better or more extensive than its condition when new, modified as necessary to comply with any applicable laws; and

iii. Complying with any applicable laws in relation to the replacement or reinstatement of the building; and

iv. Other fees or costs payable in the course of replacing or reinstating the building, including architects' fees, surveyors' fees, and fees payable to local authorities; and

Earthquake Commission Act 1993• Schedule 3(9) – Replacement of property

1) The Commission may at its option replace or reinstate any property that suffers natural disaster damage, or any part thereof, instead of paying the amount of the damage, but—

a) The Commission shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner; …

EQC Building Claims• Claims between $15,000+GST and $100,000+GST

generally referred to CHRP – but could opt out.• EQC indicated that it may “cash settle” where:

– Claims less than $15,000+GST;– Issues unrelated to earthquake damage;– Owners requirements;– Health and safety concerns;

• CHRP closed 1 June 2015

Building Claims – Calculation • Amount based on local contractor rates.

• Includes a consideration for project management and any required site preparation, such as testing.

• Where practicable, when EQC chooses to cash settle for reasons other than the value of the work being less than $15,000+GST, those reasons will be communicated to the customer.

Cash Settlement - Risks• “Cash Settle” means EQC has elected to pay rather than reinstate

• EQC: being in the CHRP “all aspects of the repairs are taken care of”

• Reaching agreement on the extent of damage and repair

• Funding and managing the repair process

• Carrying the risk of “variations”/increased costs

• Monitoring quality

• Consider staying in the CHRP

Building Claims – Keeping the cheque?• You can keep the cheque without prejudice if you choose to dispute the EQC

settlement.

• Request a claim review by providing a quote (at your expense) detailing:

– The location and extent of the damage, along with its estimated cost to repair.

– For damage not recorded by the EQC Scope of Works, stating why the damage is considered to be earthquake-related, and accompanied by comprehensive photographs showing the location and extent of the additional damage.

– A room-by-room breakdown of repair costs, including the cost per square metre of each repair strategy, and the measurements of the damaged areas.

Earthquake Commission Act 1993• Section 19 – Residential Land• Subject to any regulations made under this Act and to Schedule 3 to this Act, where a residential

building is deemed to be insured under this Act against natural disaster damage, the residential land on which that building is situated shall, while that insurance of the residential building is in force, be deemed to be insured under this Act against natural disaster damage to the amount (exclusive of goods and services tax) which is the sum of, in the case of any particular damage,—

a) The value, at the site of the damage, of—i. If there is a district plan operative in respect of the residential land, an area of land

equal to the minimum area allowable under the district plan for land used for the same purpose that the residential land was being used at the time of the damage; or

ii. An area of land of 4000 square metres; oriii. The area of land that is actually lost or damaged—whichever is the smallest; and

b) The indemnity value of any property referred to in paragraphs (d) and (e) of the definition of the term “residential land” in section 2(1) of this Act that is lost or damaged.

Land Claims – What is covered

Land Claims – Calculation• Based on:

– The indemnity value of any bridges, culverts, and retaining walls and their support systems that are covered, plus

– The cost to repair land that is physically damaged or lost in the earthquake (or in some circumstances the reduction in the value of damaged land, where repair is not possible or unlikely to occur for practical reasons).

• Repair methodology guides for the purpose of calculating settlement in Guide to Settlement of Canterbury Flat Land Claims and Guide to Settlement of Port Hills Land Claims.

• EQC’s liability is capped at the maximum amount payable under the Act.• This maximum amount is often (but not always) the value of a parcel of

land that is the minimum lot size under the relevant District Plan.

Land Claims – Paying the Settlement• Paid to the homeowner unless there is a mortgage

and the amount is over the mortgagee threshold.• Settlement pack:

– Settlement amount; and– Information showing how amount was calculated.

• No payment made if cost of repair is less than $500.• Payment must be used for the purpose of repair or

replacement of damaged property.

EQC …

EQC …

Land Claims - Review• You can ask EQC to reconsider.

• The request must be made within 3 months of the date of your settlement letter.

Cash Settlements: Policy Response1. What does the Policy provide?

2. Insurer tops up over EQC payments

3. Insurer may have right to choose whether to pay or whether to work = election

4. Owner entitled to be paid for actual repair/rebuild

5. If no work: Cash = indemnity or present day value

Cash Settlements: Out of Policy response

1. A negotiation with the Insurer

2. Payment based on estimated cost of repair or rebuild

3. Assignment of EQC claims

4. Risk that actual costs will be greater

5. Full and Final and Forever

Presented by

Peter WoodsPartner

Anthony Harper