Settlement of EQC Claims under the Earthquake Commission Act 1993

by John Goddard - Morrison Kent

EQC can settle earthquake claims in a number of ways under the Earthquake Commission Act. A key provision is section 29.  Under that section, EQC has an obligation to:

  • Duly determine the amount of the damage as soon as reasonably practicable; and
  • Settle any claim by payment, replacement, or reinstatement to the extent to which it is liable under the Act.
     

Assessments of Earthquake Damage

In Canterbury, a common occurrence was that EQC failed to allocate sufficient engineering resource to accurately identify all earthquake damage.  As a result of this practice, either structural damage was not identified or, where it was identified, the repair methodology was inconsistent with sound engineering advice.
 
In order to rectify incorrect assessments of earthquake damage, claimants were forced to engage independent engineers at their own cost, to provide EQC with engineering reports and to request that EQC review these reports.  The experience of a significant number of claimants has been that once EQC has formed a view as to the extent of any earthquake damage and how such damage should be addressed, it can be extremely difficult to persuade EQC to alter its position.  If EQC does not change its position, it is unlikely to reimburse the costs of engaging experts.

Providing Information to EQC

Under clause 3 of condition 7 of the Third Schedule, an insured person is required to, at his or her own expense, give to EQC such documents, proof and information which relates to:

  • A claim;
  • The origin and cause of natural disaster damage; and
  • The circumstances under which the damage occurred
    as may be reasonably required by EQC.
     
EQC has interpreted this condition to require claimants to provide engineering reports whether or not they are in existence.  This interpretation appears to be at odds with EQC’s obligation under section 29 to duly determine the extent of the damage.

In Canterbury, many claimants found that where they engaged their own engineers, they could formulate the engineer’s brief/letter of instruction and thus ensure that all earthquake damage had been identified.  Taking this approach laid the groundwork, in many cases, for a successful challenge to an EQC assessment of earthquake damage.
Hopefully, parties will be able to reach agreement on the nature of assessments required, the extent of earthquake damage and how the damage needs to be repaired under the Act.

Settling an EQC Claim

The next obligation is to settle claims.  EQC has a Claims Settlement team.  They review scopes of works once they have been costed by EQC Estimators, or Quantity Surveyors as the case may be.  The Claims Settlement team will either confirm, reject or modify a settlement recommendation based on a costed scope of works.

Claimants should check any settlements with EQC to ensure that they have received all of their entitlements in accordance with the definition of “replacement value” in section 2 of the Act.  Entitlements may include items such as:

  • Demolition costs;
  • Repair costs;
  • Builder’s margin;
  • Project management costs;
  • Costs associated with engaging engineers, surveyors and architects;
  • Building and resource consent costs; and
  • Contingency fees.

These costs cover any unforeseen building work which may be uncovered once repairs are under way. They are part and parcel of every construction project.  In any construction project, there should be a contingency both for design and construction.

One thing for claimants to be wary of is that, in Canterbury, EQC avoided paying some of the costs of complying with the Building Act and the Building Code by ensuring that the majority of repairs carried out in Canterbury were automatically exempt under the Building Act.  Automatically exempt building work has caused a number of problems for claimants including that:

  • Often, there was no independent oversight of building work;
  • If work was substandard, there was no basis for councils to issue notices to fix under the Building Act;
  • When work was completed claimants did not receive any code compliance certificate or statement from the council to say that repairs complied with the Building Code; and 
  • In some cases, there was insufficient documentation of earthquake repair work.  

Ideally, all earthquake repairs should go through a full consent process.  At the very least, a discretionary exemption should be applied for.  This is similar to applying for a full building consent except that instead of council inspectors inspecting building work, producer statements are provided by engineers, architects and other building professionals. 

We encourage claimants to manage their earthquake claims in ways that preserve the value, functionality and quality of their houses.  In many cases, claimants will require the expertise of a strong advocate to deal effectively with EQC.

If you would like any further information or advice please contact either the article author John Goddard or the Morrison Kent Wellington office (04) 472-0020. 


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