A
Christchurch couple increased their earthquake insurance payout by over
$100,000 after a dogged battle against Southern Response Earthquake. The High Court had some stern words to say
about dilatory and deceptive behaviour exhibited by Southern Response.
The Rout family own a substantial
property in Brooklands, Christchurch. It
was “red zoned” after suffering damage in the 2010 and 2011 earthquakes. Rather than take up the government offer of
being bought out at a 2007 rating valuation of $656,000 for the entire property
they elected to sell the land alone to the government at its rating value of
$396,000 and to recover separately from their insurers the value of their 241
square metre architecturally designed home.
Under this election, they received in total over one million dollars.
Their home was insured for
replacement value with AMI Insurance.
All of AMI’s Christchurch earthquake liabilities have been taken over by
government-controlled Southern Response.
Since the land had been sold to
the government, the central issue became what they were entitled under the
policy for a notional repair of their Brooklands home.
Evidence was given that the land
had settled by up to 207mm after the earthquakes and the building’s
unreinforced concrete slab had cracked and twisted by some 60mm. This had caused cracking and movement in wall
linings. Some walls were out of
vertical.
The Rout’s were told that their
home was not economically repairable; payment would be made on costings for a
notional rebuild. The court was told insurers
preferred to rebuild whenever expected repair costs came to 80% of rebuild
costs. Any potential financial benefit
from a repair being cheaper is quickly lost in unanticipated cost overruns.
Various assessments made for the
internal benefit of Southern Response over a period of months quantified the
cost of a rebuild at figures ranging between $358,000 and $591,000.
Through late 2012 and early 2013
there were what the court described as increasingly hostile email interchanges
as the two sides failed to reach any agreement on a settlement figure for a
notional rebuild. Southern Response
refused to separately disclose a breakdown of items in their offered
settlement. The Routs wanted to compare Southern
Response costings with their own costings.
Southern Response said this detail was commercially sensitive, but was
included in its global figures. The
Routs accused Southern Response of being deceptive and its behaviour
unacceptable.
In February 2013, Southern
Response sent a letter to the Routs confirming its final revised offer of
$453,187. This letter set out the
possible consequences of not accepting.
The thrust of the letter was to warn the Routs that if they did not
accept this offer all offers were off the table and a new assessment would be
carried out with the risk that any resulting offer might be even lower. The Routs sued. They had been seeking a settlement figure of
$548,276 – a difference of $95,000 from Southern Response.
Aiming high when taking legal
action, the Routs claimed total rebuild costs would in fact be $1.29
million. This was based on the assumption
that a rebuild on the Brookfield site would require land levels to be raised
and extra underpinning driven for new foundations.
Justice Gendall ruled that terms
of the AMI policy entitled the Routs to the cost of rebuilding an equivalent
home on an alternative site, not the cost of building on the weakened and
flood-vulnerable red-zoned site. Even if
Southern Response were to pay on the basis of a notional rebuild on the
red-zoned site, he said, a cash settlement based on the cheaper option of using
grout to force the house back to level would not be adequate.
Justice Gendall ruled the Routs
were entitled to a Southern Response payout of $559,480: being $673,330 for the
proved cost of rebuilding the existing house on another site, less $133,850
paid earlier by the Earthquake Commission.
The Southern Response payout can be used only to build or buy a
replacement home which is of comparable size and condition to their former home
as when new, and offering the same amenities.
In total the Routs benefit to the
tune of $1.06 million (less their negotiating and litigation costs): $396,000
for the sale of their land to the government; $559,480 from Southern Response
and $113,850 from the Earthquake Commission .
The Routs separate claim against
Southern Response for general damages of $50,000 was dismissed.
This was claimed as compensation
for alleged failures by Southern Response to deal with their claim
properly. Justice Gendall said there
were grounds to criticise Southern Responses’ actions as regards the time taken
to process the claim, the constant changes of position regarding rebuilds as
against repairs, the failure to properly assess the Brooklands site before
making offers and deceptive behaviour in its negotiations. But any award of damages was negated, he
said, by the Routs’ decision to inflate their claim in court to $1.2 million
dollars and then fail to justify this amount.
Rout
v. Southern Response – High Court (6.12.13)
13.035