Uninsured
residential property owners left stranded in Christchurch’s earthquake red zone
have been thrown a lifeline of sorts following a Supreme Court ruling that the decision
to offer fifty per cent of land value only for their properties must be
reconsidered. An increased offer is not
promised but the court implied there is a strong moral imperative to make a
better offer.
Extensive damage to Christchurch’s eastern
suburbs followed severe earthquakes and aftershocks in 2010 and 2011. Land subsidence over a large area and
irrepairable damage to infrastructure led government to “red zone” entire
suburbs. Owners of insured residential
properties were offered generous terms by government to vacate their properties:
they could either be paid the 2007 rating value for their home and land (with
their insurance rights assigned to the crown) or be paid the 2007 rating value
for their land only and recover privately from their insurer for the value of
their home. This offer did not apply to
uninsured homeowners. Government later
offered them fifty per cent of land value only.
A group of 46 uninsured homeowners banded together as the “Quake
Outcasts” challenging what they considered discriminatory behaviour by
government.
The Supreme Court was asked to rule whether
there was a rational basis for any distinction between insured and uninsured
homeowners in making offers to buy out red-zoned properties. The court ruled government had not followed
the correct procedure when imposing a red zone and making buy-out offers. These decisions were made unilaterally by
government when it should have followed procedures set out in the Canterbury
Earthquake Recovery Act. The Act
provides a comprehensive regime to deal with recovery from the earthquakes. Following this Supreme Court ruling, the
Canterbury Earthquake Recovery Authority set up under the Act is required to reconsider
the offer made to uninsured homeowners.
This reconsideration must take into account overall plans for rebuilding
Christchurch.
The Supreme Court noted that some members of
the Quake Outcasts group remain living within the red zone. Land around them is being depopulated. Postal services are being withdrawn. Temporary repairs only are being carried out
to water and sewer lines with no indication that they will be maintained
permanently. This depopulation has resulted from government policy to buy out surrounding
land.
There was criticism of the government rationale
for discriminating against uninsured homeowners. Discrimination was justified on grounds of
moral hazard: these homeowners chose not to insure and should not now be on the
same footing as those who did bear the cost of insurance. This moral hazard justification cloaked
government economic imperatives; buying out insured homeowners in full gave
government rights of subrogation – it could recover from insurers the money insurers
would otherwise have to pay to the insured homeowner. Figures before the court indicated government
was committed to paying $1.7 billion buying out insured red zone properties,
but the net cost would be between $485 and $635 million after recoveries from
insurers.
The court said not all members of the Quake
Outcasts group made a conscious decision not to insure: one was caught in a
four day gap while in the process of rearranging cover; another thought her
bank was organising cover; while others had overlooked paying a premium invoice
while distracted by business or family pressures.
Quake
Outcasts v. Minister for Canterbury Earthquake Recovery – Supreme Court
(13.3.15)
15.019