ELEMENTS OF CLAIM SETTLEMENTS

Duncan Webb

How is the claim settled?

• When you reinstate the insurer will pay• The insurer will manage the reinstatement• The insurer will pay the cash equivalent of the

cost to reinstate• Usually the insurer’s choice• No policy requires a final settlement• Insurers may require a clear settlement agreement

which is consistent with the policy

When you reinstate we will pay…

• Most common settlement clause• No right to cash settlement (other than indemnity

value)• Needs insurer’s consent to incur costs• Query who is in control of reinstatement project

• Insurer will often seek to dictate reinstatement method / professionals / contractors

The Repair Contract

• Whose Contract?• Insurer - builder / homeowner – builder / homeowner – insurer –

builder.• Check the Policy• If there are additional works then you may need to be a party.

• Contract terms are negotiable. Look out for:• Variations• Completion dates• Penalties• Unforeseen conditions

• Insurer can be liable for increases in cost (where no final cash settlement).

• Get the contract reviewed.

Some Legal Niceties

• Insured has obligation to prove loss / damage• Insurer cannot equivocate forever• Reinstatement may require disproportionate

repair• Damage is any adverse change (amenity /

aesthetic / structure / durability)• No policy allows payment of the “best estimate”

of the cost of reinstatement.• Windfalls possible

Cash- can my insurer insist?

• In some policies the insurer has a right to pay the cash equivalent of repair or rebuild but:• Did the insurer make an election

to repair themselves?• Has the insurer represented that

they would manage?• Good faith…• Rebuff threats in respect of repair

/ rebuild contract timelines.

Full and Final?

• Insurer cannot insist that your settlement is “full and final”

• Beware of full and final agreements if you are going to repair.

• May be advantages to full and final agreements where you intend an outside of policy solution

When should I agree to a full and final settlement?

• When risks are low• When you are wanting to depart

from policy• Different house• Waiting before undertaking

repair• Buying two properties

• Note the terms of the settlement agreement• “intend to…”• Repair / rebuild / reinstate /

replace?• In general must spend on

reinstatement.

Can I ask for more cash later…?

• Not if the agreement was full and final:• Limited exceptions

(such as fraud)• Partial settlements are

possible. Insurers may agree to pay more for:• Variations• Increased foundation

costs

LAND…Duncan Webb

Land Damage• the land on underneath the building;

and• all land within 8 metres of the building;

and• the land holding—

• within 60 metres, in a horizontal line, of the building; and

• Which is the main access way; and• all bridges and culverts situated within

the land; and• all retaining walls and their support

systems within 60 metres, in a horizontal line, of the building which are necessary for the support or protection of the building or of the land.• Must form part of the “land holding”

(not just legal title).

Damage

• Adverse change affecting usability.• EQC categories:

• Flat land: Land cracking (spread and shaking); undulation; ponding; settlement based drainage issues; groundwater springs; ejecta; increased vulnerability (flooding and liquifaction);

• Hill: mass land movement; rock fall / cliff collapse; localised movement (small slips / retaining wall failure).

• Must be change to the land in question.• Kraal v Earthquake Commission [2014] NZHC 919, [2014] 3

NZLR 42.

The Amount of Land Insurance

• For land the lesser of:• (a) the value, at the site of the damage, of an area of

land being:• the minimum area allowable to be used under the District

Plan for residential land; or• 4 000 square metres; or• The land that is actually lost or damaged—

• For retaining walls , bridges & culverts - indemnity value.

Land Damage: Fix or Pay?

• Sometimes that will be the cost of repair• Will never be more than the value of the insured

land at the time of the loss• May be the “diminution of value” (EQC v ICNZ

[2014] NZHC 3138• Value of land lost where total loss.• May be by reference to cost of ancillary works to

house (lifting / foundation enhancement).