When no trade means no cash
Frustrations are simmering in Christchurch's business community over earthquake insurance issues.
Many businesses are enduring a painfully slow process and some are turning to lawyers for advice.
Delays to settling claims is partly driven by a shortage of experts in the claims process - not enough loss adjusters, engineers, quantity surveyors and valuers - for the sheer scale of this event. They are critical to the process but their numbers cannot quickly be boosted because of their specialist knowledge.
But the causes of the delays and frustrations are deeper than just resources.
Skirmishes are taking place over business interruption insurance, over "depopulation" - shorthand for a downturn in trade - and lack of access to buildings in the Red Zone. Experts expect battles to end in court because of the unique circumstances thrown up by the cordon.
Insurers are guided by previous practices and insurance-related court decisions around the world. Hurricane Katrina forced an evacuation of that city for nearly two months and has a bearing on how insurers here interpret policies. But the cordon in central Christchurch is unique and is likely to be in place until about Christmas, while unsafe buildings are demolished or repaired.
The cordon is dividing insurers. There are those taking a hardball stance on building damage and what they will pay out while the cordon is in place, and those willing to make payments on building claims even though access is difficult or not available.
Crombie Lockwood specialist broker Myles Noble believes insurers have performed very well in coping with "an overwhelming volume of claims and unprecedented technical issues".
He was one of the guest speakers this week in Christchurch at a seminar organised by the Institute of Chartered Accountants. It was flocked to by 150 business owners but media were banned. Another is being held this week.
Noble says there are well- known delays with the availability of loss adjusters, engineers, valuers, and other industry experts.
He says some clients had received multi-million payments from the February 22 quake and many more had been paid less than a million dollars. But the major "debate" was between business owners inside the cordon and insurers over "prevention of access" provisions in insurance policies.
"Depopulation", a shorthand description encompassing a change in spending patterns and population that leads to a fall in spending and trading, is causing grief for business owners and disputes with insurers over the size of the "discount" they apply to business interruption payments. This especially affects businesses inside the cordon or on the edges of the central city, where few people either work or trade now.
Noble says depopulation is a separate issue to prevention of access, which is the most controversial.
He says insurers - who he will not name - are taking different interpretations of prevention of access provisions within business interruption policies.
"Some insurers are being far more reasonable than others."
The debate is whether property damage provisions supersede prevention of access provisions. Some insurers are paying out prevention of access provisions, but are not paying full business interruption claim for properties and businesses behind the cordon.
The prevention of access payments are a lot less. They are generally between 5 per cent to 10 per cent of the total sum insured for business interruption, called "sub- limit" payments.
Prevention of access provisions are extensions to the base business interruption policy. Business interruption insurance is triggered by physical damage to a building or premise, industry experts say.
Prevention of access extensions and other extensions to the base policy recognise situations where buildings and premises are not damaged but are inaccessible or interrupted by other factors, such as loss of power.
Noble says some business interruption payments are being limited to prevention of access payments only.
He believes just paying out for prevention of access is wrong and his stance is known in the industry.
"It's just so controversial because there are legal opinions supporting both sides."
He did not know of other situations where the centre of a city was shut down for 10 months.
No one has taken legal action yet but he says that is inevitable.
"Some insurers in my opinion are doing the right thing and not applying sub- limits to damaged businesses within the cordon."
Noble says his role as a broker is to be an advocate for clients to ensure they receive a fair settlement under their policy.
Australian-owned Vero is the biggest insurer of business and commercial claims in New Zealand with a 40 per cent market share.
Vero is applying sub-limits to businesses inside the cordon.
Vero marketing and communications manager Ian Walker says prevention of access is the only cover available to business owners within the cordon.
Insurers do not have access to repair buildings so nothing will happen until the cordon has gone, he says. There is no business to be interrupted because no business is taking place inside the cordon, he says.
Because of the cordon Vero has not been able to undertake thorough and robust assessments of the damage and the company does not know what will happen to the CBD.
Walker says Vero is not settling damage claims in the cordon at present.
Australian insurance giant IAG, which operates under several brands including NZI, State and Lantern, says it is providing 100 per cent cover for both damaged and undamaged businesses within the cordoned area and is not applying any sub-limits to business interruption claims unless specifically stated.
Karl Armstrong, the executive general manager of NZI, says NZI will not be applying any restrictions to the indemnity period for businesses affected by the cordon.
"We believe that to restrict cover available under the business interruption policy lacks a sense of proportion or fairness.
"To do so would deprive an insured [business] the benefit of the cover they have taken for protection in the event of an earthquake."