Red-zone ruling allows insurers 'off the hook'

Last updated 08:59 10/12/2013
Paul and Georgina Rout
Joseph Johnson

POSITIVE: Paul and Georgina Rout say the court ruling has "given us enough to go forward".

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A High Court decision denying a red-zoned couple's $1.3 million claim on a home that will never be rebuilt will be seen by insurers as a way to "get off the hook", says a legal expert.

Christchurch lawyer Duncan Webb says yesterday's decision on a case taken by Brooklands couple Paul and Georgina Rout against insurer Southern Response could have implications for other red- zoned homeowners.

Read the full decision here.

The Routs took their insurer to court for more than $1 million compensation for a home they would never live in after it was damaged in the September 2010 earthquake. The home was red zoned in November 2011.

Initially, the insurer said a rebuild would cost a total $458,505. The Routs sought an independent assessor's advice that put the amount at $548,000.

After disputing the amount, their lawyer, Grant Shand, told the High Court that the Routs received a letter in February "subtly threatening" that if they did not accept this number, the insurer may change their house to a "repair".

The insurer then made a "notional" repair offer of $263,000.

Paul Rout said he had won on two substantial issues - that the house was not "economically viable" to rebuild and that the price offered by Southern Response to do so was too low.

In his decision, Justice David Gendall said the only costs the Routs had put forward for rebuilding the house on a sound site was a Fowler Homes estimate of $619,000. Gendall awarded this amount with some contingency fees. The total award was $673,330.90 less the $113,850. they had already received from EQC.

"It's been stressful," Rout said. "We are just a couple fighting with a big government-owned company that is spending taxpayer dollars, not their own."

He said they received $400,000 more than what Southern Response initially offered, which was a "substantial sum of money".

"It hasn't given everything we wanted but it's given us enough to go forward."

Shand claimed that a rebuild would cost $1.29 million - the cost of foundations that would be required to build on the same land. It was a "hypothetical build" because the Routs had already sold the land to the Crown for $396,000.

However, Justice Gendall said a rebuild, under the policy, was for a home on "good" land. Shand had also not advanced any evidence to suggest that a rebuild would cost $1.29m.

These "notional" rebuild costs were substantially higher than the actual rebuild costs that the Routs would incur for a similar rebuild on a sound non-red zone site, Justice Gendall said.

He concluded that the insurer's obligation was to meet the cost of rebuilding or buying a replacement house for the Routs which was of a comparable size and condition to their existing house as when new, and offering the same amenities.

Webb said Shand's argument was sound but it would take someone with the money and the "gumption" to take it to the Court of Appeal.

It also helped if the figure being asked for was on the more "conservative" side.

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He said one could rebuild on red-zoned land, but in reality that was not going to happen. Now, insurers would take the position that, other than an option to rebuild on the same site, the claimant was only entitled to rebuild on notionally good land.

"Essentially [insurers] get off the hook for those costs."

Justice Gendall said the $1.29m figure was "surprising".

Gendall dismissed their case for general damages of $50,000 for stress and invited submissions on the payment of costs.

- © Fairfax NZ News


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