Quake repairs: Can we trust insurers?
What is going on when the insurers start talking about jacking and packing your foundations? Are Cantabrians getting a fair deal? JOHN McCRONE investigates.
Trust us, the insurance industry says. But can we trust them? In quake-struck Canterbury, there are plenty who believe a grand game is being played.
Look, the suspicious argue, the insurers were probably foolish because they offered us perfection. With happy advertisements of smiling customers, they sold us "no fuss" total replacement policies which promised we would get our houses back "as new".
It all started with NZI's catchy "You wouldn't want only half your pyramid back?" advertisements of the mid-1980s, and everyone, including the Earthquake Commission (EQC), was forced to make the same rosy guarantee.
Yet with such a district-wide catastrophe, so many broken homes to mend, there must be every incentive now to move the line on liability, push the interpretation of the fine print to the limit.
And with the Government itself so directly involved in much of that liability, why wouldn't you see a willing partner there?
The Government ultimately stands behind the lion's share of the residential rebuild because of the combination of the EQC's "first $100,000" exposure to any damage and the fact it was forced to take over AMI's large Christchurch customer base through the formation of Crown-owned Southern Response.
Although international reinsurance should cover most of this, it is hard not to suspect there is a general game of minimising costs to be played.
And then think on down the track. What if the quake repairs are a botch job and we end up with another leaky homes debacle? Who will there be to come back on?
Southern Response is going to be wound up in a few years. The EQC and its Earthquake Recovery (EQR) alliance with Fletcher Construction are likely to be too. The key business entities will have been dissolved.
Most of the actual work will have been done by small contractors who are always difficult to chase. There is the small army of Australian or Irish engineers and surveyors, who will have long since flown home. And then a lot of the repairs are being permitted unconsented and so Christchurch City Council will not have its name on much of the paperwork.
If you are a believer in conspiracy theories and can remember the dodging that went on over leaky buildings - the producer statements that handed- off liability, the secretive Weathertight Homes Tribunal hearings, the hasty folding of the responsible body, the Building Industry Authority - you could think that the escape routes are already being planned.
Of course, put these fears about line-pushing and blame-ducking to the authorities and the response is angered shock.
Insurance Council of New Zealand (ICNZ) chief executive Tim Grafton snaps that it is "scaremongering nonsense" and "absolute rubbish". It completely misunderstands the real life complexities of the rebuild and the motivations of those involved, he says.
Graeme Beattie of the Ministry of Business, Innovation and Employment's (MBIE) engineering advisory group is likewise taken aback. Almost speechless.
"It's unfortunate, isn't it, when you have all these people working their guts out for the last three years - me included - trying to provide good solutions for the people of Canterbury - and all you get is a kick in the teeth."
You have to agree. It is one of those "When did you stop beating your wife?" questions which once trust has evaporated, become almost impossible to defend.
However, there are those pointing the finger at the way that MBIE building guidelines have been softened post-quake and government agencies have been running trials used in justification of cheaper foundation repair strategies such as "jack and pack" and "notching the bearers".
There are also now the class actions being mounted precisely because homeowners believe their insurance policy interpretations have been stretched far beyond what is fair and Cantabrians are being asked to wear second-best fixes because anything else is "too expensive".
Peter Woods, partner at lawyer Anthony Harper, which is mounting a group law suit against EQC, says people are so stressed and despairing that they are agreeing to just about anything to get their houses repaired.
They are signing off on methodologies like jack-and-pack levelling where a stack of plastic shims is used to fill the gaps between floor and foundation.
"But the concern is if the work's not done right, the owners might not realise the extent of that until they come to sell. Someone is going to get a building report and what's that report going to say in five years time?
"Is it going to say, well, it was all right to use those packers back then, but it's something unproven and who knows how long it's going to last. And that they didn't fix the perimeter foundation, which was what actually dropped."
Woods says it is indeed exactly like the weathertight homes saga. Questionable repairs will knock a big hole in the value of people's homes.
And he sees no comfort in the thought that this is going to be a stigma shared across many houses in the same market, a general Christchurch thing. From a legal standpoint - in terms of people's individual contract rights - Woods says there is no excuse in that.
There are those like Christchurch surveyor Adrian Cowie who see a particular case in point as symptomatic - the foundation repair trials carried out last year on 14 Housing New Zealand properties by Southern Response and its construction project manager (PMO) Arrow.
Southern Response tested a range of floor-levelling methods for houses on soft land including jack and pack, screw piles, and notching the bearers. The results were released in February and have become part of official MBIE building guidance.
Cowie - who admits he has become something of a gadfly to the authorities with his appearance as an expert witness in lawsuits and the continual posting of his unvarnished opinions on the internet - says the focus of the study was too narrow to address the real questions about what "as new" should mean for houses that have shifted on TC2 and TC3 land.
Cowie says the "pushing the line" question is coming to the boil this year because the more straightforward insurance cases have been largely settled. Either the repairs amounted to interior decoration or a full rebuild was never in question.
But now insurers are dealing with houses on the borderline, particular those on soft land or in newly flood-prone suburbs, where the difference may be between a quick $100,000 EQC foundation levelling exercise and a $600,000 entirely new home.
Given such a dramatic difference in what homeowners get and what insurers have to stump up, you can see why there is such suspicion on one side and defensiveness on the other.
Cowie says it is good that government agencies are getting together to trial solutions. There is another study underway with EQC and March Construction working on a whole row of cleared sections in Fuller St, Kaiapoi, testing ways to strengthen individual blocks of TC3 land. He has no quarrel with that.
However it is too easy for insurers - including EQC and Southern Response - to use their consequent inclusion in MBIE guidance as if they were somehow all that needs to be done.
Cowie says consider what he typically sees having surveyed many TC3 homes. "It is usually the load-bearing walls and external concrete perimeter foundations that have sunk. That's due to their greater weight. And what that leaves is a mound in the middle of the floor where the piles haven't sunk."
Cowie says the foundation trials have been seeking the cheapest way to re-level the floors at the general height to which a house has come to rest.
So there is jack and pack where the corners of a house are lifted slightly using hydraulic jacks and plastic wedges like bread slices are inserted to raise that part of the foundation.
And then there is the opposite fix of notching the bearers - cutting away at the wood of the underfloor joists to lower the middle of a room or a high corner wall closer to the foundations.
The combination can bring a floor tilting in various directions back into line. And Cowie says it is not that such repairs are unsafe in themselves. The plastic packers should be sturdy enough. The joists can have extra bracing screwed on where they are now not as thick.
Yet it seems plain to him that these repairs are often not addressing the part of the house that actually got damaged.
"If the damaged element is the concrete perimeter foundations - that's what's gone down - why are you altering another presumably undamaged structural element like the bearer to match the damaged one when the policy says 'as new'?"
There is a sharp point of legal principle here, says Cowie. However there are also the consequences of not addressing the real fact that a house has sunk into its own land.
Cowie says he comes across plenty of cases where the perimeter foundation or a whole concrete slab has dropped 10cm or 20cm into the section itself. This means the ground clearances end up wrong.
"I'm working on a house in Brooklands where the section has gone down 25cm but the house itself - which looks level - has gone down an extra 15cm."
Cowie says not only is the house more at risk of any flooding, but you can expect problems with its stormwater and sewer pipes. "Your sewer has to slope away from your house. Put a house down by 15cm and you've got sewers going uphill."
Cowie says Christchurch has thousands of homes where the drain lines might have lost gradient but have not been properly assessed. If their toilets still flush, there is the assumption the slope is good enough.
He says another assumption that comes out of focusing so strongly on whether a floor can be cheaply trued is that not enough attention is being paid to the issue of whether walls also come back to vertical as a result.
"They will notch the bearers and lower the middle of the floor, but that can leave the whole house still wracked and twisted. The solution doesn't address the verticality of the walls."
Cowie says this is when another cheap fix becomes standard practice - easing doors and windows. With a bent house, everything sticks. So internal doors are shaved at the corners or sometimes a whole new doorframe is put in to match a wall's subtle tilt. However again, this is far from "as new". It is merely masking the earthquake damage.
Sound like enough? There is more, says Cowie. Another quick bit of research has justified a weakening of MBIE's guidelines on how much floor slope is even acceptable.
After the first September 2010 earthquake, MBIE said a half centimetre fall over 2m of floor was an appropriate target. Then after February 2011, the calculation was revisited and relaxed to 1cm over 2m - or a maximum drop of 5cm from one corner of the average room to the other.
An astonishingly lenient notion of "as new", remarks Cowie. And so while it is claimed that these are professional opinions and independent government department studies, it has for him the feeling of the "fox in charge of the chicken coop".
OK, says Cowie. In the big picture scheme of things, perhaps the insurance companies did over- promise. A whole region has been subtly bent out of shape and the local insurance companies would go broke, the international re- insurers might pull their support, if all homes had to meet too tight a repair standard.
Maybe if cards had been put on the table and the public had been involved in an open discussion of what counts as a reasonable expectation, then Canterbury might have agreed to some general redrawing of the line.
But instead, the issues are being fudged, the questions not even asked. It is being left up to individual home-owners to decide if they trust the industry's scoping and repair strategies. Then if they don't, have they got the stomach and the funds to fight for anything better?
Others agree with Cowie that government building guidelines are being used by insurers to draw a line which in many cases seems to fall well short of "as new".
Dean Lester, a former insurance broker who helped found an earthquake advice trust, the Canterbury Insurance Advocacy Service (CIAS), says he does not believe there is any active collusion between officials and PMOs to weaken policy interpretations - and he has been asking that question.
Yet he is still puzzled by the "arrogant and aggressive" approach he comes across so often when helping people with difficult repair situations. And one trend that troubles him particularly is the number of foundation repairs taking place without a council consent.
Lester says because of New Zealand's general performance- based approach to building regulations, the PMOs can take on a lot of risk for the work they do. There is a grey area allowed where they can proceed in the belief a consent would be granted.
"But I believe the expectation of the council and MBIE is that the PMO experts - the chartered professionals and licensed building practitioners - would take a purposefully conservative approach here. If they weren't sure, they would err on the side of caution and therefore go through the consent process for an independent view."
However Lester says he is finding that EQC/EQR in particular is taking a bullish stance on what it can afford to do. The building code talks about "minor" amounts of foundation work not needing consent, which suggests a few piles, but he is seeing 100sqm at times.
And as homeowners know, if PMOs are made to apply for a consent, then the council may have to sign off on other building code issues like floor height and ground strength, which in TC3 and flood-prone neighbourhoods could trigger the requirement for a costly total foundation repair or even rebuild.
Woods, of lawyer Anthony Harper, says latitude is the problem. In going through case histories for the EQC class action, what strikes him is the way anything that makes it into the MBIE guidance is being treated by PMOs as "the Bible". De facto, it sets their benchmark for "as new".
Yet in reality, says Woods, when it comes to acceptable slopes on floors, twists on walls, or ways to level foundations, it is official information rather than regulation. And he asks, how can a room that drops 5cm - where a ball would roll off into the corner - meet what insurance companies have in fact promised?
The EQC was asked questions for this article but failed to respond except on technicalities. A spokesperson said dealing with the media was not a top priority.
But on the consent issue, the spokesperson answers that EQC/ EQR follow the letter of the building code. Consents must be sought where work is substantial, but "substantial" lacks legal definition.
The first draft of MBIE's advice had been that up to 50 per cent of a foundation could be fixed exempt of consent. Then last November, MBIE said no hard line could be drawn and left it as a matter of professional judgment.
As to the rest, again all rules are followed and lead contractors are licensed with obligations under the Building Act.
Southern Response promised calls from technical experts that did not eventuate. However ICNZ's Grafton was forthcoming with a robust industry reply.
Grafton says it is in every insurer's interest to have happy customers and a good reputation. He admits Southern Response is simply winding down AMI's $2 billion liability and EQC is the only available choice for land insurance. But he says the private insurers will still need to compete for future business. And if they make bad repairs, it will cost them more in the long run because they will have to come back and fix it.
Grafton says the reality for Canterbury is that more than $10 billion of insurance claims have been settled to date. For people's homes, this is 54 per cent. Of the 22,000 over-cap claims, some 9000 have been ticked off, another 10,000 are in the build queue, leaving only 3000 still to be agreed.
Many of these are multi-unit dwellings, which are devil to sort out, says Grafton. A lot of the others are TC3 land where people have been waiting on the foundation and land strengthening trials, so informed decisions could be made.
Grafton says the kind of emotional claims seen on Campbell Live, where insurers are being accused of dragging the process out to wear people down, are "tosh". He says it is simply that Canterbury is getting down to the toughest borderline cases and the holdups are due to "dependencies" like the need for the repair strategy studies to be completed.
Renee Walker, spokesperson for IAG, the largest house private insurer, echoes that insurers have no good reason to encourage "cheap" or "shonky" repair methods. The companies still have to insure the same home afterwards. And it will not be a leaky home situation when it comes to liability.
"A requirement of our volume- based building partners is that they guarantee a longevity to their businesses in Christchurch. We want to ensure our customers have confidence that these companies will be around in three, five or 10 years, in the event of any unforeseen issues.
"We obviously take guidance from agencies such as MBIE and Christchurch City Council on building requirements, but this is no different to a business as usual situation."
MBIE engineering advisory group's Beattie says there is no question of government experts like himself having being influenced by the insurance industry. "I keep hearing that and it annoys me."
He says the building-standard setters are themselves professionals with reputations to consider. They operate within an international community that values its independence.
Beattie says with the floor slope tolerances for instance, it was decided that the first post-2010 guidance was too restrictive - both beyond what people could detect and beyond what was actually being accepted in brand-new homes.
Beattie remarks he once lived in an old house which had a 10cm lean on the floor, but it never particularly bothered him.
So" trust us" is the message. The repairs are being based on guidance, but that guidance is well-researched and fair. You will get exactly the cover you paid for.
And in many homes on TC3 land in particular, individual home-owners are faced with the choice of do they go along with what is on offer, or is this when they start reaching for their lawyers.