Insurance firms 'playing fast and loose'
The war of attrition between the insured - you and me - and the insurers has intensified in the past six months. Three industry professionals give us their views.
Michael Childress, a consultant with RiskWorldwide, doesn't pull any punches.
"If you're a really sceptical human being you would look at an insurance company as nothing more than a public relations company and a litigation company: that's what they are really good at and of course, a money collection company . . . That's not all insurers but the ones we run into often at the end of the day."
We polite and self-effacing Kiwis may flinch at the bellicose tone of Childress, an American who is a "professional responder" to natural disasters, but it is part of the theatre and a high stakes game that he knows well, as do the insurance companies.
The company earns a crust facing off with insurers around the world advocating for claimants. Their official title is "public adjusters".
While Christchurch people may have been "sceptical" when they arrived last September, nearly a year later they are finding more acceptance and have teamed up with local lawyers and others to take on the insurance companies.
One of the big issues is Christchurch people not knowing their true rights, he says.
Take the insurance matter that surfaced this week when locals started to question a change by two large insurers on how they treat the assignment of claims from a property owner selling a property that is damaged.
The insurers say a property owner cannot assign his/her full replacement claim to a buyer and the buyer is only entitled to an indemnity payment, which is usually a market-value settlement.
"That is just totally improper, totally improper. They have no right to do that. That is a classic example of the wonderful public relations and disinformation strategies that insurers promulgate in order to get people to walk away," Childress fumes.
"The right to assign a protected property interest is as sacrosanct in the law in this country as anywhere on earth. It is necessary to do business."
The insurer can rightly choose whether it will provide the buyer with insurance cover, but the seller has the right to assign the claim with the sale of the property. His clients were being told it was forbidden by the policies to assign their claims but he says he's never seen that in any policy, and law and precedent backed assignments of claims.
" It would never be approved. It's an unfair restraint of trade, a restraint of property rights. It's your right."
He accuses insurance companies of " deliberately playing fast and loose with everyone's rights".
Christchurch people have decisions to make. "Do you succumb to the pressure? I would like to think not. They should seek professional help."
Insurers' actions are fundamentally aimed at reducing their exposure and cost, he says. "They are just trying to create leverage to get away with paying less."
Another tactic is insurance companies telling the insured they have to sign a release agreement to get their claims paid. Insured people are entitled to their settlements, and do not have to sign releases to have their policies honoured.
Childress calls this tactic "insidious", but it's not new. He had battled in court with QBE over it in the United States.
In those cases a critical factor was whether the insured had legal counsel. If they were advised by a lawyer before signing the release, the court deemed they had their eyes open. But if not, the court ruled the release contracts could be challenged.
Childress is also encountering brokers telling commercial clients trying to stand up for their rights that their claims will go to the bottom of the pile or it will hurt their chances of policy renewal. He says there will always be insurers who will provide cover but the issue will price. He advises asking brokers to calculate the cost of cover with a new insurer versus taking a lesser claim.
He expects to see lawsuits testing the issues as there are not a lot of precedents in New Zealand, though there are plenty of precedents in Britain, the United States and Australia.
Lane Neave law firm partner Dr Duncan Webb says the assignment of a claim over property is basically a right to sue which can be sold to someone else but there are limitations.
It was established in law that an insured property owner is entitled to replacement or reinstatement of their house provided they want that. But if they want to sell the house then they obviously don't want a rebuild and will only get the property's indemnity value, that is, market value.
Webb says a property owner, assignor, can only assign what he is entitled to and the moment he wants to sell, he is indicating he does not intend to rebuild.
However, the other argument is that insurers have been in the market place saying they would accept assignment of claims and people had entered into sales of properties relying on that. That had been conveyed through lawyers and real estate agents to property owners.
The law is reluctant to let representations of that kind be suddenly changed.
Webb reckons the insurers were initially under pressure from Earthquake Minister Gerry Brownlee to accept assignments of claims otherwise the property market would have frozen, and now the insurance companies' reinsurers are scrutinising claims and instructing insurers they only have to pay indemnity.
Webb says there is a good argument that insurers are prevented from exercising their right to pay just indemnity settlements for assigned claims because of the representations they made earlier and that is reinforced by overriding obligations to act in good faith.
He is also encountering plenty of disputes over what claimants are entitled to when their homes are being rebuilt - over materials, fittings etc. Insurers usually offer a standard house but will raise that in negotiations. The wording of policies is that replacement means using building materials that are generally available. It is worth engaging a professional such as a quantity surveyor to examine your building and detail its dimensions and materials and price them.
"You will find it comes up wildly different, often many hundreds of thousands of dollars of difference."
Webb says insurers respond to facts and specialist reports and opinion.
"You have two options. Accept what your insurers say and quibble about the detail, or take them on at your expense and that's the brutal reality of it."
Webb says reinsurers have representatives here now looking over insurers' shoulders ticking aspects of a claim off and denying others. He has first- hand experience of that.
He says one of the reasons for the difference in estimates of damage between EQC and insurers for over $100,000 (cap) damaged properties is partly resources.
But he also suspects issues between EQC and their reinsurers is putting the brakes on settlements.
EQC is faced with a massive volume of claims, more than 400,000 as opposed to insurers' tens of thousands, so EQC's specialist resources are spread thinly.
EQC as insurer of first resort is 'entirely inappropriate'
The EQC has proportionately less expertise and the organisation has had to build from scratch. He describes EQC inspections as "cursory".
"This is not their game. It has just shown their framework as insurer of first resort is entirely inappropriate. It shouldn't even have been an insurer. It should have been a funder. Hand the money to the insurers and get on."
He believes, from the anecdotes he is hearing, the differences are about standards of repair, but he doesn't believe that the Earthquake Commission Act, setting out EQC's obligations, allows a lower standard than in the typical insurance policy.
The act says "the commission shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner".
"In a reasonably sufficient manner" in Webb's view is not a lower level than insurers' replacement policies.
"I think that is, in substance, the same as the insurers' obligations."
Helen Smith, a partner at law firm Duncan Cotterill, says clients armed with good advice are making progress.
Some commercial property owners with a cap on cover are realising they are underinsured.
All insurers have made public their stance that they will pay to repair to 33 per cent of the building code, the level required before the earthquakes but there are arguments now over whether insurers have to cover repairs to the higher standard of 67 per cent that the Christchurch City Council is requiring of buildings or whether owners have to foot that bill. Smith says there is also argument over whether the council has the authority to require 67 per cent. "There's arguments either way, but if you have to repair and if the council says you have to repair to 67 per cent, that is what you should be doing. But I'm aware there are reasonably strong arguments on either side for that issue."
Like Webb, she says reinsurers are making sure insurers "are running things by the book".
Smith says one insurer told her they have different approaches to repair and reinstatement from EQC. "It is something they [EQC and insurers] are trying to work through themselves, but it is an issue, I think, and a lot of people are saying - and these are people with experience - there is no way that is going to be repaired for under $100,000."
So are we getting less from EQC than insurers?
"You can't just make that blanket statement because it does all depend on the nature of the damage and the nature of the repair that's required. In some cases, a targeted repair will be sufficient, but in other cases you will have to do a total replacement of one aspect of the property."
Insurers have specialists in construction and have deals with construction industry companies for work to be done, but often the estimates of the cost are too low.