Insurance company Tower has told earthquake-hit Christchurch residents it will honour contracts with people in the city's devastated red-zone areas.

The statement comes after The Press reported some quake-hit Christchurch residents are contemplating legal action against their insurers.

Some insurance companies have told residents in the newly identified residential red zone they would not cover the replacement cost of a house if it was repairable, even if they had full replacement cover.

In a statement this morning, Tower Group managing director Rob Flannagan said the company had received queries from several concerned customers and reassured red-zone residents it would honour contracts.

He said it would honour them whether customers chose to accept the Government offer of purchase for the entire property at 2007 rating value or to accept an offer for the land only and deal with their insurers about their house.

"We understand that this is a complex and emotional decision for our customers - especially those who have damage to their homes that we would repair under their policy if the land was not in the red zone," Flannagan said.

Last week's Government land report placed 5100 homes within the red zone, areas of the city deemed not feasible to rebuild on.

Christchurch lawyer Grant Cameron, who represented the families of those who died in the 1995 Cave Creek disaster, said he had been approached by a group of residents who were "disenchanted" with their insurance companies and the Government package.

He would meet the residents today to discuss their concerns and determine a course of action.

He could not go into the specifics of any case until he met them, but said a group action against insurance companies was one option.

"People can find it very difficult to move ahead with their case without having a group behind them."

Earthquake Recovery Minister Gerry Brownlee said insurance companies had been "quite clear about their position" during several months of discussions with the Government.

The potential problems around insurance policies were partially responsible for the Government's offer to buy red-zone residents' homes and land, as well as their land alone, Brownlee said. "There is no doubt that this is an extremely difficult situation, but we have tried to give people as clear a picture as is possible."

Brownlee also rebuffed concerns about the Government's decision to use 2007 rateable values to determine property values, as expressed by former mayoral candidate and real estate agent Brad Maxwell.

Maxwell said he had expressed concerns about the valuations system before the Christchurch earthquakes as there could be "hundreds of thousands of dollars" between market values and ratings valuations.

Bexley residents in Pacific Park could find themselves out of pocket at least $50,000 if they accepted the Government's offer, he said.

"If a real estate agent forced a seller to sell their property at below market value as opposed to government value, then they'd be hauled ... in front of the Real Estate Agents Authority."

Maxwell said developments in Prestons and Highfield could have an average section price of $200,000 by the time they were ready for the market, making them unaffordable for some red-zone residents.

Residents would find it "almost impossible" to buy new sections to build on and would be forced to either move to an undesirable area or buy an existing home tht was older than their previous house.

Maxwell said the Government could have used monthly sales records from the Real Estate Institute of New Zealand to determine the property values.

Brownlee said there had been a nationwide decline in property prices since 2007, meaning some homeowners would benefit from the offer.

The Government had looked at several options for determining the property value, and the 2007 ratings valuations were the best method, he said.

- © Fairfax NZ News

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