Insurers must stay the course on house repairs
Do you have a legal question arising from how the earthquakes have affected you? Lane Neave partner Dr DUNCAN WEBB has agreed to be an "agony uncle" on how the law applies to certain situations.
Q: I live on the hill in a house built in the late 90s. It suffered quite a lot of cracking to the plaster and other damage. My insurer said they were going to repair the house and I signed a building contract with them. They started the repairs about six weeks ago but after about two weeks stopped, saying that they had changed their minds due to pre-existing damage and had decided to pay me the cash instead. They have paid the cash amount to my bank, but I don't know if it will be enough to fix my house.
A: Most policies give insurers the right to either undertake the repairs, or to pay the cost of the repairs. If the insurer undertakes the repair they have control over the costs and the extent of repairs. In your case the insurer has chosen to go down the path of repair. This is an "election".
Once the insurer has made its choice it cannot change its mind because of difficulties with the repair. Certainly the fact that the repair process has started makes it very clear that the choice had been made. Similarly once the building contract was signed there were binding obligations to repair and the insurer could not renege on them.
There are other cases where the insurer does a lot of investigative work as to what will be involved in a repair without actually committing to a repair. It comes as a surprise and frustration for homeowners in those cases when after all that time an insurer elects to pay the cash equivalent of the cost of repair. There is a very strong argument that even then they cannot do that because they have behaved as if they were going to repair the house. If they were going to pay the cash equivalent they should have made that choice at a much earlier point.
Where the insurer has wrongly changed its election (as in your case) you have two basic options. You could accept their decision and undertake the repairs yourself. Alternatively you could insist that the insurer complete the repairs in accordance with the insurance policy and the contract. Even though acting wrongfully, the insurer is likely to resist this latter course and it may be necessary to take the matter to court.
In your case the insurer has paid a sum of money to your bank which will be their estimate of the cost of repairing the earthquake damage to your house. When an insurer pays cash under the policy it must pay the actual cost of repair - not just an estimate.
Strictly speaking it is only liable to pay once you have also become liable for the amount. So if you choose to continue with your repair then you may be able to claim additional amounts. You will however have to establish that the additional costs will actually be incurred, related to earthquake damage and were reasonable.
Lastly, I suspect that the problem in your case is that a plaster-clad house from the 1990s has a high likelihood of having weather tightness issues. In many cases insurers elect to pay cash in respect of such properties.
This is because it can be difficult to repair earthquake damage without also having to address other more substantial matters such as deteriorated timber framing or design defects. Insurers generally take the view that they are only responsible for the cost of repair which is directly related to the earthquake; however this may not be entirely accurate.
There are two situations where an insurer may be liable for additional repairs.
First, where repairs to a defective part of the house is necessary to repair earthquake damage as a matter of practicality (for example defective plaster must be removed to access a structural beam).
Second, where the additional repairs are necessary to ensure that the earthquake repairs comply with the Building Code (for example a portion of cracked cladding is damaged and in replacing it a more modern and costly cavity system has to be used for the entire house).
Insurers are particularly wary of this last category which can be very costly - and result in a substantially better house than that which existed prior to the earthquake.
Duncan Webb is a partner at Lane Neave lawyers. Email questions for him to legal.questions@ laneneave.co.nz