Supreme Court awards extra $300k insurance for quake-damaged propertyTens of millions of dollars in extra payments may be in play for Cantabrians whose homes were irreparably damaged in the earthquakes following a landmark court decision.
The Supreme Court upheld a decision this week that Southern Response, the Crown-owned company that handles AMI's claims, must pay a property owner an extra $300,000 in costs associated with rebuilding a home.
The money is for contingencies and professional fees incurred in building a house, such as engineering, design and geotechnical work.
Southern Response argued that because the owner of the Avonside Dr property, in Christchurch's residential red zone, had opted to buy another house elsewhere with their settlement money, such costs were hypothetical and should not apply. The position was upheld by the High Court but dismissed by the Court of Appeal.
The Supreme Court unanimously backed the Court of Appeal ruling. Its decision, given by Justice Susan Glazebrook, said: "[The] fact that this is a notional, rather than actual, rebuild does not affect the inclusion of an allowance for risks generally encountered".
"Such risks are relevant to estimating the cost of an actual rebuild and ... it is the actual cost of rebuilding that must be estimated."
The decision could have major implications for claimants yet to finalise a total loss claim with Southern Response. By the numbers in the Avonside Dr case, settlements could increase by tens of thousands of dollars on a property and millions overall.
A quantity surveyor for the property owner put contingency costs at $143,200 and professional fees at $157,180 - about 20 per cent of the estimated rebuild cost. Southern Response allowed nothing for contingencies and $29,000 for professional fees, "based on [an] erroneous assumption that a different approach was required for a notional rebuild", the court said.
It ordered Southern Response to also pay $15,000 costs to the property owner.
Insurance lawyer Duncan Webb welcomed the ruling.
"Southern Response has, ever since this has been in front of the Supreme Court, been refusing to follow the Court of Appeal decision and that's been shown to have been quite wrong. At least now they'll have to do that."
The ruling would allow many settlement negotiations in limbo because of the court case to be finalised, he said, and could have a marked effect on their financial value.
"It's probably not enough to run off and readjust everything but it'll certainly be tens of millions of dollars, I'd expect. Across the outstanding claims … it's a fair uplift in terms of 10 per cent contingencies and 10 per cent professional fees."
The decision could have implications for other insurers, he said.
IAG did not pay contingency costs or professional fees unless they were "reasonably incurred".
Spokeswoman Renee Walker said the ruling would not change that approach.
"Contingencies are paid if there are unknown risks involved. Other costs are paid if they are going to be incurred."
A spokeswoman for Southern Response said the company was still considering the decision and its implications and was unable to comment.
Insurance Council chief executive Tim Grafton declined to comment on the same grounds.
The property owner and their counsel could not be reached for comment.
Source - Stuff