EQC’s $100k pay-out to Chch households a once a year 'deal', lawyers argue
By Pattrick Smellie
Aug 4 (BusinessDesk) – Householders pay $50 once a year for Earthquake Commission insurance of up to $100,000 under a deal that can’t apply more than once in a year, lawyers for the EQC argued in the Wellington High Court this morning.
The court began considering a joint application from EQC and private insurer Tower Ltd. over how the $100,000 limit is meant to work in situations like the Christchurch earthquakes, which have repeatedly damaged many properties. The 1993 legislation that established the scheme is not clear whether the $100,000 is triggered for each event within the one year of insurance, or should operate as a sinking fund.
The judges’ ruling could add hundreds of millions of dollars to the cost of the Canterbury earthquakes for either the government or the private insurance industry, and both sides have sought an accelerated hearing process because of the urgency of moving ahead on Christchurch claims.
”There’s a deal implicit here: you pay $50 and get $100,000 of cover,” said Jack Hodder QC for the EQC. “You don’t get several lots of $100,000. There’s a fixed sum charged as a premium and a fixed sum that that relates to.”
While $100,000 of EQC cover had been enough to fix the average home when the current scheme became law in 1993, it was now only a third of the average Christchurch house value of around $300,000,
“If the EQC is correct that it is a per period cover rather than per event, then the cost will fall on the insurers,” Hodder told the court.
That prompted a note of caution from Judge Alan MacKenzie, one of the three judges hearing the application. Chief High Court Judge Helen Winkelmann heads the court, with Judge Forrie Miller also sitting.
“We don’t know the consequence our ruling will have on private insurers,” said MacKenzie.“We need to be very circumspect in ruling on something we don’t understand the impacts of.”
However, Hodder said the court “is not being asked to address the impact”, but simply to rule on “how do the layers (of overlapping, multiple EQC and private insurance claims) operate?”
Hodder also warned that “there are going to be anomalies wherever the boundaries are drawn”, and stressed that the EQC legislation “expresses concern about the level of Crown liability”.
The EQC was not intended to be a “comprehensive social policy relating to property”, but a “limited statutory public assurance.”
The court spent considerable time considering the variety of possible circumstances in which initial damage would be made worse by subsequent events, and where repairs already undertaken were damaged.
“How is this practically going to work?” said Hodder, where a first “pile of rubble” was then joined by a second.
However, Judge Winkelmann discouraged Hodder from implying the annual $50 EQC levy, included as part of general fire insurance, was a “bargain”. The EQC scheme was not based on actuarial calculations used in normal insurance arrangements. It had been established by law to build an emergency fund.