Wednesday, 15 June 2011

Minimising liabilities

What's an earthquake event, for insurance purposes?

New Zealand's Earthquake Commission, EQC, is funded by a check-off on property insurance and covers the first $100k of property damage subsequent to an event. September, Boxing Day, February, and this past week's earthquakes all counted as separate events for EQC purposes, each with its own three month deadline for filing claims.

But what happens if EQC's assessor is slow in checking up on your property so the assessor can't tell how much damage was due to each of the events? EQC argues that the assessment then becomes the event: the first $100k of property damage on an assessment falls on EQC, with the rest going to the private insurer. EQC and the insurance companies are seeking a declaratory judgment.

And there is some sense to this. Our place was inspected post-September but we never received a quote from EQC on their estimate of the damage cost, and so we were never able to book in with a builder to get things fixed. Once EQC's assessors get around to us, hopefully before this coming September, there's no way they'll be able to tell how much damage is due separately to Boxing Day, February, or this weekend's major earthquake (for folks abroad: the city just keeps rocking). But there have been 12 separate events. If private insurers argued that damage were spread evenly across all twelve events, EQC would be on the hook for all damages - $1.2 million per home, well in excess of the "bowl it over and build new" cost for the vast majority.

On the other side, if EQC can minimise its liabilities by lumping a whole pile of separately damaging earthquakes into one event, EQC's foot-dragging in getting assessments out makes more sense. Again, using our place as example: damages from September's quake were pretty minor as we're over on the east side of town; Boxing Day provided no new damage; February was far worse for us. Our housesitter (who was also our housesitter for the Boxing Day quake) informs me that the house is currently a mess of broken glass and that the cracks in the internal wall plaster are rather worse than they've been since February. EQC footdragging then lets them count all the earthquakes against the same $100k cap, with any excess costs then falling on AMI.

Meanwhile, nothing gets rebuilt. In some cases, that's efficient; fixing cosmetic damage like plaster cracking probably doesn't make sense if the next damned earthquake will just undo everything. But each bit of structural damage that doesn't get fixed because of foot-dragging makes the next quake's damage worse. Will be interesting to see what's waiting for us on our return.

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