Understanding what type of earthquake damage is covered
The Court of Appeal recently issued a judgment upholding a decision of the High Court, which held that a homeowner had failed to prove that damage to his property constituted earthquake damages. See He v Earthquake Commission  NZCA 373.
The judgment contains a useful discussion on what constitutes earthquake damage that is covered by the Earthquake Commission and/or private insurance policies.
The appellant owned a residential property, which was covered for certain natural disasters, such as earthquakes, under the Earthquake Commission Act 1993 and an insurance policy with his insurance company. The appellant claimed his property was damaged in the 2010 and 2011 Canterbury Earthquakes, but was largely unsuccessful in proving his claims in the High Court and thereafter appealed to the Court of Appeal.
Court of Appeal decision
In setting out the law relating to what damages are covered and Mr He’s burden in proving the same, the Court of Appeal stated:
Mr He needs to show that the Canterbury Earthquakes resulted in physical change to the house that was more than negligible, and that this physical change impaired the value or usefulness of the house. Pre-existing damage and deterioration are not barriers to a claim for earthquake damage. But where there is already extensive damage, or where a building is already in a dilapidated state, minor additional physical effects caused by an earthquake may make no material difference to the value or usefulness of the house, with the result that there is no damage to which the Act or the insurance policies would respond.
To summarise, this means that it is the homeowner’s burden to establish that it is more likely than not that:
- the property suffered physical damage as a result of the earthquake;
- the physical damage is more than de minimis; and
- the physical damage materially impacts the utility or value of the property.
It is therefore important to understand the condition of the property prior to the earthquake before filling a claim against the Earthquake Commission or your insurance company. Even if your property was “damaged” by the earthquakes, if said damage does not materially affect the property, it will not be covered.
This was made clear in He, where the High Court stated that even assuming some cracking on the exterior of the house was caused by the Canterbury earthquakes, given the exterior had been so poorly maintained, the earthquake’s effect “was so insignificant when the general state of the exterior was considered.”
Incorrectly assessing whether damage to your home is covered can be quite expensive, as you will not only be responsible for your own costs in pursuing the matter, but if you are ultimately unsuccessful you may be ordered to pay the other party’s costs as well (Mr He was ordered to pay costs and disbursements to the Earthquake Commission and the insurer).