Earthquake tribunal’s warning to insurers

Adecision by the Canterbury earthquakes tribunal ordering an insurance company to pay part of the tribunal costs incurred by a homeowner ‘‘should serve as warning’’ to others, the tribunal has said.

In its recently released decision, the Canterbury Earthquakes Insurance Tribunal ordered IAG to pay $13,160 in tribunal costs to the DG Family Trust after finding that the insurance company ‘‘acted in bad faith’’ by advancing unsubstantiated claims. Max Contracts Limited, a subcontractor used by IAG to do repairs on the house, has been ordered to pay $500.

The homeowners have struggled for over a decade to get their earthquake claim resolved. Their Christchurch home was built by well-known Christchurch merchant and city councillor Thomas Kincaid in 1925. Since then the house had been modernised, renovated and additions made on several occasions.

Houses built in the 1920s were not designed to withstand earthquake forces and as such, the building suffered damage during the earthquakes in September 2010 and again in February and June 2011.

The most serious damage was inflicted in 2010 when one of the three chimneys fell through the roof into one of the upstairs bedrooms. Shortly after emergency repairs were undertaken to ensure that the occupants could continue to safely reside in the house. At the time of the earthquakes, the house was insured by State Insurance, a business division of IAG.

Once EQC acknowledged that the cost of repairing the earthquake damage would exceed its statutory cap, it was agreed that the earthquake damage would be repaired by IAG. Geotechnical and structural engineering reports were obtained and used to prepare a full scope of works.

Repairs on the house began in July 2014 with Max Contracts being subcontracted to do the work. By the time the repairs had been completed in March 2015, the homeowners were openly critical of the standard of repair and said the original scope of works had been inadequate to properly repair the damage.

According to experts engaged by the homeowners, the cost of rectifying badly executed repairs, unexecuted repairs and unscoped earthquake damage was just over $1 million. The case eventually ended up in the High Court and was later transferred to the tribunal when the parties were unable to reach a settlement.

In December 2020, the tribunal issued a decision setting out the defects in the house and their causes. The decision effectively determined there was not a lot of pre-existing damage to the house and most of the damage was earthquake-related and had to be repaired.

After the release of the decision, the homeowners filed an application seeking that IAG and Max Contracts be held liable for their tribunal costs.

The homeowners spent over $50,000 to get experts to challenge and disprove arguments put forward by IAG and other respondents. This was on top of the $370,000 they had already spent when the litigation was still before the High Court.

According to the Canterbury Earthquakes Insurance Tribunal Act, the tribunal may award costs against a party if it considers that the party caused unnecessary expenses by acting in bad faith, making allegations or objections without substantial merit, or causing unreasonable delay.

In its application, the homeowners said IAG acted in bad faith by making unsubstantiated claims to the tribunal.

The tribunal found that IAG indeed advanced arguments without substantial merit, such as that the uneven floors were because of preearthquake settlement, or that some of the steel windows had not been damaged in the earthquakes. The tribunal further said IAG had acted in bad faith by challenging the admissibility of the homeowners’ evidence, overriding attempts by experts to establish common ground, and failing to narrow the real issues remaining in dispute in relation to the bathroom.

The tribunal also found Max Contracts had advanced an unsubstantiated argument by claiming that using black adhesive to repair damaged slate tiles met the policy standard for repair.

The tribunal calculated that IAG was liable for $13,110 of the homeowners’ costs and Max Contracts for $500.

A spokeswoman for IAG said the insurer disagreed with the findings of the tribunal and has appealed the decision to the High Court.