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Property QUESTION… I need an opinion on an engineer’s recommendation before I launch into the insurance company as both the insured and myself feel the engineer’s definition of damage under the policy is incorrect and as such he is being short-changed for repairs to his building. The situation is as follows: The Christchurch building was badly damaged in the February 22 earthquake and the floor has risen and slumped as a result. The results show that the whole floor is up and down with the corners being over 90mm down and the middle being up over 50mm. When the insured purchased the factory which his company also occupies, he spent considerable money levelling the floor so his trolleys could operate easily around the factory. This issue is at the last claims meeting the engineer advised the any area of the floor that has risen or dropped over 25mm over a sixmetre length would be repaired. However any difference in level under 25mm over a six-metre length would not be repaired as this variation in level is acceptable under the building code. He then went to state the any difference in level under 25mm over a six-metre length would not be considered damage. The insured and myself disagreed with his position on the repairs to the building. The policy wording excludes normal settlement, normal wear and tear, slowly developing deformation or distortion, but the cause of loss is earthquake damage. The policy wording s reinstatement definition is “ where property is damaged but not destroyed, the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new”. “Undamaged” means not damaged physically and directly by an event insured under Part 1 of the policy”. If the building is repaired as per the engineer’s recommendations, who will insure it as it has not been fully repaired? We have asked assessor to put this question to the insurance company. Also if there is another earthquake and the floor levels that have not been re-levelled drop below 25mm, where does this leave the insured? Can you please give me your opinion on this issue. I am hoping that the insurance company agrees to having the whole floor re-levelled, but we need to make a stand if they don’t agree to this!
REPLY… GRAHAM SANDERS Following the Canterbury earthquakes it has been necessary for insurers to consider just what constitutes “damage”. That change is not in itself necessarily “damage” is a common consensus. Thus where a building has, say, uniformly dropped, “damage” is not necessarily acknowledged. Where there is differential settlement the test is more problematic and the use of the building is relevant to the decision on the extent of repairs that may be necessary. Taking that position, the needs of the insured relative to the use of the building will possibly override any levelling formula, such as you mention. If the insured cannot reasonably use the building following the “levelling formula” repairs it would seem that “damage” has not been adequately repaired. The building code is not the test for “damage” under an insurance policy: it is of course the minimum standard for any reinstatement work. REPLY… IAN MARTIN I think this one for Crossley Gates or the legal minds amongst us however in the technical section under resources in respect of insurance of assets there is case information on the case of Technology Holdings Limited v IAG New Zealand under the heading of “What amounts to damage” from DLA Phillips Fox.I have attached same to this message That that may assist your furher in your response to Insurers after consideration of the Policy wording. http://www.inavigator.co.nz/members/threadview. asp?MessageID=2012&ProjID=94&areaName=Property&threadid=10236 REPLY… CROSSLEY GATES This is a thorny issue with many claims arising out of the Christchurch earthquakes. Technology Holdings v IAG is the leading NZ authority on what amounts to damage. It follows a number of earlier cases and they 30
nearly all refer to damage occurring if the “utility or usefulness” of the item is impaired. This might be compared with a purely cosmetic change or a change that is not discernable to the casual observer. I agree with Graham that the test under the policy is not necessarily the same as the test under the building code for the degree of variance allowed in floor levels. But it may be that the building code allowance is set at a figure where the amount it is out of level is not discernable to the casual observer and the utility or usefulness of the floor is not affected in any practical sense at all. If you went round minutely measuring existing buildings you would probably find many of them are not perfect in their dimensions, but are they all damaged? It is a question of degree of course and it may be that we will need a court ruling to put the matter to rest.