Navigating insurance minefields
By Alexis McStay
Purchasing a house, especially for the first time, can be daunting. In post earthquake Canterbury, it is a potential minefield, but one that you can easily navigate with the right information and help from the experts. Never before has your lawyer been more valuable in helping to smooth the way in insurance and EQC related issues. Obtaining insurance is not only important for protecting your biggest investment, but your bank will require the property to have full replacement insurance in order to protect its investment.
Finance and insurance go hand in hand, so if you can’t get insurance, you won’t get your finance. It is therefore essential that before you make an offer to purchase a property, you have it checked by your solicitor first. Every sale and purchase contract should be conditional on you getting full replacement insurance for the property. It is also important to ensure there are sufficient conditions regarding the assignment of any EQC claims made on the property. If the vendor (seller) has made an EQC claim and the repairs haven’t been carried out, or the vendor hasn’t received an EQC payment, then their rights and interest in any EQC claim must be assigned to you on settlement. This will give you the ability to deal directly with EQC in regards to the claim. The EQC has a huge number of claims in the system and if the claim has not been assigned to you, then EQC will refuse to discuss anything to do with the claim (which will be very frustrating).
Make your offer subject to a building report
When making an offer for the purchase of a property, you should seriously consider making your offer subject to a building report, carried out by a suitably qualified person. A trap for many people is to assume that all damage to a property is earthquake related and therefore the EQC or the private insurer will repair it. You must compare the building report to any Scope of Works supplied by the vendor. Most purchasers make their offer based on the value of the property following repairs to all earthquake damage. If the damage to the property is pre-existing, a building report will prevent you from being disappointed in the future if you discover the issues you thought were earthquake related, were pre-existing - this means you will have to pay for repairs yourself.
Obtaining insurance can be a lengthy process. Insurance companies are writing limited numbers of new policies that may contain certain limitations, so more often than not vendors are transferring their insurance policies to the purchasers.
For example, in many cases where policies are transferred, the claim entitlements may be reduced (i.e. the buyer doesn’t necessarily receive all the rights and benefits the vendor had). Examples would be cover for alternative accommodation and loss of rent. The implications for the purchaser being that if you are required to move out of your property for the duration of repairs, your insurance company will not pay for any alternative accommodation. Likewise, if the property is a rental, you will have to suffer any loss of rental yourself.
Beware of indemnity value
If the extent of damage to the property is more severe than first thought and the insurance company deems the house uneconomic to repair, then settlement may be limited to the indemnity value, rather than the full replacement value.
Indemnity value relates to the house’s current value, allowing for its age and condition immediately before the loss or damage happened. This figure can be significantly less than the cost required to undertake a rebuild.
Fortunately, nearly 20 months on from the February earthquake, four insurance companies (Tower, IAG, Lumley and Vero) are now writing new insurance policies on a case-
by-case basis. This will be a significant comfort for those wishing to re-build in the Canterbury area however, these policies will still be limited to some areas of Canterbury, and to land within specific technical categories. Obtaining insurance, whether for a new build or an existing house will, hopefully, with time, become easier. However, in order to protect your biggest asset, it’s important to obtain solid advice from your solicitor to ensure you will be sufficiently covered and to know exactly what you are covered for.