Tribunal requires claimants to “prove their case”
In a recent decision, the Canterbury Earthquakes Insurance Tribunal has reiterated that claimants must substantiate their claims against insurers and other parties. The decision also underscores the Tribunal’s pragmatic approach in determining claims.
The Cowies’ company owned a property in Canterbury which allegedly suffered damage in the 4 September 2010 earthquake. The dwelling, which was known to the Cowies as ‘the barn’, was newly constructed at the time of the earthquakes and was only insured by IAG for two days before the September 2010 event.
The Cowies alleged that the September 2010 event caused structural damage to the barn’s foundations, floor and superstructure, as well as its effluent disposal system. The Cowies maintained that insured damage could only be remedied to the “when new” policy standard by a total rebuild, at an estimated cost of $876,422.
Mr Cowie also claimed that IAG declined his claim in retaliation for his outspoken public criticism of the insurance response to the Canterbury earthquakes.
IAG’s position was that the barn was undamaged by the September 2010 event and, even if it was, earthquake damage could be repaired. IAG also denied Mr Cowie’s allegations about IAG’s reasons for declining the claim and raised the possibility that the Cowies were seeking a large cash pay-out to build their dream home.
Claimants are required to establish their claim
Unlike the courts, the Tribunal is inquisitorial in nature and is not bound by the strictures of court proceedings. However, the Tribunal has clarified that this feature does not “relieve” claimants of the responsibility for establishing, on the balance of probabilities, that:
- their home suffered damage;
- the cause of that damage was the Canterbury earthquakes; and
- their method of proposed repair to the policy standard is reasonable.
This decision is significant for insurers, as it shows that the Tribunal will not be a soft touch when faced with bare assertions as to the existence and cause of damage to insured properties. Rather, claimants will be required to prove their claims.
The dispute in this case
The main area of contention between the Cowies and IAG was the alleged damage to the barn’s concrete slab foundation, which both parties accepted was out of level by approximately 25mm. IAG’s position was that the cause of this dislevelment was construction-related. In contrast, the Cowies asserted that the dislevelment could not be construction-related because the barn was a modern property built using accurate measurements.
Ultimately, after hearing from the parties’ experts and using its own expert to ask questions of them, the Tribunal considered that 12mm of the overall floor dislevelment was related to construction tolerances, with the other 13mm being caused by earthquake. The Tribunal primarily relied on the fact that the kitchen bench would have been installed level at the time of construction, whereas after the earthquakes it was out of level by around 9mm.
The Tribunal was then required to determine whether it was possible to repair the building to the “when new” policy standard. The Cowies claimed that IAG’s proposed repairs were not possible, primarily because crack repairs to the barn’s exposed concrete slab using epoxy resin would remain visible, affecting the aesthetics. Further, the Cowies considered that such repairs would not restore the concrete slab’s strength prior to the earthquake. The Cowies therefore claimed that it was impossible for IAG to repair earthquake damage to the slab without rebuilding it, and to do so without rebuilding the barn would be uneconomic.
IAG took the position that this was an “extreme remedy”, as what was being proposed was to rebuild a largely undamaged property which was disproportionate. IAG proposed to repair the cracks in the concrete slab with epoxy and resurface the floor with a product which resulted in a similar finish to polished concrete.
The Tribunal’s decision
The Tribunal, presumably in reliance upon its own expert’s advice, considered that the parties’ proposed solutions were not the only ones available. Instead, the Tribunal found that:
- it was possible to carry out a localised slab replacement in the living area, returning the aesthetic value of that room; and
- in relation to the other areas of the barn, it was reasonable for IAG to repair the remainder of the foundations with the “unsightly” epoxy crack repairs.
A key factor in this aspect of the Tribunal’s decision was the use and purpose of the barn. The barn’s original purpose, as recorded in Council consent documents, morphed from a barn to a non-habitable garage/office and then to a workshop/office/studio. However, at the time of the Canterbury earthquakes, the Cowies and their children were living in the barn as a home. The Tribunal relied on the fact that, based on the property’s plans, the only area that the Council considered habitable was the living area and the Council did not appear to have granted consent for the use of two of the rooms as an office and a bedroom. As different aesthetic considerations applied to areas that are not lived in and the only habitable area of the barn that was consented for habitation was the living room, it was only the living area that required repairs that restored the aesthetic function of the polished floor.
The Tribunal also rejected IAG’s position that proportionality is a relevant consideration in insurance claims, as disproportionality is only relevant in cases concerning culpability. In any event, the Tribunal considered that the cost of repairs might be disproportionate to the level of damage suffered, but that that was a risk that the insurer can address when fixing premiums or by limiting exposure through exclusions.
Suppression of names
Unlike Court proceedings, the Tribunal has taken the approach of anonymising claimants. However, the Tribunal took a different approach to the Cowies’ claim. The Tribunal considered that, as Mr Cowie had been an outspoken critic of the earthquake claims process and had never attempted to hide his involvement in it, the Tribunal considered that it was important that the “many people with whose claims he has been involved are aware of the fate” of Mr Cowie’s claim.
A fair outcome
This decision is another example of the Tribunal’s pragmatic approach to determining claims. Although the Tribunal rejected IAG’s argument that proportionality was relevant to repair strategy, a reasonable repair strategy was determined appropriate in this case. The decision also serves to reiterate to claimants that the Tribunal will require that they prove their claims.