Kraal v Earthquake Commission - [2014] NZHC 919

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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2013-409-990 [2014] NZHC 919

UNDER the Declaratory Judgments Act 1908

BETWEEN

HELEN KRAAL and BRUCE ROBERTSON IRVINE Plaintiffs

AND

THE EARTHQUAKE COMMISSION First Defendant

ALLIANZ NEW ZEALAND LIMITED Second Defendant

Hearing: 11-13 November 2013

Counsel:
Judgment:

C R Johnstone and G H Nation for the Plaintiffs
J Knight and N Bruce-Smith for the First Defendant
I Thain and K Pengelly for the Second Defendant

30 April 2014

Reasons:

6 May 2014

REASONS OF MALLON J

Contents

Introduction ....................................................................................................................................... [1] Background........................................................................................................................................ [4] Cover under the Earthquake Commission Act 1993 .................................................................... [31]

The Act.......................................................................................................................................... [31]

Summary of respective positions .................................................................................................. [32] Statutory interpretation ................................................................................................................ [35] The ordinary meaning of “physical loss or damage to the house” .............................................. [36] Context ......................................................................................................................................... [43] Legislative history ........................................................................................................................ [45] Case law ....................................................................................................................................... [50] Conclusion.................................................................................................................................... [68] The Allianz cover ............................................................................................................................. [69] The policy ..................................................................................................................................... [69] Summary of respective positions .................................................................................................. [73] Assessment.................................................................................................................................... [75] Result ................................................................................................................................................ [76]

KRAAL v THE EARTHQUAKE COMMISSION [2014] NZHC 919 [6 May 2014]

Introduction

[1] This case concerns whether there is cover under the Earthquake Commission Act 1993 (the Act), and in turn insurance cover, for a homeowner’s loss of the right to occupy their home. This is a test case in that there are at least two other proceedings at the interlocutory stage which raise the same issue. The case arises out of the catastrophic earthquakes in Christchurch in 2010 and 2011. The homeowners (the plaintiffs) are prevented from occupying the home, not because of earthquake damage to the structure of the home itself, but because of the risk that rocks on a cliff face above the property will dislodge and cause injury or death to persons in the property. The risk of rockfall has increased because of the earthquakes and aftershocks. It is not anticipated to reduce to pre-earthquake levels until 2021. As a result of the risk of injury or death to persons in the property from rockfall the Christchurch City Council (the Council) has issued a notice which prohibits the homeowners from using or occupying the home.

[2] Whether there is cover for this kind of loss depends on the meaning of “physical loss or damage to the property” under the Act. This is relevant to both whether there is cover under the Act (EQC cover) but also whether there is insurance cover under the homeowner’s insurance policy. That is because EQC cover is a pre- requisite for insurance cover. If the loss is “physical loss or damage to the property” there are additional issues specific to the insurance cover question. The homeowners’ position is that “physical loss or damage to the property” includes not just loss or damage to the structure of a house, but also loss of possession and use of the house. The EQC and the insurer say that this is not “physical” loss.

[3] The plaintiffs’ house is “red zoned” meaning that they, like…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] NZHC 919
Decision Date: 30 April 2014

CaseChat Overview and Summary

This case involved a dispute over whether the plaintiffs had cover under the Earthquake Commission Act 1993 (the Act) and their insurance policy for their loss of the right to occupy their home. The plaintiffs claimed that their inability to occupy their home due to the risk of rockfall from a cliff face above their property constituted "physical loss or damage to the property" under the Act and their insurance policy. The defendants argued that this did not constitute "physical loss or damage" and that the plaintiffs' loss was an economic loss rather than a physical one.

The court considered the meaning of "physical loss or damage to the property" under the Act and the plaintiffs' insurance policy. It concluded that "physical loss or damage to the property" under the Act and the insurance policy meant loss or damage that physically affected the materials or structure of the house. The plaintiffs' loss of the right to occupy their home due to the risk of rockfall was not physical loss or damage to the property because it did not involve physical harm to the materials or structure of the house. It was a loss of a legal right that was not naturally described as a physical loss.

The court also considered whether the plaintiffs' loss of the right to occupy their home constituted "damage" under the insurance policy. It concluded that in the context of the insurance policy, "damage" meant physical harm to the materials or structure of the building. The plaintiffs' loss of the right to occupy their home did not constitute "damage" under the insurance policy because it did not involve physical harm to the materials or structure of the building.

As a result, the plaintiffs' claims for declarations that their loss constituted "natural disaster damage" under the Act and "damage" under the insurance policy were declined. The court held that the plaintiffs had not suffered "physical loss or damage to the property" under the Act nor "damage" under the insurance policy.

Orders