THE CHRISTCHURCH EARTHQUAKE: A RATIONAL PESSIMIST SPEAKS OUT

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The Canterbury earthquake of September 2010 is without doubt the single greatest disaster to befall New Zealand. Many outside the province may be tempted to believe the effects of the damage will be limited to Canterbury. They are mistaken. While the impact on individual Canterbury families will be catastrophic, many losing their homes and life savings, the financial impact on New Zealand will be inter-generational. The commentary on Beyond Resistance outlines a number of issues that must be of concern to any thinking person. Of particular concern is the demand for heritage building repairs to take precedence over uninsured dwellings. Such demands simply highlight the contempt with which the Canterbury establishment holds its citizens and ratepayers.

Beyond Resistance claims the outer suburbs were left on their own while the inner city was protected. I watched the news item last night showing a broken water main being repaired. It was supposed to have just failed! By the look of the concrete fracture  – which was longitudinal – it had been fractured for some time. The concrete face of the fracture was old and dark. If it had been new it would have been bright. There will be hundreds of these fractures all over the city awaiting discovery. It will only be once the metering systems are fully restored they will be found.

The link to the emergency powers act is well worth following. The claims made by the commentary are somewhat inflammatory, but essentially correct.

The ‘re-evaluation’ of previously condemned houses (in Kaiapoi) as being  ‘safe’ to inhabit are going to prove to be a disaster for their owners. The local authority is only protecting the insurers from having to meet a claim for a total loss of the dwelling. Instead of acting for their ratepayers, they’re acting for the insurers.

The house shown is an obvious ‘contract works’ risk, at best, and not fully insurable as a habitable dwelling.
A major problem for home owners will arise when insurance assessors deem the house is habitable and repairable, yet the council condemns it as unsafe for other reasons. Such a matter is already before the Auckland High Court, with the insurers arguing they have no liability for a council decision to condemn an undamaged building. This will be particularly so when the ground supporting a dwelling is declared uninhabitable by the council, while the dwelling on it has insufficient damage to render it a total loss.

Even if the house can be successfully repaired, who is going to buy it from the current owners? The new legislation covering the earthquake will allow local authorities and government to suspend or alter building codes to whatever they wish. If the ‘leaky homes’ scandal wasn’t bad enough, this will be a true horror story.

I was interested to see Chris Ryan of the Insurance Council trying to deflect accusations the insurers were going to default claims. He suggested the insurers wouldn’t have a business if they did. Wonder which planet he’s been on since the quake! Ryan is playing a very dangerous game, raising the expectations of insureds that will never be met.

One of the most important things not mentioned in the article, is the removal of the hearings and appeal process of the RMA. This will have a much greater affect than at first might appear. It essentially means that building permits will be issued without regard to community values or wishes. It will also spell the end to many of the historic buildings of Christchurch. They were, and remain, a major earthquake risk and a public menace and should never have been built. In the current recession, owners of such buildings will be only too happy to take insurance settlements on uneconomic buildings and leave. Once an insurance company makes a settlement on a claim, the building and site becomes the property of the insurer. Naturally, the insurer will not be interested in doing anything with the site, other than on-selling it. 

The earthquakes have continued well beyond anyone’s expectations. Yesterday there were still 4.5 shakes being reported. I think they said there were 11 quakes. This is a national disaster of unprecedented proportions. The government is overwhelmed by the extent of the cost. Bollard has stated there won’t be a ‘building boom’ fuelled by the quake recovery process. He is right. The recovery will be debt financed, not from insurance payouts, as claimed. The underlying assets backing the insurance cover have been so heavily devalued, they will never meet the insurance claim costs.

The liquidation of government stocks and bonds will probably cover only the infrastructure repair costs. Local government assets are not insured by the insurance industry. Instead, they were ‘self’ insured by the taxpayer, with what was State Insurance acting as the assessor and claims manager. Now that State Insurance has been sold to IAG of Australia, this facility is no longer available to us at cost. By relying on government stocks and bonds to cover the cost of repairs, all that has been done is to pass the problem on to the taxpayer.

The ordinary home-owner will be at the back of the queue when it comes to settlements. The claims that uninsured private citizens will be a burden on the economy, is a deliberate distraction. Their claim costs are insignificant compared to the infrastructure repair costs.

I watched a local Christchurch architect, telling the government it was essential they spend at least $10 million restoring the so-called ‘historic’ buildings of the central city. $10 million would make a significant difference to the hardest hit Kaiapoi residents! But let’s not get our priorities wrong!

I believe Canterbury will be progressively abandoned. The tax and rates base has been all but obliterated. As the liquefaction dries out the possibility of sink holes increases. Once they begin to appear, and they could be massive, the city’s eastern suburbs, built on ancient sand dunes, will be abandoned.
Anonymous (very anonymous!)
The Canterbury Earthquake September 2010

Sunday, 19 September 2010

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Response to comment:

The case in the Auckland High Court you are referring to – can you give more details? Has it been decided? Who are the parties? I need to find out as this is the problem I am having!

THE CHRISTCHURCH EARTHQUAKE: A RATIONAL PESSIMIST SPEAKS OUT

The case involves ex Mayor Sir Barry Curtis, but I don’t know the insurer. As far as I know the case has not been settled. According to my informant, the case arose when Curtis’ house was condemned after the front of his section subsided during a major rain storm event. The Council promptly ordered Curtis out of the house and condemned it, even though it had suffered no physical damage. The insurer has argued that they are only on risk for ‘perils’ (fire, flood,storm, malicious damage, theft and burglary etc) and claim that none of these perils have affected the actual risk (dwelling). The insurer also argues that they received no premium for the peril that condemned the building, therefore deny liability.

I pointed out to my informant (in the insurance industry) that the dwelling was condemned by statutory authority and therefore became a total loss – constructive or not. The insurer is therefore obliged to honour their contract with the insured in that the proximate cause of loss was ‘storm’, an insured peril. Statutory authority overules any contract of insurance in that all contracts are subject to contract law and thus subject to a grant of patent. In other words, those contracting must have the capacity to do so. An insurance company cannot exist unless it has a grant of letters patent to do so. Long story short… the company and it’s insurance contract is bound by statutory authority.

It’s my view the insurer will lose the action for two very important reasons

a) The statutory authority cannot afford to have the insurer default cover because they exert their power of decision. This would have the effect of allowing a statutory authority to be subservient to its own grant of letters patent.

b) If the court allows the insurer to default, they effectively make the Council, and thereby the government, the ‘insurer of last resort’. Curtis has the right to sue the Council for allowing his dwelling to be negligently exposed to risk, although this is a very long shot given the length of time the dwelling has been in place. The Council would successfully defend the action by arguing the storm event that caused the loss was an unpredictable event and thus had no reason to refuse a building permission. The insurer will therefore be left standing on their own to meet the claim.

I recommend the inquirer attends the Curtis hearing and obtains a transcript. A hearing date can be obtained from the Civil Registry of the Auckland High Court. The insurer will probably argue Hedley-Burne, but in this case the argument should fail. It is important he takes notes (which the judge may object to), but give it a try. It’s also important he listens for legal argument that may be embedded in the proceedings and takes notes. He will probably need the Auckland University Law Library to get these rulings and precedents. The easiest way to do this is to visit the campus and enroll in the general library. This should give them access to the Law Library. It may cost $200 to get a library card, but it’s well worth the investment when a house is on the line.

Hope this helps..
“THE CHRISTCHURCH EARTHQUAKE: A RATIONAL PESSIMIST SPEAKS OUT”

28 September 2010

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