[2014] NZHC 919, [2014] 3 NZLR 42, (2014) 18 ANZ Insurance Cases 62-015
The plaintiffs own a property in Sumner, Christchurch. The plaintiffs are prevented from occupying their 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. As a result of the risk of injury or death to persons in the property from rockfall the Christchurch City Council has issued a notice which prohibits the homeowners from using or occupying the home (known as a section 124 notice).
Justice Mallon reviewed the expert evidence relating to the risk of rock fall, and concluded that the occupation of the plaintiff's house would not be permitted for the foreseeable future. She noted that "the seismic profile is not anticipated to reduce to pre-earthquake levels until 2021".
The plaintiffs' house insurance policy provided (as most policies commonly do) that the house is covered for accidental physical loss or damage unless the loss or damage is excluded by the policy. Loss or damage arising from an earthquake, natural landslip, or other type of natural disaster is excluded from cover, except as provided in the Natural Disaster section. The Natural Disaster section of the policy provides that if the house is damaged by an earthquake then the insurer will pay the difference between the cost of repair and the EQC cover, provided that there is cover under the Earthquake Commission Act (EQC Act). The plaintiff therefore needed to show that there was cover under the EQC Act as a prerequisite for obtaining cover under the insurance policy.
Under the EQC Act there is cover if the plaintiffs' house has suffered natural disaster damage. As defined in the EQC Act, natural disaster damage can be one of three things:
- physical loss or damage to the residential building which occurs as the direct result of a natural disaster;
- physical loss or damage to the residential building that (in the opinion of EQC) is imminent as the direct result of a natural disaster that has occurred; or
- physical loss or damage to the residential building (including physical loss or damage to the residential building that is imminent) that occurs as a direct result of measures taken under proper authority to avoid the spreading of, or otherwise to mitigate the consequences of any natural disaster, but does not include any physical loss or damage to the property for which compensation is payable under any other enactment.
The parties agree that the threat of rockfall is not imminent. The plaintiffs' view is that the phrase "physical loss or damage to the property" should include circumstances in which a house is rendered uninhabitable because of the direct physical threat from rockfall hazard created by a natural disaster event. They say that their house practically and legally cannot be physically used for the foreseeable future and this deprivation is a "physical loss".
Justice Mallon noted that:
"The reasoning that a house connotes something that is habitable and that, where a house has been rendered uninhabitable because of a physical threat to it, the homeowners have suffered loss, has some attraction. From the homeowners' perspective they have "lost" their house because they can no longer live in it... it is a loss that homeowners reasonably might expect would be covered by the Act (and their insurance policy)."
However, she went on to say that despite that argument being attractive "the focus here must be on the words in the Act".
Justice Mallon decided that:
"In this case the loss suffered is loss of the ability to exercise a legal right that is part of the bundle of rights comprising the fee simple estate. It is not "physical loss ... to the property". Loss in the context of the Act means loss to the physical materials or structure of the building. That interpretation is consistent with the natural and ordinary meaning of those words in the context of the Act."
The section 124 notice therefore does not constitute loss of the property, and the plaintiff is not entitled to insurance cover for the loss of use of their home.
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