Insurance issues cause Canterbury property settlement problems

Problems with settlement of property transactions in Canterbury have prompted the Property Law Section of the New Zealand Law Society to write to Prime Minister John Key.

Property Law Section executive committee member Lindsay Lloyd says the problems are due to the inability of parties to obtain insurance. He says the Prime Minister was advised that lenders require the secured property to be insured, but some insurance companies seem reluctant to insure.

Mr Lloyd says similar issues will arise on the renewal of current insurance policies in the Canterbury region.

“The consequence is that bankers will not lend.”

The Property Law Section has suggested that there appear to be two ways to address the issue. Insurance companies could collectively agree to accept the risk, or government agencies could underwrite that portion of the risk which is earthquake-related.

“The likelihood of insurance companies adopting option one when most are foreign-owned, is remote at best,” says Mr Lloyd.

“In our view the second option, with government agencies underwriting the earthquake-related portion of the risk, is the only option which might practically allow business to resume where it is reliant on land-based security.”

Mr Lloyd says the Property Law Section has asked that this be incorporated in the urgent legislation currently being developed to deal with issues flowing from the earthquake.

© New Zealand Law Society 2008