New Zealand Law Society - ‘Shoring up on insurance’: navigating the muddied waters of catastrophic climate events

‘Shoring up on insurance’: navigating the muddied waters of catastrophic climate events

‘Shoring up on insurance’: navigating the muddied waters of catastrophic climate events

Following a trifecta of catastrophic climate events across the North Island within the space of a month, practitioners are finding themselves navigating clients through a challenging and novel set of property issues. LawTalk speaks to the Property Law Section of the Law Society about how to deal with these ever-present challenges.

Following a ‘trifecta’ of catastrophic climate events across the North Island within the space of a month, practitioners are finding themselves navigating clients through a challenging and novel set of property issues.

While the Canterbury Earthquakes experience offers some insight into issues around the reaction and response by insurers, there are material differences in current issues in terms of complexity, scope, and regional dispersal. With property owners and businesses being impacted from Northland and Auckland through to Hawkes Bay and Tairāwhiti, the spread of flood-impacted property is unrivalled in the history of Aotearoa New Zealand.

A raft of issues where rarely two are the same

New Zealand Law Society Property Law Section (PLS) deputy chair, Kristine King – who is a Director of the Auckland-based DK Law – shares some early insights into what is an “evolving suite of issues” for the profession. Kristine points to an “immediate need to guide members through a myriad of property law issues that have arisen from the recent extreme weather events that include the Auckland Anniversary weekend floods, Cyclone Gabrielle and the flash flooding event of Friday, 24 February 2023.”

While Kristine anticipates both the volume and complexity of issues will increase over the coming weeks and months, immediate cases include issues around settlement on inundated or damaged property or land. Separating damage to land from property in itself presents a differing range of responses and outcomes for clients, involving multiple agencies.

Add to this properties that are already under contract and may have been materially impacted prior to settlement. “It is now more important than ever to include the ability to insure and any exclusions within this as part of due diligence on property purchases,” King says. Likewise, vendors are in the spotlight around material disclosures that could affect the purchaser’s ability to insure the property, alter standard premiums and conditions, or later affect the ability to make a claim.

On matters of disclosure

Clients are advised to actively engage with vendors on any flood damage or impact to the property they are looking to purchase. It may also be prudent to engage with the vendor’s insurer who will already hold a risk position on the property.

The assignment of EQC and private insurance claims will be important to ensure that residual rights are attached to claims in progress, whether repairs have been completed or not. Chair of the PLS and Managing Partner of Christchurch-based Harmans Lawyers Mark Sherry says “extreme caution needs to be applied when it comes to the assignment of claims.”

“The Canterbury experience shows us that both claims and remediation carried vastly different rights for the original property owner and claimant compared to subsequent owners who may have been assigned the claim. The rights of subsequent owners are significantly less than those of the originally insured party.

“The impact of this is still a source of continuing litigation and negotiation twelve years on from the Canterbury Earthquakes. Substandard remediation has been an ongoing issue, with some cases now falling outside of the ten-year statute of limitations under the Building Act 2004. This has led to EQC having to run a special program for on-sold properties that had been sold as “fully repaired”, only for it to be discovered later on that the initial damage was either not scoped appropriately or the repairs were substandard.”

Sherry’s advice to clients looking for a bargain by taking on an existing claim is a cautionary one, where today’s bargain could well be tomorrow’s headache. The best advice in these cases is to “pause, and let things play out and settle down.” Sherry also points to the four-month time period following the Canterbury Earthquakes before the Crown stepped in to announce the purchase of the initial “red zone” properties and essentially oversee the interagency recovery. It took many months after that to identify and categorise other “red zones” too.

He acknowledges that the process is different this time around, with private insurance assessors carrying out a dual function to assist the EQC claim process too, thereby expediting the assessment process. He also notes that LIM mapping will become critical in material disclosures moving forward with respect to ‘overland flowpaths’ and flood mapping through Council-identified hazards.

Protecting practitioners and keeping clients’ interests close

The PLS is taking a proactive stance that prioritises the protection of property law practitioners. The section quickly established a ‘Flood Response Working Group’ to deal with the issues raised by the recent flood events. The group has drafted a suite of clauses to be shared with members and help practitioners navigate issues specific to weather tightness, insurance and assessment. These recommended clauses will offer options to accompany sale and purchase agreements.

“In the first instance, we are looking to protect our property practitioner members,” says King.

“In addition to drafting new clauses for inclusion in agreements, we are also promoting the position of the PLS through educating and working with banks and insurers, with dialogue already open with the Insurance Council of New Zealand – Te Kāhui Inihua o Aotearoa.”

Working with industry partners will be key to achieving cohesive instructions that effectively manage and ultimately mitigate risk for all parties. Where lawyers are being asked – albeit on an ad hoc basis – to provide undertakings around flood-affected property, a suggested response is one that aligns “to the best of our knowledge.”

“Education will provide a solid foundation for advancing issues and resolutions around the interest of flood-impacted property and the legal response to extreme climate events,” King says.

“Other activations that the PLS will be rolling out to assist property practitioners include a webinar to share knowledge, expertise and prior learnings from industry experts. This will include Christchurch practitioners who will draw on their experience of litigating and advising in the wake of the Canterbury Earthquakes.”

With transactional queries forming the bulk of enquiries to the PLS, King points to the “collegial spirit” of the Section as being best positioned to assist in delivering best practice resolutions to queries. “The depth and breadth of knowledge and experience amongst the group is well-positioned to assist other members.”

Where to next

King predicts that the scale and scope of the recent, catastrophic climate events present a complex set of challenges that will have a “very long tail.” The scale of the property issues practitioners are facing is in its infancy, with the most pressing being those clients who already have contracts in train for the purchase of flood-impacted properties and land. Sherry hopes that as the Canterbury Earthquakes response provided learnings for the 2016 Kaikoura Earthquakes, it may also provide some pathway to streamline the Crown and interagency response for the 2023 weather events. But with material differences to the impact of the weather events when compared to earthquakes, the response needs to be accompanied by an urgent response with respect to drafting clauses to protect the interests of all.

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