Tower ruling provides 'more clarity' on red zone

9:56 pm on 5 April 2013

The lawyer for the couple who brought a civil case against Tower Insurance says a High Court decision has brought more certainty for other red-zoned home owners in Christchurch.

Matt and Valerie O'Loughlin went to the High Court in March in an attempt to get Tower to pay for a full replacement of their earthquake-damaged home.

Tower had offered a settlement to repair the Dallington property, despite the fact it was zoned red, which means the land can't be rebuilt on.

In an interim decision released on Friday, Justice Asher called for more submissions from both parties, but said Tower should pay for the full replacement of the home up to $540,000.

The judge said it was up to the insurer to elect whether to pay on the basis of a rebuild or replacement, but it was not appropriate to place any figure as a maximum, and the amount offered by Tower to the couple had been too low.

Justice Asher ruled that just being in the red zone was not enough for the O'Loughlins to claim a total loss on their home against their insurer, but said the repair job offered by Tower was not good enough.

The judge has not yet made a ruling on general damages and relief.

The O'Loughlins' lawyer said Friday's decision indicates that a house is not automatically a total loss just because it is in the red zone. Grant Shand said it clarifies that there is no legal reason why people can't stay in their red-zoned properties.

"I think there is now more certainty for homeowners exactly what the effect of red-zoning is and how that affects their ability to claim money from an insurer. And also it makes it more certain as to what their restrictions are on red-zoning."

Mr Shand told Radio New Zealand's Checkpoint programme that, while the ruling is a success for his clients, it will be a disappointment for other homeowners hoping a precedent would be set that insurers must pay for the full replacement of red-zoned houses.

"Tower will be ordered to pay for a replacement house for these people, which is exactly what they've always wanted. A lot of people had hoped that (the judge) found that red-zoning caused the total loss of a house, but he hasn't decided that."

However, Mr Shand said it is a victory for the O'Loughlins, who he thinks can now reach an agreement with Tower on how much they should receive out of court.

Tower Insurance group managing director Rob Flannagan told Checkpoint the decision will affect about two dozen other red-zoned claimants.

"It sets out some ground rules that takes away a lot of the argument, especially over the red-zone etcetera, and we would hope that we'll be able to move quicker to settle these policies because that takes away a confusion, if you like, there."

This is the first civil case against an insurance company over earthquake repair bills and has implications for anyone in the red zone offered a payout from their insurance company based on what it would cost to repair their home rather than to rebuild or replace it.

The O'Loughlins originally sought $1.3 million, including damages, which they have scaled down on three occasions outside court already.