Get independent advice before settling your claim with insurers

• If you or any of your friends receive offers of insurance settlements on your badly damaged homes, please seek professional advice.
• If you or any of your friends require advice please consult your lawyer or contact Bradley Nuttall and we’ll be happy to coordinate and assist where we can.
• Below we provide an example of a Bradley Nuttall client who was offered an insurance settlement at an amount far below what she is rightly owed.

A number of our staff and our clients’ homes were badly damaged by the September 2010 and February 2011 earthquakes.  It can be confusing trying to ascertain exactly what is covered by insurance – and what an insurer is obliged to pay.  Part of the confusion is simply caused by the stress of uncertainty, changes to every day routines, loss of community, loss of jobs and on-going aftershocks. 

Given the confusion and stress, a homeowner may be tempted to settle with their insurer without fully understanding the implications of signing a settlement agreement.  However, we strongly encourage you to seek professional advice even in the face of a settlement offer from your insurer.

A real-life example

We have recently assisted a client, Mrs A, whose home and land were badly damaged in the September 2010 earthquake.   The Earthquake Commission (EQC) paid Mrs A the maximum amount of $115,000 for her home, with a report on the land to come.  The February quake further damaged Mrs A’s home and rendered it uninhabitable.  An assessment has confirmed that it is unable to be repaired.  The land has also sustained further damage and early indications are that it will not be able to be rebuilt upon. 

Mrs A’s insurance company obtained a registered valuation, which confirmed the pre-loss value of the land and home at $725,000.  The valuer has estimated the indemnity value of the home, i.e. the value of the home itself immediately prior to the September quake, taking into account its age and condition, at $335,000.  This figure does not include the value of the land.

So she could get on with her life Mrs A arranged to purchase an undamaged property elsewhere in Canterbury for substantially less than the pre-earthquake value of her damaged home and land.  The new home and land cost $410,000 in total and are not comparable to Mrs A’s damaged home and section.

Mrs A’s insurer has indicated in their offer that they will pay the following:

Estimated indemnity value of home       $335,000

Less EQC Payment                             $115,000

Less Policy Excess                              $       250

Total                                                   $219,750

The cost to build a new home has not been fully determined.  Despite this, the insurer has indicated that they will also pay the lesser of:

1. The rebuild costs (which have not been confirmed yet) less $335,000, (or)
2. $75,000 (this is $410,000 minus $335,000, or in other words the purchase price of the new property minus the insurer’s estimate of the indemnity value). 

Unfortunately, the settlement offer stipulates that the insurer will take over the rights, interest and title in respect of both EQC claims.  The means the insurer, not Mrs A, will be entitled to any payout for the damaged land, even though the insurer’s policy does not cover the land.  In effect, the insurer has offered a settlement that caps the maximum possible payout that Mrs A will receive in respect of her damaged home and land at $410,000.  Remember that Mrs A’s home and land pre-earthquake were worth $725,000.

Should Mrs A accept the settlement?

No!

Why not?

1. Mrs A actually has two claims, one on her house and the other on the land. The insurer is proposing to settle the house but take her right to the claim on the land.
2. The settlement would transfer Mrs A’s land and its claim to the insurer for a maximum of $75,000.
3. Mrs A’s land was worth much more than $75,000. Why should she transfer her claim to the insurance company for that amount?
4. The cost to rebuild her home is arguably more than $335,000. See below. 

It is clear that Mrs A will suffer a substantial financial loss if she were to accept the settlement. 

Is the cost to rebuild Mrs A’s home truly $335,000?

If a homeowner chooses not to rebuild their house then an insurer may settle based on the indemnity value of the home only.  However, Mrs A has actual replacement insurance.  This usually means that the house can be repaired or rebuilt to bring it back to the condition it was in prior to the loss – whatever the cost.  Most policies also provide for a home to be rebuilt on different land (up to what it would have cost the insurer to build it on the existing section).  If this is the case then Mrs A could possibly elect to rebuild her home on a new section, which would almost certainly be worth much more to her than $335,000 + $75,000 offered by her insurer. 

What should you do?

It is important to note here that by and large most homeowners are likely to be satisfied with how their claims have been handled and settled by their insurance company. 

However, there will be claims that involve significant settlement amounts and/or the loss of a home.  It is important that you consider obtaining independent legal advice before signing a settlement with an insurer – or before taking further action such as purchasing a property to live in (or a new section to build upon) if your home is damaged.

It’s also important that you read your policy document (preferably before disaster strikes) – and ask your broker or insurance company to clearly explain anything you don’t understand.  You need to ensure that the level of cover provided meets your needs – and your expectations.

What should you do now?  Consult your lawyer, or, Bradley Nuttall will assist you to find independent expert advice.  If you are offered a fair deal than an independent expert will let you know. If not, they’ll guide you on the next steps you may take to get the payment your policy offers.

Please feel free to forward this on to friends or family who are in this situation.

Disclaimer: Bradley Nuttall is not an expert in insurance policies nor do they provide legal advice. Bradley Nuttall is not in a position to provide independent expert advice on your claim.  Bradley Nuttall may coordinate access to experts that can assist you and will do so free of charge and without receiving any direct compensation.  However, it is your responsibility to hire any expert and ensure they are competent to assist you in your claim.