Buried trouble: the next quake insurance battle
It is what they said would happen. Skimped EQC repairs would make many Christchurch homes financial poison. John McCrone reports.
It is a smallish group that has gathered in Cranmer Square for an anti-EQC march to confront new Prime Minister, Jacinda Ardern, and rebuild Minister, Megan Woods. Only about 50 people with their placards and a loud-hailer. So is this now the tail end of Greater Christchurch’s long drawn out insurance woes – a last handful of injustices waiting to be sorted?
Certainly some are here to tell the familiar outrageous tales. I fall in with two protesters – Al and Denise – who have just met up randomly and found themselves to be in almost identical positions.
Both have had not one, but two, failed patch-up jobs out of the Earthquake Commission’s Fletcherrun repair programme.
They want EQC finally to confess to the obvious. A fix is going to cost more than EQC’s $100,000 cap on claims. So quit stalling. Just flick their cases on to the insurers, even if that triggers a full rebuild.
But the group is buzzing. Other things are happening. There is the emerging issue of ‘‘on-solds’’, or subsequent purchases. And it is exactly what people have been warning about.
The rest of Christchurch might think the insurance stuff-ups are ancient history now. For most, it is all safely in the past.
However EQC’s bodging approach to some house repairs is going to come back to bite as it has left the city silently awash with homes that were never correctly fixed and so are financially toxic.
Buy one of these ‘‘Fletchered’’ properties – an on-sold – and it could be welcome to the insurance nightmare all over again.
Hurrying to be at the front of the queue to talk to the PM are Mike Stewart and his partner, Julia McEntyre. Brandishing a sign, ‘‘Biggest losers’’, they are a warning of exactly what could still happen to anyone in Christchurch.
To cut a long story short, the couple bought a 1930s weatherboard house in Linwood in 2013 for $360,000. They knew it had been EQC-repaired, but they had it property-checked, it had its EQC sign-off, the insurers were still happy to insure it and the bank to
‘‘On-solds is one of the coming big issues. It is already here, and it’s going to grow.’’ Megan Woods - Minister Responsible for the EQC
mortgage it.
‘‘It was a very typical Christchurch house. And it was in beautiful condition when we bought it. All painted, new carpets. Why wouldn’t you buy it?’’ Stewart says.
It was all good. They invested a further $50,000 on extras like heat pumps. But then in 2015, they decided to move the kids into something bigger.
So they bought a new house and put their bungalow on the market. ‘‘It sold at the open home,’’ Stewart says.
But then the new buyers got hold of the EQC’s original scope of works. A better-informed check found the claimed repairs had not even been done.
The cracks in the ring foundation had been given a quick concealing skim of plaster rather than being filled. The liquefaction beneath the house was still there. The piles were not correctly secured.
Stewart and McEntyre found the property back on their hands and carrying an $800,000 debt to cover two mortgages.
Then the real insult. EQC owned up. Yes, the house actually needed to be lifted for new foundations. A $300,000 job minimum. It always was an insurance rebuild if honest.
But hey, said EQC. That means it is now officially over-cap. Go talk to your insurer about that.
And what do you think the insurer said, Stewart asks? As a subsequent purchaser with a new policy, it was labelled ‘‘prior undisclosed damage’’. Their cover was void.
And Stewart says this is exactly what could happen to anyone who now buys a property which is quietly sitting on unfixed problems. Or indeed, anyone who discovers an inadequate repair after the statute of limitations eventually expires on their insurer’s cover.
It is no joke, says Stewart. Who knows, we could potentially be talking thousands of similar circumstances in Christchurch?
We reach the Art Gallery where Ardern and Woods are there to celebrate the happy face of the new Christchurch – the launch of a council-backed electric car hire scheme. Stewart gets his chance to
have his say.
The family could be bankrupt next year, he tells them. And it has done nothing wrong. Woods and Ardern nod. It is clear they know exactly what this coming on-solds business is all about.
Afterwards, Stewart reveals he has already had to cash in his boy’s toys – the boat and convertible. But it is much worse. A week ago, Julia was in hospital because of the stress.
‘‘Extra bad blood pressure. Her eyes exploded. Blood blistering out,’’ Stewart says, suddenly struggling with his words.
So here they are. A family that are newcomers to the mincing machine which is a disputed earthquake claim.
And how many others will join them as the poison of unrepaired properties leaks out steadily into the Christchurch housing market?
BUYING A PRE-QUAKE HOUSE – ‘NUTS’
The question is about justice. And whether having a new broom Government up in Wellington is going to make much of a difference.
Former Christchurch City councillor, Ali Jones – spokeswoman for the newly formed Letterboxes Campaign which organised the February 15 rally – says Christchurch citizens need to keep up the pressure on the politicians.
She was determined that unresolved earthquake issues were going to be the first public protest that Jacinda Ardern faced.
Jones calls to David Townshend, a property investor who has been standing quietly at the back of the group. With seven rental homes, he has plenty of insight into the realities of the rebuild.
Townshend agrees most people in Christchurch now want to put insurance matters in the past.
Many might suspect they were Fletchered – a lick and a promise that left them with structural damage which would not pass muster in a properly informed property check.
However, if everyone stays quiet, pushes it to the backs of their minds, somehow there might not be any collective repercussions in terms of property values.
Yet Townshend says his portfolio is spread around town and would be a snapshot of what has actually happened.
Three of his houses indeed only required cosmetic repair. The other four have turned out to be a different story.
Townshend says at first he trusted EQC as it was a public entity. It wasn’t until it began to mess him around rather obviously on one claim that he began to dig further.
An Official Information Act (OIA) request for his file showed that EQC assessors had already concluded the foundations of the property were over-cap right from the first September 2010 quake.
But then came a second inspection by a builder and expoliceman after the February 2011 earthquake that said it was merely a $35,000 minor repair.
Townshend describes the day the builder stood and eyeballed the
‘‘It was a very typical Christchurch house. And it was in beautiful condition when we bought it. All painted, new carpets. Why wouldn’t you buy it?’’ Mike Stewart
walls and declared them plumb. When Townshend demanded he get his spirit level out, the builder held it up quickly and snatched it away before the bubble had even settled. It was that farcical.
So realising the game being played, Townshend spent thousands on engineering reports for all his properties. Eventually three houses that EQC would have patched became full rebuilds.
He turned out for the Letterboxes march as there is still one case in dispute with Southern Response. But you would be nuts leaping into buying a pre-quake Christchurch house these days, Townshend says.
The risk of buying into concealed damage is too high, the likelihood of insurers then voiding their cover once this is revealed almost inevitable.
For the Letterboxes protest, Jones has prepared a list of demands to present. First, all outstanding claims must be settled fast.
She says both EQC and insurers seem to have wound down their operations to the point where incompetency and snail’s pace communication are again the rule.
The Government needs to create an independent tribunal that can intervene to sort the disputes. And public money ought to be spent on High Court declaratory judgements or test cases to confirm how policies should be interpreted.
Jones says there also must be an inquiry into the failings of the EQC – preferably a full Royal Commission with broad investigative powers, rather than merely a Government inquiry which would be too easy for it to stage-manage.
Woods, fronting the crowd as EQC Minister, with Ardern standing sympathetic and attentive beside her, gives her assurances on most of these points.
‘‘This isn’t just about repairing assets. This is about rebuilding lives. And we get that. I have had multiple meetings with both EQC and the private insurers. I have made our Government’s expectations around the speed of settlement clear,’’ Woods promises.
Some kind of arbitration tribunal is in the wings, she says.
But it will have to wait until May when the Government draws up its own first Budget and can release the money.
Consultation on the shape of an independent inquiry has already started. Again, action will be coming.
Then on on-solds, Woods agrees the question of who bears responsibility needs to be determined fast.
‘‘On-solds is one of the coming big issues. It is already here, and it’s going to grow. So it is one of the chief areas where we need to put the resources in to get a declaratory judgement from the courts around what the legal position is,’’ Woods says.
(That Woods is determined to to see action was made apparent on Friday with the sudden departure of EQC board chair Sir Maarten Wevers and the announcement that an independent ministerial adviser would be installed to speed up the remaining Canterbury earthquake claims.)
INSURANCE BATTLE ‘EATS INTO YOUR SOUL’
So a relatively small and polite protest that did not get much actual media coverage, and a new Government still in its honeymoon period making all the right noises.
Yet in 2018, there are still 3000 unresolved EQC claims, with a load more in the hands of the private insurers. There are 521 cases queued up in a court list which continues to grow.
There are plenty who continue to be in the thick of it. Another at the rally is Rose Spijkerman who has a home in Tai Tapu with a crack across the concrete living room floor you could trip over.
She says after finally winning the battle with EQC to get the house declared over-cap, her insurer then turned around and said it took EQC’s original view the crack was ‘‘pre-existing damage’’.
The same grief all over again. Perhaps being a rebuild that will cost approaching $3 million, it is considered a case worth disputing no matter what the human cost, suggests Spijkerman?
Her husband has been diagnosed with PTSD now. The doctor’s notes actually says the trauma is due to an ‘‘acrimonious relationship’’ with the insurers. It eats into your soul.
‘‘We just exist in our house. It’s a constant reminder. We can’t even risk painting a room as it might void our claim,’’ she says.
And now along comes the buried trouble. More wrecked lives as the potential wave of bodged on-solds starts to hit.
Cam Preston, spokesperson for another campaign group, EQC Fix, which has pushed the foundations issue, says who knows how many homes have been left with hidden damage. But do the maths.
About 60,000 properties were repaired by EQC for more than $15,000 worth of cosmetic work, but less than the $100,000 cap. And only a few hundred of those ever had proper engineering reports and a council consent.
So potentially there are many with foundations that won’t pass muster. And really, anyone who understands the situation will almost immediately be able to pick out the likely suspects, Preston says. There are three red flags.
‘‘Essentially if you were on TC3 land, you were repaired by Fletcher, and your property has pre-1970s type foundations, from EQC Fix’s experience, those three seem like the big risk factors,’’ he says.
Exactly the Stewart family’s situation then.
Preston does not hold out much hope for any serious retrospective action on missed repairs. There is a deeper economic reality to the city’s recovery, he says. Looking back, this now seems clear.
Early on, the Government realised that Christchurch was incredibly well insured with its ‘‘as new’’ house policies. But also it had a great many ageing properties on poor land which didn’t actually make a lot of sense to repair.
Preston says the rational choice was to encourage people to cash in what they could and build anew elsewhere, rather than pump capital into fixing dungers.
Preston likens it to having a vintage Morris Minor that gets wrecked in a crash and then instead of getting a new car, wanting the old one restored to as good as new.
So as much as it could, the Government was trying to engineer a situation where the best reinvestment of capital took place.
The red zoning achieved a lot of that. And that is also why it came out with its new building guidelines – the MBIE advice that allowed cheap crack filling, or jacking and packing, as a ‘‘nonpolicy’’ fix for foundations.
And then the diminution of value (DoV) pay-offs on land damage which let EQC avoid actually having to lift TC3 homes and repair the land beneath.
A chartered accountant, Preston has been keeping tabs on EQC’s accounts. By his calculation, DoV payments have saved EQC about $1.5 billion on their overall liability estimates.
Likewise, giving insurers a lesser repair standard through the MBIE guidelines has been a way to limit an excessive-seeming spend on old weatherboards that never had anything better than rubble ring foundations in the first place.
Preston says this had a logic for the country, if not for the individual property owner.
‘‘Your policy might say you are entitled to a Rolls Royce. But at a strategic level, you’ve got to ask why would you throw all that money into old buildings on bad land.’’
However, the flip side was the insurance industry was given an inch and ran a mile.
Preston says many in Christchurch did get lucky in that their policies won them a brand new home. But others became the losers with a minimal repair job.
And that sharp division is now what the Christchurch housing market will eventually reflect.
Officially a Fletchered home is fine – still apparently mortgageable and insurable, holding its property value. But steadily those legacy problems will rise to the surface.
What it means to be caught up in the full financial horror of an on-sold will be common knowledge.
Yet Preston says it is not as if a change of government is going to lead to an inquiry that might eventually go back and relitigate the whole rebuild all over again.
The inquiry will be steered towards changing EQC practice so policies don’t over-promise in future earthquakes. As far as the current situation goes, it will be a case of managing the pain.
It remains to be discovered how the buried problems will actually affect buyer behaviour and property values.
So for the politicians, it is a case of wait and see whether the effect on the housing market is starting to cost votes.
HOME BUYERS BEWARE
Meanwhile the Stewart family have to decide its next step.
Stewart says he was contacted by Woods’ office about possibly being part of a declaratory judgement.
But in fact he has already filed proceedings against EQC as part of a group of very similar cases being managed by Andrew Hooker of Auckland insurance litigator, Shine Lawyers.
It is a bitter pill. Litigators take a 20 per cent cut of any win. But now – with all the stress building up – Stewart says it seems the best course.
Talking about the action, Hooker says he has 16 cases ready for court and another 10 in the offing. That shows there are plenty of on-sold situations now in Christchurch.
Hooker says EQC does accept that it is liable for a payout up to its maximum of $100,000 where structural work was not done. The Stewarts and others can still get that.
However, without full insurance, the loss will still be large. So he intends to pick one example as a test case and sue EQC for the general negligence of its scoping.
‘‘EQC is taking a very technical approach and saying our liability is limited. But I say no, not for subsequent owners where you could have reasonably foreseen they would suffer a loss if you didn’t repair a house properly.’’
That hearing should be underway before the end of this year. But Hooker’s advice to every home buyer is to be wary and get a professional inspection before purchase.
He has seen whole roads of houses where he can tell you – ‘‘driving by at 30kph’’ – that it will be another bodged under-cap.
People predicted this would happen, and it is happening, Hooker says. So Christchurch’s insurance woes are not over. It is just a new set of victims lining up to enter the game. ❚ EQC did not reply to questions in time for this article’s deadline. However it says it does not comment on specific cases. And previously it has said while its scoping may have missed some repairs, the numbers will be marginal. Many older Christchurch properties have weak foundations and did have pre-existing damage. If owners are in doubt, it is their responsibility to take professional advice on house damage.
‘‘We just exist in our house. It’s a constant reminder. We can’t even risk painting a room as it might void our claim.’’ Rose Spijkerman