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Tips for assessing natural disaster damage from a legal POV
Having spent over a decade litigating disaster claims for insurers and building owners, barrister Emily Walton shares her tips for our members on what to look out for when assessing natural disaster damage.
So, who has to prove what?
Even if EQC of the insurer takes control of the assessment process, legally, the home or building owner bears the burden of proving the disaster damage.
If you’re engaged by the building owner, make sure you do enough investigation/assessment/reporting to provide a factual basis for them to do so. Take a lot of photos and measurements and include details of investigations and any testing you do in your report.
With more severe weather events heading our way and cyclones, floods and landslips becoming more frequent, repeat flooding is possible which could lead to second insurance claims being lodged for already damaged properties. While this is possible, there can be real difficulties in allocating damage (and insurance payments) between the two weather events. This can impact the amounts able to be recovered, particularly in cases of underinsurance.
Take photographs and measurements after each event, so you can show additional damage sustained in the second event (or ask your client to if you can’t get back to the site).
What actually is “damage”?
A structural element of a building is damaged if:
- its physical state has been measurably or visibly altered by the disaster in a negative way; and
- that alteration is more than “de minimis” meaning trivial or minimal; and
- that alteration affects the original functionality of the structural element.
This requires you to assess:
- whether a physical change has occurred to any structural element of the building;
- the cause of the physical change;
- the function of that element; and
- any change in function of that element due to the physical change it has suffered.
Whether a change is trivial or minimal is a question of judgment. This question should be addressed with objectivity and reasonableness.
In Canterbury, some engineers tried to write off buildings due to “invisible, unquantifiable, detrimental stresses and strains” caused by the earthquakes. This doesn’t satisfy the statutory, policy or Court definition of damage. It won’t satisfy EQC or an insurer either, so it won’t be helpful for the owner if that is your client.
Pre-existing condition of the building
Extra care is required where there might be a pre-existing condition or damage in a building (which will not be part of the claim). Ask for photographs and other information about the pre-disaster condition of the property.
If there is a question about previous leaks or prior flooding, pre-disaster photographs of the area in question can show the extent of that earlier water staining in contrast to any new flood damage. In many earthquake cases, emphasis was placed on pre-disaster photographs of the insured property as a baseline to identify any new damage.
What is the standard of repair?
The home or building owner also has the burden of proving what is required to repair or remedy the disaster damage. Engineers working from different briefs or instructions about the repair standard caused thousands of unnecessary legal disputes in Canterbury.
Engineering New Zealand has a standard Letter of Engagement which can be modified for use in other natural disasters.
Also, ask for a copy of the applicable insurance policy which states the standard of repair. For residential homes, the standard under the Earthquake Commission Act is:
Replacing or reinstating the building to a condition substantially the same as but not better or more extensive than its condition when new, modified as necessary to comply with any applicable (or new) laws.
Most replacement insurance policies are very similar, although functional replacement, heritage building, indemnity and “as new” policies may be different. If you come across an unusual policy, you might want to take advice from a broker or lawyer.
The Court has confirmed that where insured damage has occurred to a structural element, the reinstatement methodology, whether it involves repair or replacement, depends on the purpose or function of that element:
- If it is solely structural or functional, with not aesthetic purpose, restoration of that element so that it carries out its function as if it were new*
- Where there is also an aesthetic purpose, the remediation will need to restore the former aesthetic to its when new quality.
Reinstatement of a damaged structural element does not require an exact replica of the original.
Usually (again, depending on the policy) current materials and methods must be used.
As a minimum, the reinstatement work must meet current building regulatory requirements, including the Building Code to the extent required by the Building Act (see below).
Health, safety, and durability considerations including the ability for the building to last and have a useful life (in the case of its structure for 50 years and in the case of its cladding for example, for 15 years) need to be met.
But is there an obligation to upgrade?
What if the building didn’t comply with current Building Code requirements before the disaster?
There is no general obligation to upgrade the building to the current Code even if it was constructed a while ago and doesn’t comply. However, the repair must not make the building less compliant with the Building Code than it was before the damage and repair (Building Act s.112(1)(b)).
The Courts have interpreted this as applying to individual building elements or portions of the building. For example, it’s possible to repair or replace a pile so it complies with current Code requirements, eg. fixed to bearers) without having to upgrade the entire foundation system to the current Code.
The exception is where repair to a non-residential building needs building consent. Additional work may be required so that the means of escape from fire and access and facilities for disabled persons complies, as nearly as is reasonably practical, with current Building Code requirements (Building Act s.112(1)(a).
This can trigger a ‘fire and access’ upgrade to the whole building. Insurance policies will usually only meet the cost of the fire and access upgrade to the damaged portions of the building, not all of it.
The council can agree to grant building consent for repairs without requiring a ‘fire and access upgrade’ if it is satisfied that the repair wouldn’t happen if the upgrade was mandatory, the repairs will still improve the escape from fire and disabled persons' access albeit not to Code and that this outweighs leaving the building as it is. (Building Act s.112(2)).
If the repair work is exempt from requiring building consent, the repair must not result in the building becoming less compliant with the Building Code, but there is no fire and access upgrade requirement (Building Act s.42)
A repair must not accelerate or worsen a natural hazard on the land or any other property (Building Act s.71) This is a valid consideration, as in some instances, proposed foundation repairs on one site, might potentially cause increased overland flow on neighbouring properties.
Tips on reporting
Re-familiarise yourself and comply with your Code of Ethical Conduct. Just in case the claim is disputed, also familiarise yourself with the High Court Expert Witness Code of Conduct.
Generally, these Codes require you to:
- Be impartial
- Act with honesty, objectivity, and integrity
- Stick to your knitting – only provide an expert opinion within your area of expertise
No matter how sympathetic you are to your client’s position (or how much pressure is placed on you) maintain your objectivity and resist the urge to become an advocate. Courts place little weight on expert reports smacking of advocacy.
Be site-specific. Any generic criticisms of building practice, regulations or guidance are unhelpful. They undermine your impartiality and consequently the credibility of your report.
Make sure your report is written in an objective, balanced, and impartial way. Include details and photographs of the investigations, measurements and tests you’ve done.
Remember, one day you might need to be cross-examined on your report, so you want to be able to stand by it.
* If the insurance policy requires repair to an “as new” condition, the repaired element must be equivalent to as if it was built today.
ACE New Zealand thanks Emily Walton for drawing on her decade of disaster claim experience, acting for insurers and building owners, to provide this help for members.
Register for our webinar on Natural disaster contract and insurance claims 12pm, 24 February