IAG New Zealand and Tower Insurance are taking High Court action against the Earthquake Commission over the calculation of settlements for increased liquidation vulnerability (ILV) following the Canterbury quakes.

Private insurers have settled some ILV claims as part of the rebuilding process for homes needing enhanced foundations due to land issues.

Claims were settled rather than making customers wait for the EQC, which has responsibility for land damage cover, to speed the process and on the understanding insurers would be compensated.

But key differences have emerged in the methodologies used by private insurers and the EQC for land settlements.

The insurers say the EQC is using a depreciated market value model to calculate the cost of land damage, leading to figures that are considerably lower than the cost of enhanced foundations or an assessment of the cost to “repair” land so it provides a building platform.

“We disagree with how these land payments have been calculated and due to this we have issued legal proceedings against the EQC,” IAG New Zealand CEO Craig Olsen told insuranceNEWS.com.au.

“A legal ruling will confirm the EQC’s liabilities and private insurers’ recoverable costs in this situation and help all parties avoid such confusion in future. We don’t believe this impacts our overall constructive relationship with the EQC.”

The commission says it has settled 6540 ILV claims for Canterbury customers and there are 1750 outstanding.

“While the EQC is reviewing its response to the litigation, we can reassure our customers in Canterbury who have already received an EQC settlement for ILV land damage that your settlement will stand,” it says on its website.

Claims still in progress will continue to be settled according to the current policy, it says.

The EQC says it has already sought a declaratory judgement that confirmed diminution of value is an appropriate settlement method in certain circumstances.