The High Court of New Zealand has decided that earthquake cover provided by the government-owned Earthquake Commission (EQC) does not lessen when a claim is made.

The EQC, Insurance Council of New Zealand and insurers Tower, IAG NZ and Vero had asked the court to clarify where the EQC’s cover ends and private insurers’ responsibility begins when one householder claims for multiple events.

The panel of three judges had to decide whether the EQC’s cover of $NZ100,000 ($77,600) for homes and $NZ20,000 ($15,500) for contents applies to each event or to a series of events in total, until new cover is reinstated by the payment of a claim or policy renewal. 

Last month’s decision in favour of insurers means the EQC will incur a higher proportion of claims.

The court has published its judgement but is waiting for the EQC and insurers to submit a declaration that it can make on the case.

The judges said last year’s September 4 Christchurch earthquake caused damage on a scale unprecedented in New Zealand for any natural disaster, and by the end of June, the EQC had received 368,000 claims, divided almost equally between the quakes in September and on February 22.

The High Court’s decision affects around 110,000 properties which have multiple claims.

The EQC argued that the Earthquake Commission Act applied an aggregate amount of insurance of $NZ100,000 for all natural disaster damage occurring during the period of insurance.

Once a claim was made, the insurance available for a subsequent claim would be reduced by that amount and that would continue until the policy was renewed or the first claim paid. At that point, the full amount of insurance would be reinstated.

But the judges sided with the insurers’ contention that cover is continuing or reinstated immediately as long as the contract is in force, and this is not affected by a claim being made or paid. 

The judges found there is nothing in the Act to say that cover reduces when damage occurs or a claim is made.

It noted that under the EQC’s approach two neighbouring properties that suffer identical damage may receive a different EQC payment, depending on when they renewed their insurance or whether a payment was made for the first claim before the second occurs.

On the insurers’ approach, a property that sustains $NZ300,000 ($232,000) of natural disaster damage in one earthquake receives $NZ100,000, but an identical property that suffers the same overall damage in three separate earthquakes would receive up to $NZ300,000.

The judges said the anomalies in the EQC’s approach rely on timing, while those in the insurers’ approach turn on how the EQC limit applies. 

The EQC has substantial latitude under its Act on how to time payments and this seemed an arbitrary basis on which to determine whether reinstatement has occurred and led the judges to reject the EQC interpretation.