Can You Insure It? Important Considerations for Buyers & Sellers In Light of Last Year’s Earthquake…

The Kaikoura earthquake on 14 November 2016 made insurance a topical issue for homeowners again.  This article sets out some key considerations for agents to bear in mind during the buying and selling process.

EQC Deadline

EQC (the Earthquake Commission) set a date of 14 February 2017 by which to lodge a claim for any damage that has occurred to a home, surrounding land, or contents.  This date has now passed. 

“Notional” EQC claim

Homeowners may have lodged a “notional” claim with EQC for any potential damage caused by the November 2016 earthquake, noting that not all earthquake damage can be seen from a visual or non-invasive inspection.  Until the 14 February 2017 deadline this was the recommended approach following the November 2016 earthquake.

A notional claim ensured that the property address was registered on EQC’s system and the seller was given a claim number.  If the property was then sold, the claim number could be passed on to the buyer at settlement.  If any damage to the property was found after a subsequent inspection, the notional claim would then progress into a full EQC claim.  However if it turned out after a subsequent inspection that there was no damage, the claim would simply not pursued any further.

Many agreements for sale and purchase entered into prior to 14 February 2017 will include a clause to this effect.  Buyers of such properties who have concerns about the notional claim should talk to their legal advisor.

As the deadline date has now passed, agents should be advising buyers and sellers to see their legal advisor before signing an agreement to make sure that it includes an insurance condition that is relevant to their situation.

Existing EQC claim

Some properties being sold may have had EQC claims lodged in the period since the November 2016 earthquake that have been accepted by EQC (so are more than just notional claims).

Sellers should ensure that this is disclosed to any prospective purchasers and recorded in the Agreement for Sale and Purchase. 

If resolution of the claim is ongoing (for example remedial work is required which will continue beyond settlement), the existing EQC claim will be transferred to the new owner on settlement.  This is to enable the new owner to deal with EQC directly to ensure that the remedial work is completed (rather than the seller having to stay involved after the house is sold). 

Sellers and buyers should see their legal advisor to ensure the transfer of the EQC claim happens smoothly.

Seller’s house insurance assigned

Many buyers are worried about insurers not taking on new customers, and the impact this may have on their ability to purchase.

At present some, but not all, insurance companies are allowing sellers to assign their house insurance policies to buyers (and this is unrelated to the EQC deadline date). This may involve paperwork to complete the assignment, and buyers and sellers should therefore seek legal advice before signing or agreeing to anything.

Buyers should make their offers conditional upon obtaining satisfactory insurance, and then begin investigating insurance options as soon as possible after their offer is accepted.

Agents need to understand the current restrictions in the insurance area to ensure there are appropriate protections for both buyers and sellers included in Agreements for Sale and Purchase and to ensure the process flows smoothly ..