Is your property adequately insured?

For many property owners in New Zealand 2023 has been a year they would prefer to forget.

The widespread damage to homes and land from weather events during the year will have prompted a deeper look at their current insurance covers, for different reasons.

Those directly impacted by these events sought to understand the extent of their insurance coverage to facilitate a claim. Conversely, those fortunate enough to escape the events unscathed may have scrutinised their insurance policies to ensure sufficient coverage in case of any future misfortune.

It is more than likely that, despite a diligent review of the minutiae of their insurance policies, some owners will remain unaware that certain risks may not be covered under a typical policy.

This article emphasises the need for property owners to thoroughly understand their insurance coverage, especially regarding land and the effect of any Building Act notices, to avoid being left without adequate protection in the event of natural hazards.

Land Insurance Misconceptions

The majority of property owners are concerned to insure the buildings on a property. However, when it comes to the land itself, it is either not considered or there is a tendency to believe that the Earthquake Commission ("EQC") has it covered. The latter is not strictly correct.

EQC cover is capped to a certain amount (depending on the time when the damage was suffered and the damage suffered) and is also subject to certain conditions. A property owner should not assume that EQC will fully cover the value of the land as it was prior to the damage.

Building Act Notices and Vulnerabilities

A further factor, that is easily overlooked, is the impact of a section 36(2) Building Act 1991 or section 72 Building Act 2004 notice sometimes registered against the title to a property.

Section 36 Building Act 1991 provides that a territorial authority must refuse to grant building consent if the land, on which building is to be carried out, is subject to a natural hazard. However, if the territorial authority is of the view that the building consent will not accelerate or worsen the natural hazard, it can grant building consent provided the Registrar-General of Land is notified to register a section 36(2) notice on the title of the property. This serves as a notice to the world at large that the property is at risk from one or more natural hazards.

Similarly, a building consent for improvements to land that is subject to natural hazard/s can be granted under section 72 Building Act 2004, provided the Registrar-General of Land records this on the title of the property and provides particulars that identifies the natural hazard/s concerned.

Property owners with a section 36(2) or section 72 notice registered on their title are particularly vulnerable and could in fact be left without any insurance cover altogether. Insurance companies may decline an application for insurance cover for buildings if they perceive the hazard risk to be too high.

Furthermore, section 3(d) of Schedule 3 of the Earthquake Commission Act 1993 provides that EQC may decline a claim when the title of the property contains an entry under section 36(2) of the Building Act 1991 or an entry under section 74 of the Building Act 2004 (noting that building consent has been granted under section 72 Building Act 2004). Accordingly, the property owner could be left without cover for both the buildings and the land.

Council Approvals, Rebuilding, and Insurance Challenges

Many property owners affected by the catastrophic weather events of 2023 will be looking to rebuild their homes. However, the land on which these owners wish to rebuild may now be compromised and be subject to one or more natural hazards. Accordingly, Councils may grant building consent for the rebuild of those homes if they are of the view that the building work will not accelerate or worsen those hazards, but require registration of a section 72 notice on the title — which in turn can leave the property owner without the ability to insure their buildings and/or without cover for any loss of land caused by a natural hazard.

If you would like to discuss insurance coverage or other matters related to this article, please contact:

Email: ‍pfoster@mcveaghfleming.co.nz

DDI: 09 262 4949