The Auckland floods and Cyclone Gabrielle have left hundreds of homeowners asking why the EQC and their insurance companies have let them down. In a Herald investigation, Jane Phare questions if the EQC system is fit for purpose, why homeowners are forced to hire lawyers to get a fair pay-out, and why Auckland ratepayers and taxpayers are left to pay millions in compensation.
Chris Whyman used to love the sound of rain on the roof of his Titirangi home; now the thought fills him with fear.
From the road, the architecturally designed house looks like a slice of paradise, surrounded by lush bush. The cicadas are loud out here.
Whyman and his partner Andrew James haven’t lived in the house for more than a year since it was red-stickered after the Auckland floods in January 2023.
There’s nothing wrong with the house itself, just the foundations underneath it. Perched now on a treacherous slip, its pole foundations exposed, the house is too dangerous to step inside. Below is an almost vertical bush-clad ravine.
If the property’s supporting piles had given way and the house had crashed down the cliff, the couple’s total replacement insurance policy would have kicked in. But because the house is intact, albeit too dangerous to enter, Whyman and James are stuck with a million-dollar problem after a shocking offer from Toka Tū Ake EQC.
Geo tech engineers engaged by Whyman and James quoted between $800,000 and $1.2 million, plus GST, to assess the site, stabilise the land and build a large retaining wall. Access to the steep slip will be difficult without demolishing part of the house, and building supplies will need to be helicoptered in, they’ve been told.
When Whyman first saw the EQCover/IAG settlement offer of $59,400, he thought a zero had been mistakenly left off. The offer, based on the value of the lost land, included $6000 to adjust two of the piles. No additional insurance cover is coming from IAG because the house is considered undamaged.
“Exposed piles at rear of house (pole house), land slip underneath undermining foundations,” the red sticker on the front door reads.
Creep round the side of Whyman and James’ house, past the row of sandbags laid to stop water cascading down from the road above, and the reasons for the warning become obvious. Assessors who visit the site say it’s too risky to get under the property to have a closer look.
And so the house sits empty, the bush slowly reclaiming the property.
‘It’s life-changing’
The $59,400 EQC offer effectively leaves Whyman and James with a whopping $1m shortfall to fix the land and make the house safe again.
“It’s such an amount [the shortfall] that it’s basically life-changing,” Whyman says. He knows they will never be able to afford to live in the house again, their home for the past 11 years.
Their only hope is that the Auckland Council’s Tāmaki Makaurau recovery office, set up in response to last year’s extreme weather events, will list the house as a category 3, too dangerous to live in and too difficult to fix.
It means that Auckland ratepayers and New Zealand taxpayers will likely fork out well over $1.3m in compensation to the couple, based on 95 per cent of the property’s value, part of a $2 billion cost-share package to pay for flood-damaged roads, infrastructure and homes.
“If we don’t get that I don’t want to contemplate it at the moment,” Whyman says.
Fixing EQC
Issues with the EQC system aren’t new. The agency came in for scathing criticism after the devastating 2010/2011 Canterbury earthquakes. A public inquiry, chaired by former Governor-General Dame Silvia Cartwright, found EQC was “poorly prepared” and highlighted dodgy damage assessments, botched repairs, poor communication, an uncoordinated approach to managing repairs and an adversarial approach to disputes.
In light of that report, the Government agreed to give EQC a shake-up. The building cap, the maximum EQC can pay out under the act for residential building, increased from $115,000 to $300,000, plus GST, in 2022, good news for the 2023 storm victims. It will remain at that level when the new Natural Hazards Insurance Act comes into force in July, replacing the Earthquake Commission Act 1993. EQC will then change its name to Toka Tū Ake - Natural Hazards Commission.
But lawyers who deal with EQC cases on behalf of property owners think that although the new act will streamline processes better, they are sceptical about the outcome. To date, most of their success with disputed EQC claims has meant taking legal action, an expensive process for homeowners.
The combined weather events in 2023 flooded the EQCover system with claims, producing the highest proportion of land claims - 8397 so far - for any event in New Zealand’s history. EQC’s acting CEO Hamish Wall acknowledges how frustrating the process can be for homeowners but says land claims, especially for damage from a land slip, can take time to work through, particularly where access to a property is restricted, the land is still moving, or where there is a shortage of specialist resources such as geotechnical engineers.
“We know from the lessons learned from the Canterbury earthquake sequence that it is important to get it right.”
Nearly 75 per cent of the storm claims have been settled but many homeowners will have been left struggling to make their homes livable. Under the act, EQC must settle for the cheaper of two options - compensation for a restricted area of land lost or the cost of reinstatement and repairs. In the Auckland region, of the 5048 claims received, the majority (64 per cent) have been settled based on the value of land lost - the cheaper option - and 36 per settled on the cost of repairs to damage. Those payouts will come mostly from EQC levies, expected to be more than $800m this year, paid through homeowners’ insurance policies into the Natural Disaster Fund.
Legal challenges bring success
Mobeena Hills is familiar with both the Christchurch cases, and the North Island’s weather claims, working between the two cities as special counsel for Shine Lawyers NZ. Case law established after the earthquakes has been “extremely helpful” in dealing with Auckland flood and cyclone cases, she says.
Shine has won private settlements with insurance companies for Christchurch homeowners who, in many cases, had to engage structural and geotechnical engineers to prove their case. In some cases, insurance companies paid out the notional cost of repairs or to rebuild the house if the site could not be reused.
Hills has also successfully challenged EQC over the practice of compensating for land in a horizontal line within 8 metres of the building or, where the land is a main access way, within 60m.
“It is nonsensical to think that EQC can pay out on a square meterage horizontally but not the land beneath that very area.”
Last year the High Court authorised a large group of Christchurch homeowners to take a class action against EQC to determine whether EQC used a flawed strategy to minimise payments for land damage. The homeowners will argue that EQC should have paid the full cost to reinstate their land.
Hills also questions why the at-risk piles of a home constitute land damage and are therefore only covered by EQC, not the insurance company. Insurance companies will argue that piles need to be damaged before they will pay out. However, lawyers acting for Christchurch earthquake victims have successfully argued that piles are a significant part of the house’s foundations and structure, and should therefore be covered by insurance.
The same case law, established in Christchurch, should apply for Auckland flood and cyclone cases, Hills says, and legal action shouldn’t be necessary.
“Homeowners have been paying premiums for many years in good faith thinking they were covered in the event of a natural disaster, only to be told that due to a technicality in the EQC Act, they are not covered.”
Hills warns homeowners being assessed for a category 3 buyout not to sign a final agreement until it has been reviewed by a lawyer. The council will allow a claim of up to $5000 towards professional fees or services.
So far the council’s recovery office has confirmed 646 properties fit into one of the various categories. Of those, 187 homes are now eligible for a category 3 buyout; 12 have been paid out at a cost of $18.4m; a further 34 offers have been accepted; and 86 are pending. However, modelling data indicates there could be up to 700 category 3 properties, covered by a budget of $774m. The council has the ability to seek further funding from the Government if the $774m is not enough.
‘The envy of the world’
Those in the insurance industry say Kiwis are lucky to have land insured at all, and that private insurers never insure land. They’re right. New Zealand is one of the few countries, if not the only one, to have that cover.
Tim Grafton, CEO of the Insurance Council of New Zealand, says the state-owned EQC system makes New Zealand one of the top countries in the world for residential insurance, but there is room for improvement.
The council has lobbied successive governments about inequities around the treatment of land cover, which mean an owner with damaged land in Auckland’s Parnell or Remuera will receive significantly more from EQC than an owner living in a remote rural area with low land value.
“Yes it [EQC] can always be improved but we are probably the envy of the world in terms of the system that we have today.”
A former head of the Earthquake Commission and insurance expert, Ian McLean, also believes EQC’s underlying structure is sound.
“It taps into the world’s huge financial resources, it’s a blend of government and private sector, it has community rating so the risk is spread across the country.“
That community rating, as opposed to risk rating, means the same premium applies in earthquake-prone Wellington as it does in low-risk Hamilton.
But that’s small comfort for Whyman and other homeowners like him who thought that between EQCover and their insurance company their homes would be safeguarded.
In 2022 a storm washed away part of a 200m driveway up to Rebecca and Ken Hope’s hillside home at Atawhai, north of Nelson. Rebecca Hope, who has stage four breast cancer, has been battling EQC and IAG after the couple were offered a settlement of $4500 to fix an $80,000 problem. EQC, following the Earthquake Commission Act, would only pay out for the earth underneath their driveway, not the land on the supporting bank that also slipped.
Says Hills: “She’s [Hope] having to wheelbarrow her groceries up a hill because of this nonsensical legislation that we’ve got.”
EQC’s Hamish Wall says under the act the agency can only provide a contribution to repair, not full cover. The commission works within the boundaries of the act and has no authority to make any changes. Those changes sit with the government of the day. However, little change is expected in the foreseeable future.
David Seymour, the minister responsible for EQC, told the Herald there would always be some settlements for land claims that did not meet claimants’ expectations.
“I encourage claimants to engage with their private insurers if they believe settlements are not in line with their entitlements.”
‘Insurance is not social welfare’
McLean says there’s no easy answer.
“Insurance is not like social welfare. If people are deserving and in a difficult situation they will get the money.”
By comparison, insurance is essentially a contract setting out what an insurance company, or EQC, will pay out for.
“If it’s beyond that [contract], they may not pay.”
McLean was involved in the formation of the scheme in the early 1990s and he’s the first to admit the EQC scheme isn’t perfect. Insurance coverage was deliberately kept limited because of the large risks involved, and the very great differences in those risks such as building on top of a cliff. But he acknowledges there is always room for improvement.
“After an event like [Cyclone] Gabrielle, it’s very important to look at all the situations and say: ‘What has it told us about the act? What does need to change?’”
He thinks one solution would be to offer a special voluntary EQC policy to repair land for property owners in high-risk areas. And he suggests a new watchdog role to overview the recovery and repair process after a disaster, to watch for bottlenecks and shortages - including technical experts - unacceptable delays, and agencies not performing.
“My heart goes out to the people in situations like this. Their lives have been absolutely shattered, all their hopes and dreams have gone. Their lives are in limbo, they don’t know what to do or where to turn.”
As a past director of NZI and NZ Life, and experience working for a World Bank project to set up schemes like EQC in Turkey and Romania, he describes New Zealand’s EQC as ”one of the best insurance schemes in the world”.
The problem is there will always be situations where people find themselves in dire straits and without coverage, he says. In those cases, he believes the Government needs to step in.
“I believe that system needs to be formalised so it can be more quickly decided upon and steps taken to assess the properties. It is of major importance that the whole system resolves the situation quickly and fairly.”
Auckland mayor Wayne Brown agrees, saying he has made it clear that the $2b rescue fund, nearly half of which will be paid for by Auckland ratepayers, should not set a precedent for future weather events.
“The Government needs to come up with a national scheme for flood insurance to plug the gaps so we’re not doing things piece by piece. Councils will not be able to continually fund this.”
The council needs to properly regulate land use in the future, to be able to stop developments on flood-prone land.
“In some of these cases, council opposed the subdivisions which were subsequently approved by judges of the Environment Court, so councils need to be able to say ‘no’ and mean ‘no’.
Last year Brown said Auckland ratepayers would pay higher rates as a result and would be paying off the debt for decades.
“I feel the weight of that responsibility,” he said.
‘So bad you find yourself laughing’
For Whyman and James, the past year has been traumatic. They are still paying their mortgage, house insurance and rent for a temporary house. They’ve had to replace furniture and big-ticket items still stuck in the house, and their accommodation allowance ran out six months ago.
“The effect on our mental health, we don’t sleep,” Whyman says. “It’s left us feeling stressed, irritable and constantly on edge.”
To date IAG has paid Whyman a total of $89 for perished freezer food, the amount left from a $339 claim once the $250 excess was removed.
“It is so bad that you find yourself laughing as a way to deal with it. It’s insane.”
In response to questions from the Herald, Wayne Tippet, IAG’s events response executive general manager, said if piles that formed the physical structure of a home had been damaged, they would form part of the building-claim settlement (by the insurance company). A landslip would be first covered by EQC but, he said “there may be consideration under the building claim if the event has undermined the building platform”.
In cases where furniture and contents were trapped in houses, IAG had settled some contents claims based on photos safely taken of damaged items in red-stickered properties. In cases where properties might never be able to be re-entered safely, the company would work with customers on a case-by-case basis with their contents claim.
Whyman is acutely aware that although he and James can manage financially in the short term, many others affected by the Auckland floods and Cyclone Gabrielle will be struggling to survive.
He admits he is torn by the prospect of a council recovery-fund payout but says he has no choice but to accept if a category 3 offer comes their way.
“The whole thing is morally not right. It guts me, but I’ve got to be pragmatic enough to say that at the end of the day I’ve got to look after our interests.”
“People assume that we got ourselves in this position because we did something wrong. People ask, ‘why should we bail them out?’ And I get that sentiment, but it is not the individuals who are at fault here.”
If a property owner does not agree with an EQC or insurance-company offer or is unhappy about how a claim has been handled, a complaint can be made to EQC or the insurer, the New Zealand Claims Resolution Service, the Insurance and Financial Services Ombudsman, the Parliamentary Ombudsman (where it relates to the EQC Act interpretation) - or get a legal opinion.
Jane Phare is a senior Auckland-based features and investigations journalist, former assistant editor of NZ Herald and former editor of the Weekend Herald and Viva.