Judgment summary - repair or rebuild - Rout v Southern Response Earthquake Services Ltd

[2013] NZHC 3262

The plaintiffs, Mr and Mrs Rout, currently own and live in a house in Brooklands. The earthquakes damaged the Routs' house, but not to an extent that they could no longer live there. However, their property has been red zoned. The Routs have sold the land on which the house is built to the Crown, and will move out of the house in January 2014.

The judgment primarily involved the factual issues of whether the house was a repair or a rebuild, and the cost of that repair or rebuild. Justice D Gendall decided that the house was not economic to repair and was therefore a rebuild, and settled on a rebuild figure of $673,330.90 (including GST).

Although many of the determinations related specifically to the Routs' house, the decision will be of general use for a number of issues.

The red zone

Justice D Gendall agreed with the statements of Asher J in O'Loughlin v Tower Insurance Limited [2013] NZHC 670 that the red zoning itself did not cause damage in terms of the policy. He said that:

"I am satisfied the red zone designation itself did not cause any loss or damage to the Routs' house. The creation of the red zone could not be said to have any physical effect on this or any other house. Rather, it simply affected the way in which land and houses might be regarded in a particular area, and it also gave property owners in the zone a specific option for a time to sell to the Crown." Repair or rebuild?

The policy provides for options where a house "is damaged and can be repaired" (clause 1(d)) and where the house is "damaged beyond economic repair" (clause 1(c)). Justice D Gendall noted that:

"On this question as to whether the house can be repaired, viewed in a purely technical sense, it might be said that almost every house which has been the subject of damage in an earthquake can be "repaired". But of course, this is at a certain cost, and does not answer the question whether it is "economic" for that repair to be undertaken. The test in clause 1(d) of the policy, as I see it, requires that the damaged house can be "economically repairable" in an objective sense". In determining whether something was economically repairable, Justice D Gendall decided that:

"a rule of thumb test had been adopted and used throughout by insurers and insureds in Christchurch since the earthquakes... this test provided that, if the cost of repairs totalled more than about 80% of an actually assessed rebuild cost, then the repairs were considered...