The Leaks in New Zealand Building Claims
The title of this blog may be a light-hearted double entendre, but when it comes to insurance and reinsurance claims arising from New Zealand’s infamous leaky building issues, the claims are not spared from complexity.
Insured’s themselves may think they are covered for faulty workmanship when they aren't - nor are their clients.
Policies are generally occurrence-based, so these should be in-force at the date of damage - not just up to the date of completion. Ok, sounds simple until you ask, what is the date of damage? Well, it's not when the work is complete, at least not in leaky building claims. You need a source of moisture to start, usually rain, and even then, it's not until damage has been suffered that you have a potential policy trigger. For example, if moisture flows over timber a few times, it may just dry out and not detrimentally affect the timber. Repeat that process numerous times in cold or humid conditions when it can’t dry out, and you may find it starts degrading the timber and, indeed, its structural integrity.
What if the insured did defective work on several units in the same development, working progressively over time and over progressive policy periods? You can see it wouldn’t necessarily make sense to use one common date of damage for all the issues on all the units on which the insured worked.
And what if the reinsurers covering the insurer have changed from year to year, as is often the case, and the reinsurance years don’t coincide with the original policy periods? To what extent can the notion of an “event” be used to aggregate losses and thereby allow a series of related losses to be pushed into a reinsurance layer?
While leaks can arise in dealings between insureds and insurers and indeed reinsurers, a few basic principles can guide us through this quagmire.
I have examined and commented on some of these in my recent article "Leaky Building Claims in New Zealand - Some Insurance & Reinsurance Issues."