Insuring against natural disasters

Earthquake Commission

The Earthquake Commission (EQC) is a Crown Entity that provides seismic disaster insurance for natural disaster damage to residential property subject to the Commission's terms and conditions.

The types of natural disasters covered by the EQC include earthquakes, natural landslips, volcanic eruptions, hydrothermal activity or tsunamis. In the case of residential land it can also covers storms or floods. The EQC may also cover fire caused by any of these natural disasters.

People who purchase home and/or contents insurance are covered by the EQC.

EQC may decline any claim, either in whole or in part, for natural disaster damage if the certificate of title for that property has an entry under Section 74 of the Building Act 2004. EQC has discretion under the Act to look at each individual case on its particular merits.

Section 74 of The Building Act 2004 (and the insurance implications if this covenant is noted on your property)

Section 74 of the Building Act 2004 provides that a territorial authority may grant a building consent for building work on land that is:

"likely to be subject to erosion, avulsion, alluvion, falling debris, subsidence, inundation, or slippage".

The territorial local authority must notify the District Land Registrar. The District Land Registrar will then include an entry on the certificate of title to the land (ie. a covenant) that building consent has been issued in respect of building on land which is subject to erosion, avulsion, alluvation, falling debris, subsidence, inundation, or slippage.

Further information on the Earthquake Commission is available on their website www.eqc.govt.nz

Your General Insurer

Your insurance company may provide natural disaster damage cover to a level beyond the maximum cover that EQC provides ($100,000). This is often referred to as EQC top-up cover.

Your insurer is in a similar position to the EQC regarding claims for damage to property that are subject to Section 74 of the Building Act.

If it is determined by EQC that a claim for natural disaster damage will not be met due to the presence of a Section 74 covenant, then your general insurer will not be able to pay a claim under the top-up cover.

General insurers may provide cover for property not covered by EQC such as gates, fences, retaining walls and swimming pools. However, claims made to general insurers are unlikely to be accepted if the insurer was unaware that a covenant was in place on the property.

Helpful tip

When purchasing a property ask your solicitor to investigate whether a Section 74 covenant under the Building Act 2004 has been placed on the property.

You should notify your insurer immediately if your property has a Section 74 covenant under the Building Act 2004 noted on the title. It is likely your insurer will request that you obtain an independent engineer's report commenting on the stability of the property. Your insurer may resume cover if the report is favourable.

Disclosure of a Section 74 covenant on your property to your insurer is vitally important.

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