A buyer of an earthquake-damaged house with an open insurance claim may not get the original insurer to pay for that damage, according to a new Supreme Court decision on the IAG vs Xu case.
The ruling was welcomed by the Insurance Council of New Zealand (ICNZ) saying it affirmed long-held legal principles regarding assignment law. The council noted the decision provided definitive confirmation that an insurer must consent to a deed of assignment to an earthquake damaged property before its customer could pass that claim on to a third party.
“Insurers strive to act with integrity and fairness in all their dealings,” ICNZ chief executive Tim Grafton said. “In this case, the purchaser did not seek the insurer’s consent to a deed of assignment.
“Therefore, one could not legally be provided by the property owner,” he explained.
According to ICNZ, the Supreme Court also confirmed a basic principle of assignment law: that an assignee can only assign a loss they have actually suffered.
“Selling a property instead of repairing it means the policyholder has avoided the financial cost of the repair work, which in essence means they have not suffered a loss,” Grafton said. “Claimants cannot assign a claim to recover costs they have chosen not to incur.
“The ability of insurers to choose whether to take on assignments is fundamental in their ability to adequately manage the risks they choose to hold. Insurers’ ability to look after their customers and help them recover from adverse events is dependent on management of their existing portfolio and ongoing reinsurance support. If the Supreme Court had chosen to negate this long-held principle, it could have had far-reaching and very damaging consequences for the insurance market in New Zealand,” he claimed.
Grafton said the council sympathises with Cantabrians who have purchased quake-damaged properties with what they thought were valid assignments, especially where they were unaware that those assignments needed insurer consent to be valid. He urges consumers who have invalid deeds of assignment to seek advice and support from the Greater Christchurch Claims Resolution Service (GCCRS).
Additionally, ICNZ recommends anyone looking to purchase a property with a deed of assignment in the future to first speak to the insurer in question and ensure they’ve received confirmation they consent to the assignment, in writing, before proceeding.