High Court delivers ruling in EQ flood damage case

The full Court of the New Zealand High Court has delivered its decision in Earthquake Commission v Insurance Council of New Zealand & Ors [2014] NZHC 3138 (10 December 2014), finding that “natural disaster damage” includes increased flooding vulnerability and increased liquefaction vulnerability of residential land created by physical changes in the land caused by earthquakes (see paras [80, [93]).

You can read a description of the case here.

The Court’s conclusion is of interest because it it includes taking into account the probability of something occurring – or not occuring – in the future. “Vulnerability” is, afterall, just another way of describing risk, specifically, a heightened risk of something happening. Diligent readers will be asking themselves: is this a million miles from Kraal v EQC [2014] NZHC 919? In Kraal, the homeowners unsuccessfully contended that the risk that  rocks on a cliff face above the property would dislodge and cause injury/ death and property damage brought them within the scope of the relevant legislation.

The Court distinguished  Kraal on the basis that in Kraal the land was physically unchanged , whereas in the present case, the land was damaged (see [72], [73]). This is where, I say, the arguments become unsustainably metaphysical.  Does the fact that this thing we call land, not made by any person, has undergone some kind of change of state mean it is damaged? Counsel for the EQC submitted no, but the Court concluded yes, stating at [79]:

As a direct result of the earthquakes, there has been a disturbance to the physical integrity of the land, reducing it in volume and leaving the body of the land in a changed physical state. This changed physical state has resulted in the land being more vulnerable to flooding, thereby adversely affecting its use and amenity. The primary use of residential land is as a platform for building. Land that is materially more prone to flooding is plainly less suitable for this purpose and is less habitable. The criteria for physical loss or damage are satisfied.

The coupling of a “changed state” with increased vulnerability results in loss of use and amenity, the Court said, which is then equated to damage as it is understood by the legislation. This is not, I suggest, actual damage, but altered physicality, of some kind, which has increased the risk of something happening (and conversely  something not happening). It is the potential loss of amenity that permits the Court to conclude it amounts to damage. This is an elegant dance. If it is accepted that it is correct, then surely it follows that the homeowners in Kraal can be taken through the same waltz? Substitute the word “rock fall” for “flooding” in the penultimate sentence above and you will catch my drift. And I suggest it is not a continental sized drift, just a little one that would appear to serve the interests of justice for all affected homeowners.

I suggest that if the Court’s decision in this case is correct, then the High Court’s decision in Kraal should be treated as incorrect. The distinction between them is just too fine.

The Court of Appeal hearing for Kraal occurred a little while ago. It will be interesting to see if the Court is influenced by these kinds of arguments in its decision.

Steve Keall
14 December 2014

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