Cash Settlements

Opportunities and RisksDr Duncan Webb

Can my insurer insist?

• In some policies the insurer has a right to pay the cash equivalent of repair or rebuild but:• Did the insurer make an election

to repair themselves?• Has the insurer represented that

they would manage?• Good faith…• Rebuff threats in respect of repair

/ rebuild contract timelines.

Full and Final?

• Insurer cannot insist that your settlement is “full and final”

• Beware of full and final agreements if you are going to repair.

• May be advantages to full and final agreements where you intend an outside of policy solution

When should I agree to a full and final settlement?

• When risks are low• When you are wanting to depart

from policy• Different house• Waiting before undertaking

repair• Buying two properties

• Note the terms of the settlement agreement• “intend to…”• Repair / rebuild / reinstate /

replace?• In general must spend on

reinstatement.

Can I ask for more cash later…?

• Not if the agreement was full and final:• Limited exceptions

(such as fraud)• Partial settlements are

possible. Insurers may agree to pay more for:• Variations• Increased foundation

costs

I find your lack of faith disturbing….

Whose Costs?

• Insurers will provide an estimate of the reinstatement costs• No estimate is perfect• The more work is done the closer the estimate is likely to

be• Costings need to:

• Identify the damage• Have a realistic reinstatement proposal• Be costed at open market rates• Capture all costs (design, consenting, professional advice

etc). • It is often wise to take professional advice on costs

Partial Settlement: Costs

• If the insurer is not managing the repair then the homeowner is entitled to incur reasonable costs.

• Insurer not entitled to:• Dictate professionals to

use• Place caps on cost

• In reality there is a need to agree process / project with insurer.

Full and Final: Lookouts

• Policy Standard:• As / when new• Modern materials and methods

(equivalent, not cheapest)• Modern building standards /

regulatory upgrades• Additional costs

• Design / consent / survey / engineer

• Project management• Contingency / risk

• Keep a look out for exclusions for defects / pre existing condition etc

Final Comments

• What is your ideal outcome?• What is your worst case?• How much risk can you assume?• What is your appetite for conflict?• Consider the benefits of finality / control• Be pragmatic and reason-based• If in doubt take advice from a third party

Judge me by my size, do you?