Jones Fee

Legal & Insurance Issues arising out of the NZ Earthquakes in an Age of Climate Change

By Craig LangstonePartner

• NZ definition of “climate change”:

“a change of climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and that is in addition to natural climate variability observed over comparable time periods”

• Are climate change and earthquakes connected?

• 2 questions:

- Do earthquakes influence climate change?

- Does climate change influence earthquakes?

Climate change & earthquakes

Earthquakes influencing climate change?

• Movements of continental plates affecting climate well established

• Plate movements create new mountains/sea trenches – climate altered as a result

• Large mountain ranges like Andes/Tibet affect climate

• Tambora volcanic eruption 1815 – “year without a summer”

• Relatively non-controversial

Climate change influencing earthquakes?

• Controversial!

• Changing ice caps/sea-level redistributes weight over fault lines

• Shifting weight of water on undersea volcanoes

• Australian-led team found strengthening Indian monsoons increased Indian plate movement 20% over 10 million years

• Koyna dam in India:- reservoir filled in 1963 and small quakes resulted- 6.3 quake in 1967- result of increased weight on earth’s crust

• NZ earthquakes unlikely to be caused by climate change

• Government, via CERA, will buy Red Zone homes at current valuation (CV)

• Minor damage to home but CERA paid CV

• Public statements re: insurance payments

• Forthcoming claims by CERA against insurers

• Who holds the power – the NZ Government or insurers?

Government Response to Unprecedented EQ Damage

• Most NZ insurance policies cover costs of compliance with regulations

• 2010 Christchurch policy requires 67% seismic strengthening for new building (after 1st earthquake)

• Council can require work if building dangerous in “moderate earthquake”

• “Moderate earthquake” – based on 34% likelihood of collapse

• Insurer’s policy obligations v. future well-being of Christchurch residents

• Future insurability?

Council Required Upgrades

Land/Foundation Issues• The “value” of the land is covered by EQC – what does this

mean?

• Practical issues:

Land sunk below flood level

Foundations required to 50 metres

• EQC land settlement case studies

• Again, insurability going forward?

• Government response v. insurers’ appetite for risk

• Sums insured not based on large scale events like earthquakes

The CBD Plan

• Changed landscape for insurers

• CERA intends to acquire land without paying owner what insurer should pay

• But –

• Compensation calculated when land compulsorily acquired

• Excludes part of a loss that was insured or “that ought reasonably to have been insured”

• Based on “willing buyer, willing seller”

In Conclusion • Christchurch earthquakes probably unrelated to climate

change

• But do Christchurch earthquake issues foreshadow large scale Government/insurer responses to climate change issues?

• No longer will insurers only respond to a single event but instead, to large scale events