High Court rejects an insurer’s limitation defence on a top up earthquake claim

Are Christchurch homeowners time-barred from bringing claims for earthquake damage against private insurers, given that the earthquakes happened 14 years ago? In a much anticipated decision, the High Court last week rejected an insurer’s limitation defence and allowed a homeowner to bring proceedings.

Private insurers for NZ homeowners typically provide “top up” cover above the cover provided by the Natural Hazards Commission. Although the earthquakes were in 2010 and 2011, it wasn’t until November 2022 that NHC decided that Mr Pearce’s claim exceeded its statutory limit. Despite that, the private insurer (MIS) had told Mr Pearce 9 months earlier that he was out of time to bring a claim for top up cover against MIS, as the 6 year limitation period had started from the date of the earthquakes.

MIS’s position was consistent with English and some Australian authority, although that case law hadn’t needed to consider how limitation periods apply to top up cover. But in any event, Osborne J rejected that authority, saying it was based on a fiction, and ruled that the limitation period begins after (1) NHC had advised the claim was over its statutory cap and made payment, and (2) a reasonable time had passed for the private insurer to make a decision on the top up claim. That meant that, in this case, the limitation period doesn’t end until some time after November 2028 — more than 17 years after the earthquakes.

The decision raises a number of questions. Should insurers be exposed to liability so many years after the earthquakes? Should that timing depend on NHC’s internal processes? Will the “reasonable time” test lead to more uncertainty and litigation? And what if an insured hadn’t made a top up claim against the insurer at the time the claim went overcap: how long do they have to make a top up claim before the insurer’s “reasonable time” begins?