Over the past 6 years it had become usual practice that EQC and private insurance claims were assigned to the purchaser upon a sale if the parties both agreed. Previously private insurers had been happy to allow the assignment of these claims provided a valid Deed of Assignment was entered into by the parties.
We have touched on this in our August newsletter, but it is important that you are aware of the developments in this area. In our experience it is now uncommon for most private insurers to accept Deeds of Assignment for the residual benefits of claims that have previously been settled. We are also aware that different insurers are taking different positions as to whether they will allow the assignment of claims which are still open.
IAG in particular has now made a business decision to no longer accept any Deeds of Assignment that intend to transfer claim entitlements to the property's new owners. This will of course have a major bearing on how you, as agents, will prepare contracts and market properties.
When you are tasked with marketing a property that has an IAG claim (whether the claim has been settled or is still open), you will now need to be aware that that it will not be possible for the vendor to assign the IAG claim to the new owners. IAG will not accept whatever assignment is presented to them even if the vendor has represented to the purchaser that an assignment would be possible.
If the property is insured through an insurer other than IAG then it is important that the vendor obtains their insurer's consent to assign the insurance claim(s) before the vendor makes any promises to the purchaser.
Put simply, our view is that the default position should be that a claim cannot be assigned unless the vendor has obtained the written consent of their insurer.
Accordingly, it is also important that purchasers and vendors are also aware of this from the outset so that there are no false expectations, particularly if someone is under the assumption they can rely on the claim going forward to fix a driveway, for example. If the parties' expectations are clear at the outset then you can avoid a messy situation where a purchaser discovers they can't in fact obtain rights to a claim they expected to receive.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Transferring the benefit of an EQC claim when the property is sold*
If a property with an EQC claim is being sold, and the parties have agreed they want EQC to settle any outstanding claims with the purchaser, EQC needs to be advised of the assignment of the claim and supplied with relevant documentation.
*Note: there are other times when the benefit of a claim could be transferred, including where a relationship breaks down or where a person has died. You can get further information from us on this by phoning 0800 DAMAGE (0800 326 243).
Deed of Assignment
The process of transferring the benefit of a claim is called ‘assignment’. The most commonly used documentation for this is a Deed of Assignment – but any document can be used as long as it is clear about what is being assigned.
Important issues for purchasers
If you’re the purchaser, you need to be aware of the following important issues:
EQC receives a range of different Deeds of Assignment, which often lack clarity about what is being assigned. This can prevent or slow down settlement. Customers may need to get a new or amended Deed of Assignment, which can be difficult and time consuming particularly where the vendor has moved overseas or cannot be contacted. It is therefore important to make sure your Deed of Assignment is very clear.
The fact a claim has been lodged does not necessarily mean the claim is valid or that EQC will be able to accept it. An issue with the validity of a claim might not arise or be identified until well after a claim is lodged. Because of this, we recommend you seek legal advice when purchasing a property that is subject to an EQC claim.
What is assigned will depend both on what the Deed of Assignment says and on any relevant provisions in the private insurance policy. We recommend you seek legal advice and speak with your private insurer and mortgagee.
Where an EQC claim is assigned, the assignee (the person receiving the benefit of the claim, for example a purchaser) will have the same entitlement(s) under the Earthquake Commission Act as the original owner. That means they will receive any remaining entitlement up to EQC’s cap for an event.
However, where the related private insurance claim can be assigned, the assignee may not have the same entitlement as the original owner, or any entitlement from the private insurer at all. When the parties have a Deed of Assignment drawn up, it’s important to find out from the private insurer what, if any, insurance entitlement the assignee would receive.
EQC is limited in its ability to disclose information about a claim to you without the original claimant’s consent. If you want information about a claim before you purchase the property, you will need to discuss this with the claimant. If you want information after you’ve purchased a property, you will need to have obtained a Deed of Assignment (or similar document).
It can be useful to include a clause in your Deed of Assignment requiring the vendor to assist in the completion of a claim. Discuss this with your lawyer.
EQC claims are subject to excess. EQC will deduct the excess amount due on the claim from any cash settlement it makes to the purchaser as a result of the Deed of Assignment. If the property is repaired by EQC under the Canterbury Home Repair Programme (CHRP), EQC will invoice the purchaser for the excess amount if they own the property when the repairs are completed. The assignment of the claim can only include the benefits and not burdens, so an agreement in the Deed of Assignment on who will pay any excess will not change who EQC invoices.
Questions and answers: Transferring a property claim
To make sure your Deed of Assignment is clear for EQC to apply, it should include:
Full names of all the current owner(s) and all the new owner(s).
The signatures of all Assignors, and Assignees must be included and witnessed. Where a party is a company the Deed of Assignment must be signed in accordance with the relevant legal requirements.
Address of the property being sold.
The date of the agreement, and the date at which the assignment takes effect.
This is an area where many Deeds of Assignment are not sufficiently clear. This causes considerable delays and sometimes prevents settlement.
There must be a clear description of which claims are being assigned:
Note that there is a separate claim number for each claim lodged with EQC. If a claimant made claims for damage from the 4 September 2010, 22 February 2011, 13 June 2011, and 23 December 2011 events, there will be four separate claim numbers. If you are the vendor and want to confirm what claim numbers exist for your property, please phone EQC on 0800 DAMAGE to check.
Include contact details for the purchaser so EQC knows how to contact them to arrange settlement.
Name of Insured:
If the name of the original claimant and the name on the insurance policy are different, the reason for this must be recorded. For example, if the original claimants owned the property under a trust and insured the property in the name of the trust, the Deed of Assignment should record this fact to avoid confusion.
Once a person has had the benefit of a claim assigned to them, EQC will generally be able to provide that person with information about the claim including details about property damage.
Sometimes an earlier EQC claim will have already been settled with the vendor, and so will not be included in the assignment. If the purchaser wants to receive information about earlier claims (for example, what damage was claimed for), they should include a clause in the Deed of Assignment stating that the vendor agrees to that information being provided to the purchaser.
Where to send the documentation:
A copy of the Deed of Assignment (or other documentation) should be sent to:
PO Box 311
Alternatively, you can email a copy (in PDF format), to: email@example.com
“VENDOR, ASSIGNOR, and ORIGINAL CLAIMANT” and “PURCHASER and ASSIGNEE” will usually be the same person, but the particular terms are used above to reflect the fact that they can be different people, as explained below.
The registered proprietor who is selling the property.
The person who is purchasing the property
The person who is assigning their interest in the claim. For EQC to settle the claim with the purchaser, everyone with an insurable interest in the claim needs to assign their rights in the claim to the purchaser. Usually this will just be the vendors, but in some cases there may be other people who need to approve this.
The person receiving the benefit of the claim.
The person who lodged the claim with EQC. Sometimes the property will have been sold more than once since the claim was lodged.
*Note that there are other times when the benefit of a claim might be transferred including where a relationship breaks up, or where a person has died. You can get further information from us on this by phoning 0800 DAMAGE