Cash Settlements

Opportunities and Risks

Dr Duncan Webb, Lane Neave

26 June 2017
If you are in any doubt about your claim it is recommended you seek legal advice.

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

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