The EQCs ‘technical response’ to recognise and reinstate ‘structural damage’
By David Townshend (B Eng)
The fundamental precept of the crown entity, the Earthquake Commission is to provide an humanitarian response to natural disasters. This was articulated in the introduction to the Earthquake Commission Bill in parliament, on the 13th of December 1992 by the acting minister of finance, the Honourable Maurice McTigue, with his words:
‘…to reduce the distress in an effective and efficient manner as possible, so far as that is within the governments capacity…’
To achieve this ‘humanitarian’ response, the wording of the Earthquake Commission Act 1993 (EQC Act 1993) was passed into law and came into effect on 1 January 1994.
When the EQC respond to damage caused by a natural disaster, in order to perform their statutory obligations, they have three discrete steps to complete (either by their own staff, using contracted experts, or accepting home owners evidence), in order they are:
Inspect and identify ‘natural disaster damage’, in accordance with the EQC Act 1993; and,
Propose remediation for the identified ‘natural disaster damage’, which meets the ‘replacement value’ standard defined in the EQC Act 1993; and,
Settle the claim, by reinstatement or by paying cash.
With a natural disaster of the scale of the Canterbury Earthquake Sequence (CES), it is generally accepted that not everything would go perfectly during the response and the recovery. For this very reason, it was essential that processes were put in place early by the EQC to ensure the insured received their fair and proper entitlements under the statute. Anything less would cause unnecessary distress for those affected and would be challengeable in the courts, anything more would cost the rest of the country more than was necessary. To reach this balance, it would be necessary to follow the wording of the EQC Act 1993 for everything the EQC did.
Given the scale and nature of the CES, compared with the size and capabilities of the Earthquake Commission at the time of the events, it would be essential to consult with technical, legal and financial experts outside of the EQC to help inform the response and recovery. In doing so, when performing any roles for the EQC, those experts would need to be aware of the insurance response that the EQC Act 1993 provides.
The technical response, identifying ‘structural damage’ and how to reinstate it - The birth of the DBH/MBIE Guidance
Soon after the 4th September 2010 earthquake, Dr Hugh Cowan, EQC Research Manager, initiated and funded a ‘technical response’ to the CES by forming the Engineering Advisory Group (EAG). This work began with an ad hoc relationship between technical experts and the Commission. The business relationship was formalised in an engagement letter from the EQC to Mr D. Brunsdon (of Kestral Group) on the 2nd October 2010 (Appendix 1.).
In the engagement letter, Dr Cowan proposed that there would be a need for ‘numbers of structural engineers to support the EQCs lead geotechnical engineers and loss adjusters when assessing damaged residential buildings.’ He states it would be necessary to ‘better understand (sic) where these engineers will be sourced from, the adequacy and appropriateness of these resources and how they will be briefed’.
To summarise the aim of the engagement letter, it was initiating a body of technical work to inform the EQCs and insurers response to a major natural disaster that was mostly covered by domestic house insurance. It could therefore be referred to as an ‘insurance response’.
It is important to emphasise, Dr Cowan understood the importance of defining how the engineering experts would be ‘briefed’. This was in the context of structural engineers working for the EQC assessing ‘damaged residential buildings’, but also in the wider sense of expert engineers informing insurers relating to claims that ended up ‘over cap’ and consenting authorities who would be involved in ‘earthquake recovery in Canterbury’.
Since the engagement letter was written by Dr Cowan on behalf of the EQC, as a response to a natural disaster, the natural assumption is that the work proposed to be done by Mr Brunsdon and by the EAG would be performed in accordance with the EQC Act 1993. To presume otherwise would be tantamount to accusing the EQC of not meeting their own statute (acting unlawfully).
However, there are some concerning aspects to the letter by the combination of what is stated and what isn’t:
No mention of the EQC Act as the standard to meet; and,
No mention of the Insurance policy contract as a standard to meet; and,
Use of the words ‘pragmatic and focused advice to facilitate effective use of relevant knowledge and efficient use of expertise.’; and,
No mention of any involvement of the homeowner (or insured) as a stakeholder and the ultimate recipient of the technical response to their residential dwelling(s).
On the 4th of October 2010, an EQC employee was concerned enough about the opinions of a member of the EAG that they emailed Dr Hugh Cowan about it (Appendix 2.). The employee cautioned that any technical response that did not meet the EQC Act replacement value standard would not be a legal response. By Dr Cowan’s reply, ‘don’t worry, we certainly won’t be promulgating opinions like that’, it appears that Dr Cowan’s immediate focus was around the opinion becoming widely known, rather than the expert opinion not meeting the EQC Act and getting to the bottom of why an expert engineer would presume that 80% of pre-earthquake loss might be a sufficient response.
It is worth reflecting at this point by referring to Dr Cowans previous observation (only two days prior, in his engagement letter to Mr Brunsdon) of the importance of how the technical experts will be briefed. It should have been clear that an engineering expert claiming that 80% of pre-loss state might be acceptable, has not been adequately briefed to meet the EQC Act 1993 replacement value standard. In any event, that point was articulated well in the concerned EQC employees email to Dr Cowan.
Mr D. Brunsdon accepted the EQC engagement by letter on the 24th October 2010 (Appendix 3.). In the letter he acknowledges the work relates to ‘…engineering processes and resourcing following the Canterbury Earthquake’, ‘…editor of the Guidance document, in addition to the project management of the Group members…’ and noted that he is assisting the EQC in this role, with three other participants also contracted to the EQC (the EAG comprised at this stage of a total of four external contractors working for the EQC, plus two EQC staff). A total of six EAG members who should have been representing the rights of the claimant and the Commission as outlined in the EQC Act 1993.
Mid November 2010, the EAGs work culminated in the creation of ‘EQC Research Paper 0380’ which was passed over to Department of Housing and Building to deliver as ‘DBH guidance on repairing and rebuilding houses affected by the Canterbury Earthquake Sequence’, released on the 10th December 2010.
At this point it is useful to jump forward to Mr D Brunsdons position in 2018, where, when questioned, he comments on the EAGs intention, whilst they were engaged by the EQC (Appendix 4.):
‘…there was no brief or intent to meet the requirements of either the EQC Act or private insurer policies.’
For Mr Brunsdon to be so sure of this fact in 2018, and since this is not reflected in the EQCs written engagement instructions of 2010, it must be contained elsewhere. It is possible that it was not a written instruction but a verbal one to either himself or the group. Dr Cowan, representing the EQC, refuses to provide some transparency around this point when asked.
So, what are the facts?
The EQC is governed by the EQC act and must comply with the written statute in everything they do.
The EQC created a ‘technical response’ for the Canterbury Earthquake Sequence by engaging a group of experts who were called the Engineering Advisory Group (EAG).
The EAG leader clarified (in 2018) there was never any brief or intent to meet the requirements of the EQC Act 1993 or private insurers policies for the recognition of ‘structural damage’ and the reinstatement for that damage in the resulting Guidance document.
Though the experts knew there was no brief or intent to meet the EQC Act, at least six of them were working for the EQC and understood the statutory obligations of the EQC (these are stated in the Guidance document itself).
There was no homeowner involvement or representation in the creation of the ‘technical response’, though the fourth of the four objectives is, to ‘satisfy homeowners and insurers’. The only way to do this where an insurance contract exists, would be to recognise and meet the insurance contract (or EQC Act) standard. Anything different runs the risk of satisfying one party to the contract, but not the other.
DBH/MBIE Guidance (the result of the ‘technical response’) has been widely used by EQC and insurers as the default ‘insurance response’ over the last 8 years. It continues to be relied on today by technical experts who do not understand the limitations of its use.
The EQC (when forming and providing oversight to the EAG) has failed to meet the intent of the EQC Act when engaging the EAG members to create the ‘technical response’ to a ‘natural disaster’.
The EQC (members of the EAG), have failed to meet the intent of the EQC Act when participating in the EAG to come up with a ‘technical response’. One of those members was a previous EQC Board member, so must have understood the importance of following the statute (outlined in pre-2010 Statement of Intents).
The experts admission that there was no brief or intent to meet the EQC Act (sic), signals an ethical dilemma for a professional engineer. They have a duty to their client (in this case the EQC) to protect their interests, but at the same time they have a duty the public to perform their role in a reasonable and careful (and lawful) way, given the circumstances. One could also say their duty to their client extends to being mindful of the statutes that their client operate under, so that the results of their work does not put them or their client in a compromised position.
In the absence of any explicit brief to meet the EQC Act, would a reasonable and competent expert working for the EQC in response to a natural disaster know that the EQC Act exists, and that any ‘technical response’ should meet it?’ I propose that the answer to this question is ‘yes’.
Whilst it is currently unclear who else knew of the intentions of the EAG members to not meet the EQC Act, it is clear that at least one other EQC employee had an insight and warned Dr Hugh Cowan that any advice by the experts that was not intending to reinstate in accordance with the ‘replacement value’ defined in the EQC Act was illegal.
This raises some other questions that need to be answered:
Did Dr Hugh Cowans direct manager, the Chief Executive of the EQC, Mr Ian Simpson know there was never any intention to meet the EQC Act with the EAGs body of work?
Did the board of the EQC know there was never any intention to meet the EQC Act with the EAGs body of work?
Did the Ministers of the EQC, Treasury and DBH know there was never any intention to meet the EQC Act with the EAGs body of work?
Is it acceptable to the general public that there was never any intention for the governments (EQC and DBH/MBIE combined) ‘technical response’ to meet the EQC Act or insurance policy?
Is it acceptable for any future technical response to do the same?
It is appropriate that these issues are investigated as part of the EQC inquiry so that systemic failures are identified, and steps are taken so they are not repeated. However, it should also be recognised that there are approximately 6,500 claims still to be settled (EQC and ICNZ figures from Nov 2018), with more appearing almost as fast as they are being addressed. There should be no delay in addressing this issue for those families who have been prevented from transitioning to the recovery phase more than 8 years after the first event.
It is a positive step to see the current Minister when creating the GCCRS (Greater Christchurch Claims Resolution Service) has asked for ‘impartiality’ for that service. Finally, this has given a mandate for someone (GCCRS Director) to provide a clear position relating to MBIE Guidance (which when created was anything but ‘impartial’) by stating:
“is a general guidance document only and does not form the basis of settlement under the insurance policy or under the EQC Act”, and;
“engineering experts are not able to rely on MBIE Guidance document to either define what is or isn’t ‘natural disaster damage’, or provide methods to reinstate the damage without their own (or other proven), rational engineering analysis or testing” (sic).
It would be helpful if those in EQCs and Southern Responses governance structures could also form and promulgate a clear position on this matter (rather than staying silent) so that the public can have confidence that the remaining insurance claims can be promptly and fairly settled in accordance with the insurance contract, without the distraction and confusion caused by engineering experts relying on a document that was never intended to meet the standards that define an ‘insurance response’.
Appendix 1. 2nd October 2010 - Engagement letter from EQC to Dave Brunsdon.
Appendix 2. 4th October 2010 - concern from EQC staff member around EAG engineers opinions
Appendix 3. 24 October 2010 - Dave Brunsdons acceptance of engagement to consult to the EQC.
Appendix 4. (2018) Emailed questions to EAG Leader and his response
– ENDS –