Wait what!! You want to glue my house back together??

The Court of Appeal decision in Moorhouse Commercial Park Ltd v Vero Insurance New Zealand Ltd has exposed a troubling reality for New Zealand policyholders: insurers can apparently fulfil their repair obligations by essentially "gluing" earthquake-damaged buildings back together with epoxy resin, leaving property owners with structures that may never perform as they did before the damage occurred.

The Epoxy Band-Aid Solution

When Moorhouse's buildings suffered earthquake damage, Vero proposed epoxy injection repairs - a process that involves injecting resin into cracks to fill them. On the surface, this sounds reasonable. The cracks disappear, the building looks repaired, and everyone moves on. But here's the problem: filling cracks doesn't necessarily restore a building's structural integrity or its ability to withstand future seismic events.

Moorhouse argued that their buildings had suffered "bond loss", a phenomenon where smooth steel reinforcing bars lose their connection with concrete during earthquakes, resulting in reduced stiffness and compromised earthquake resistance. While epoxy fills visible cracks, it doesn't address this underlying structural damage. The building might look fixed, but it could be fundamentally weaker than before.

The Burden of Proof Trap

The Court of Appeal's decision reveals a stark asymmetry in the insurance relationship. Despite Moorhouse presenting credible expert evidence about bond loss and structural compromise, the court placed the burden of proof squarely on the policyholder to demonstrate that epoxy repairs were inadequate.

This creates an impossible situation. How can a property owner prove that invisible structural damage has occurred without destructive testing that would further damage their building? The court acknowledged that "there is no real way of knowing whether [bond loss] has actually occurred, even on the balance of probabilities." Yet they still required the policyholder to prove it.

Meanwhile, Vero's expert testified that epoxy injection was adequate without conducting comprehensive testing to verify this claim. The insurer essentially got to propose the cheapest repair method while the policyholder bore the burden of proving it insufficient.

The "Substantially the Same as New" Illusion

The policy required repairs to restore buildings to a condition "substantially the same as, but not better or more extensive than, its condition when new." The court accepted that epoxy repairs might only restore 85% of the building's original stiffness, a 15% permanent reduction in performance.

How is a building performing at 85% of its original capacity "substantially the same as new"? This interpretation effectively allows insurers to provide substandard repairs that leave policyholders with permanently compromised structures, particularly concerning in an earthquake-prone country like New Zealand.

The Hamburger Report: Industry Scepticism Ignored

The case referenced the so-called "Hamburger Report" commissioned by Christchurch City Council, which concluded that epoxy injection would generally not restore earthquake-damaged structures to the "substantially as when new" standard for the type of damage present in this case. Despite this authoritative industry assessment, the court still sided with the insurer's repair methodology.

A Dangerous Precedent - And How Other Countries Do Better

This decision sets a troubling precedent that could affect thousands of New Zealand property owners. It essentially tells insurers they can minimize repair costs by proposing methods that may not fully restore structural integrity, knowing that policyholders face an almost impossible burden to prove these repairs inadequate.

The contrast with other jurisdictions is stark. In California, for example, the law takes a fundamentally different approach that better protects policyholders. Under California's system, insureds can first recover actual cash value payments upfront, then claim additional replacement cost benefits after completing proper repairs. This two-stage payment system means property owners aren't left financially stranded while arranging adequate repairs.

Crucially, California law allows flexibility and insureds can even recover replacement cost benefits by purchasing different property elsewhere if that better serves their needs. The system acknowledges that insurance should facilitate restoration, not create financial obstacles to it.

New Zealand's approach, by contrast, places the financial risk squarely on policyholders. The Moorhouse decision reinforces a system where insurers can choose their preferred repair method, insureds must prove costs have been "actually incurred" before payment, and there's explicitly no duty on insurers to accurately assess claims beyond basic good faith obligations.

The court's reasoning also creates perverse incentives. Why would insurers invest in comprehensive damage assessment or premium repair techniques when they can propose cheaper solutions and force policyholders to prove them wrong? The decision rewards cost-cutting at the expense of proper restoration.

The Real-World Impact

For policyholders, this means potentially living or working in buildings that appear repaired but may be fundamentally compromised. In a country where earthquakes are a constant threat, this isn't just about money it's about safety and peace of mind.

Property owners pay substantial insurance premiums with the reasonable expectation that if disaster strikes, their buildings will be properly restored. The Moorhouse decision suggests this expectation may be naive. Instead, policyholders might get the building equivalent of a band-aid: something that covers the visible damage but doesn't address underlying problems.

The Path Forward

This decision highlights the urgent need for reform in how building repair standards are assessed in insurance disputes. The burden of proof shouldn't be structured to favour the party with the financial incentive to minimize repairs. Independent technical assessments, clearer policy language, and regulatory oversight of repair methodologies could help level the playing field.

Policyholders deserve better than having their earthquake-damaged buildings "glued" back together. They deserve repairs that actually restore their properties to pre-damage condition, not just make them look fixed. Until the law recognizes this fundamental principle, the insurance relationship will remain dangerously skewed against those who need protection most.

The question isn't whether we can glue buildings back together - it's whether we should accept glue as a substitute for proper structural repair. For New Zealand's earthquake-vulnerable communities, the answer should be a resounding NO until it is proven to work.