December 2016


NZILA President's message
Jonathan Scragg

Immunity for residential tenants: Government eyes change

In the September issue of Resolve I discussed the Court of Appeal decision in Holler v Osaki [2016] NZCA 130.

The court affirmed the reversal of the long-standing position that residential tenants are liable to their landlords (or their landlords' insurers) for accidental property damage. The court found the exoneration provisions in the Property Law Act 2006 providing immunity to commercial tenants for careless damage to commercial property also extended to residential tenancies governed by the Residential Tenancies Act 1986.

The decision caused some tension in the insurance and property markets, leaving the question of whether Parliament would revisit the issue.

The decisions in Holler v Osaki and two subsequent cases appear to have triggered movement from the Minister of Building and Housing and may see reform of the Residential Tenancies Act 1986 by Parliament:

• In Tekoa Trust v Stewart [2016] NZTT Palmerston North, 23 August 2016, a residential tenant allowed dogs to reside at the property in direct breach of the tenancy agreement. The dogs damaged the property's carpet beyond repair. The New Zealand Tenancy Tribunal (NZTT) found the tenant was not liable for the damage, despite an intentional breach of the tenancy agreement, because it was not established the tenant had intentionally damaged the carpet. The decision is under appeal.

• In contrast, NZTT considered a case in which a tenant, again in breach of the tenancy agreement, kept five cats in a residential dwelling and confined them to a single room. The cats caused significant damage to the carpet and curtains. NZTT found the tenant liable for the damage.

The far-reaching effect of Holler v Osaki on NZTT's jurisdiction has been raised by NZTT's principal adjudicator in a letter to the Minister of Building and Housing. The adjudicator identified the inconsistent outcomes for landlords and tenants depending whether the landlord is insured for a particular risk. An example was tenants of Housing New Zealand Corporation, which does not hold insurance except for "large scale catastrophic damage", remain liable for careless or intentional damage, while other tenants whose landlords may hold comprehensive insurance may be exonerated from liability.

The fact the Court of Appeal did not, and likely could not, draw a distinction between large scale damage, as was the case in Holler v Osaki, and small scale, such as the pet cases, that are NZTT's  "core business", was acknowledged as a major problem.

The Minister has since announced the government is considering reforming the Residential Tenancies Act to clarify when costs of property damage may be reclaimed from tenants. The government is considering a proposal whereby tenants would be liable for damage caused by carelessness or negligence up to the value of their landlord's insurance excess, but not exceeding four weeks' rent, in alignment with standard residential tenancy bond provisions.

The Minister has said the government is interested to receive submissions on what an appropriate limit on tenants' liabilities might be, although the Minister has made it clear any amendments will not return to the situation "where tenants may be sued by their landlord's insurance company for hundreds of thousands of dollars, such as with an accidental house fire". The Ministry of Business Innovation and Employment is set to consult with tenant and landlord organisations, and the insurance sector, on possible amendments.

The insurance and property sectors can expect to see further discussion and application of Holler v Osaki in NZTT and court decisions, and potential law reform by Parliament in 2017.


Meth testing and remediation standard expected in early 2017

In December 2015, Standards NZ was granted funding under the Criminal Proceeds (Recovery) Act 2009 to develop a standard on testing and remediating properties where methamphetamine has been manufactured or used.

The standard is being developed by a committee of stakeholder representatives from methamphetamine testing and remediation companies, laboratories, health, safety and environmental regulators, property owners, property managers, and insurers.

The committee has indicated the standard will provide guidance on testing properties and contents for methamphetamine contamination and draw a clear distinction between properties used for manufacture and those in which methamphetamine has only been used. The standard will contain best practice procedures for decontaminating and remediating properties and contents to acceptable levels and give direction on appropriate training and accreditation for testing and remediation operators.

The distinction to be drawn between methamphetamine manufacture and use will be welcome news to the insurance sector. Some parts of the sector have grappled with applying existing Ministry of Health guidelines developed in 2010 (which address the clean-up of properties used as clandestine methamphetamine laboratories) to properties contaminated only by methamphetamine use.

The Ministry of Health has released a recommendation prepared by the Institute of Environmental Science and Research Ltd to be incorporated into the proposed standard. It states the levels dictated in current ministry guidelines are appropriate only for homes that have been used as methamphetamine laboratories; not those where methamphetamine has only been used recreationally. For non-lab houses, the recommendation provides for a level four times higher than those currently in place where carpets have been removed, and three times as high as the current guidelines for those with carpet remaining in the house.

The ministry has suggested the recommendations be used as a guide until the new standard is published in early 2017. While Standards NZ has indicated the standard will be voluntary, an increase in acceptable levels for non-lab properties, coupled with guidance on decontamination procedures, ought to ease the burden on insurers bearing clean-up costs in the future.


The year in review

It has been another successful year for NZILA with the national committee's focus on growing NZILA's activities. Three highlights from the year warrant special mention:

• In March, we launched the NZILA's inaugural annual lecture series. Professor Ian Enright, from the University of Technology Sydney, gave a lecture in Christchurch, Wellington and Auckland on: The insurance social contract: 1788 and all that. He gave an irreverent look at historical movements and the people who made insurance what it is in the role it plays in society. The lecture was based on Ian's 2015 Geoff Masel lecture.

• In September, we returned to Queenstown for our annual conference, held over three days and attracting more than 300 delegates.

• And in April, June, August and November, together with the Insurance Council of NZ, we held highly successful Liability Discussion Group sessions in Auckland. The sessions covered a range of liability topics and each was attended by about 100 people.

2017 looks set to be another busy year for NZILA. In addition to continuing the Liability Discussion Group sessions, two key dates to mark in your diaries now are:

• 6 - 8 March: Neil Campbell QC will present the annual NZILA lecture series in Christchurch, Wellington and Auckland.

• 14 - 15 September: we return to Wellington for NZILA's annual conference.

I wish all readers of Resolve a very happy Christmas, a prosperous New Year and an enjoyable summer break.

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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.