September 2016


NZILA President’s message
Jonathan Scragg

Law reform – some developments in New Zealand

On 30 June 2016, the Fire and Emergency New Zealand Bill was introduced into Parliament.

The Bill would replace the New Zealand Fire Service Commission with a new entity, Fire and Emergency New Zealand (FENZ). The government intends to modernise the emergency response sector, which has not seen significant change for 70 years. The Bill passed its first reading on 5 July and is now before the Government Administration Select Committee.

The most significant proposed reforms of interest to the insurance industry relate to the fire service levy. Despite criticisms of the current levy, including in the government’s 2015 Fire Services Review, the Bill retains a levy as the primary funding mechanism for the proposed FENZ.

Retaining the levy will be disappointing to those in the insurance sector who have advocated for some time that the Fire Service ought to be funded by the public, perhaps through general taxation, rather than through a levy that currently applies only to those who insure their properties against the risk of damage by fire.

The Bill proposes several changes to the current levy regime. Some are designed to broaden the scope of insurance policy types, and insured property types, that will be subject to the levy. That reflects clause 69 of the Bill, which says the levy is intended to be “universal, so FENZ’s costs are generally shared among all who benefit from the potential to use FENZ’s services”.

Two proposed reforms that extend the levy’s reach are:

• The levy will be based on insurance covering physical damage to, or loss of, property generally. The government has justified that on the basis the Fire Service responds to non-fire related incidents, such as earthquakes, floods, and even cats up trees.

• For the first time, the levy will be payable on motor vehicle third party liability policies.

The Bill proposes reform to how the levy is calculated. For property other than motor vehicles, the levy amount payable will be calculated on the amount for which the property is insured against physical damage or loss.

Reinstatement policies will have the levy calculated on the reinstatement value of the property under the policy.

The government has recognised the possibility that expanding the levy regime’s scope may cause significant levy increases for some large policyholders (for example, government agencies and large corporate entities). It has built in a regulatory power to cap levy increases to account for a sudden rise in levies for some policyholders.

The Bill also introduces a new anti-avoidance regime, dispute resolution mechanisms and penalties.

The Bill’s levy provisions have had a frosty reception from many parts of the insurance sector and the Select Committee’s consideration of the Bill is awaited with interest.

Reserve Bank to review the Insurance (Prudential Supervision) Act

In April, the Reserve Bank of New Zealand (RBNZ) announced it will review the Insurance (Prudential Supervision) Act 2010 (IPSA).

The review’s stated purpose is to seek to ensure IPSA provides for a cost-effective, risk-based supervisory regime that promotes soundness and efficiency in the insurance sector. The review will also consider the effect of developments in the sector since the legislation originally came into force. Those developments include the Canterbury earthquakes’ impact, updates in international guidance in the sector, and new legislation.

RBNZ has said it considers IPSA’s current legislative purposes remain appropriate and the review therefore will be conducted in the context of those purposes: promoting maintenance of a sound, efficient sector; and promoting public confidence in the sector.
The review will assess insurers’ statutory requirements under IPSA and the powers conferred on RBNZ to enact secondary legislation.
Public consultation will be an important element of the review. RBNZ will engage with industry, including by organising forums or seminars throughout 2017 following the release of an issues paper and by receiving submissions. Initial consultation on the issues paper will give stakeholders an opportunity to raise issues for consideration.

RBNZ plans to release the issues paper in the last quarter of 2016 with an options paper for amendments in 2017 if Cabinet supports legislative change. Legislation for reform could be introduced into Parliament as early as 2018.

Immunity for residential tenants: Holler v Osaki clarified

Readers of the June 2016 issue of Resolve may recall my column on the Court of Appeal decision in Holler v Osaki [2016] NZCA 130. The court affirmed the High Court’s decision that reversed the long-standing position that residential tenants are liable to their landlords (or their landlords’ insurers) for accidental property damage. The court confirmed that s268 and s269 of the Property Law Act 2007 (PLA), the exoneration provisions providing immunity to commercial tenants for careless damage to commercial property, extend to residential tenancies governed by the Residential Tenancies Act 1986 (RTA).

Readers may recall the court’s somewhat ambiguous answer to the question of whether the exoneration clauses did extend to residential tenants. That was answered affirmatively but only “to the extent provided in s268 and s269 of the PLA”. After an application by the appellants to recall and clarify that aspect of the judgement, the court directed the answer be amended to read:

Yes, in terms of loss or damage caused carelessly, to the extent provided in s268 and s269 of the Property Law Act 2007 but no in terms of loss or damage caused intentionally.

The court’s clarification on intentional damage ought to be welcome news to the insurance and property sectors. It is now clear tenants will not be immune from liability for intentional property damage and their immunity is confined to unintentional damage.

The Court of Appeal decision is still likely to cause ripples in the insurance and property markets given the significant departure from the previously well-established position that tenants were liable for unintentional property damage. The issue may be revisited by Parliament. However, unless that occurs, the insurance and property markets will have to adjust to the new position reflected by the decision.

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