Editor: I. Mallikarjuna Sharma Volume 11: 15-31 March 2015 No. 5-6

(2015) 1 LAW Quake Outcasts v. Minister for Canterbury Earthquake Recovery [NZ-SC: Court Opinion] F-177
[163] In any event, moral hazard arguments apply
also to those insured, insofar as many were anticipated
to be paid more than the value for which their property
was insured. This could arguably be seen as
creating an incentive for others to structure their
future insurance cover in the belief that the
government would, in the event of a natural
disaster, compensate them fully on the basis of
pre-disaster property values. In the case of
insured property owners, such moral hazard
arguments were not addressed in the June 2011
paper, possibly because they were considered to
be outweighed by the wish to encourage
voluntary withdrawal from the red zones and by
the recovery principles, which in turn arose from
the decision that it was inappropriate to leave the
situation to the market. 204
[164] In our view, any moral hazard arising from
any purchases (of both insured and uninsured
properties) is further diminished when it is
considered that the offers to purchase were made
in the context of a disaster of major proportions
with widespread damage and significant human
cost, both individually and at a community level.
They were also made in the context of legislation
designed to promote recovery and where an areawide
approach to the creation of the red zones
had been taken, as well as a decision to encourage
the clearance of those zones.
[165] Finally, we note that the Brownlee paper,
when suggesting a “full area-wide land
remediation solution”, recognised there may have
been “isolated pockets of land that fared
reasonably well”. 205 Questionnaires completed by
members of the Quake Outcasts group indicate
that some of their properties were not badly
damaged. For example, one member said “[t]he
land is hardly damaged, the house is repairable
and is quite ‘liveable’.” She said that, when she
emailed CERA seeking geotechnical or other
information as to her property, the reply from the
chief executive on 21 December 2012 was that
“CERA does not hold any specific individual
204 See above at [55] and [56].
205 See above at [53].
property information ... red zoning decisions were
made by the Government on an area wide basis
rather than by an individual property basis”. 206
[166] We are not suggesting that an area wide
approach was erroneous. 207 But the fact that some
uninsured or uninsurable individual properties
may have fared reasonably well and suffered little
damage rather suggests that the harm suffered by
the owners at least to a degree relates to government
policy rather than their insurance status. It is not a
viable option for owners to remain in their
properties, even if they are relatively undamaged.
As indicated above, 208 the Crown’s intention was to
facilitate and encourage voluntary withdrawal from the
red zones. This has been successful with
widespread withdrawal from those zones. In turn
this means that services are unlikely to continue
to be provided in the long-term.
[167] For all of the above reasons, we do not
consider that the insurance status of properties in the
red zone should have been treated as determinative
when deciding that there should be a differential and, if
so, the nature and extent of that differential. We
accept, however, that the insurance status of
properties was not an irrelevant factor. Some of
the reasons discussed above may have provided
justification for a differential.
[168] For example, a distinction between the
insured and the uninsured and uninsurable could
have taken into account (alongside other relevant
factors such as the recovery purpose of the Act)
the cost difference for the Crown, provided there
had been a clear connection between the offers
made and that cost difference. There would,
however, have needed to be a rational (and fair)
reason why this factor did not apply to the offers
made to not-for-profit organisations and to
owners of properties under construction.
206 Other members of the Quake Outcasts group shared the
same concerns. We recognise that none of
questionnaires were contained in affidavits and we
therefore do not decide whether the owner’s views are
therefore, in fact, correct.
207 See above at [107].
208 See above at [135]-[137].
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Law Animated World, 15-31 March 2015