Agony Aunt: Driven up the wall

Dear Janine,

I have a number of retaining walls around my property, holding up the driveway and supporting a lawn area. These have all sustained damage in the various earthquakes and will cost a lot to replace or fix. I was initially told these walls were not covered as they didn't support the house. I was horrified to discover my insurance company wouldn't cover them either. After a full EQC inspection I found a number of walls would be covered, but only to indemnity value. I have a feeling that not all EQC inspectors know the rules.

Can you explain these and tell me how they work out the indemnity value of a wall?

ANSWER:

Home owners around New Zealand should be sitting up and taking note of the insurance issues around retaining walls. They might be dull, but they are hellishly expensive items and could be financially crippling to replace at your own expense. Knowing the rules could save you thousands.

It's not just the hillside dwellers of Christchurch who need to get to grips with it. Our Wellington friends also face earthquake risks and nearly every home in the city is propped up by retaining walls.

In normal circumstances, it's generally Humpty Dumpty who needs to be put back together again, not the wall itself. Annoyingly, an egg is a heck of a lot cheaper to replace than a whole wall. I also have a feeling you are correct about the EQC inspectors. Some of the King's men are struggling a little with Section 2(1) of the Act, where the definition of "residential land" is outlined.

The reason I think you might be right is that during my own EQC inspection we were declined cover for most of our walls. I queried it and the inspector went away to check, but it was declined again. They said the walls were not supporting the house and were not part of its foundation. They were supporting patios and were not covered. I now believe this is incorrect, but didn't start investigating the ins and outs, until I had a mailbox of queries like your own. Given we have five substantial retaining walls, I feel like a bit of an egg myself. It pays to know the rules before your inspection rather than try to correct a problem later.

After a careful read of the Act and a bit of back and forth with EQC, there are three types of retaining walls you should know about:

1. Retaining walls which support or protect a building: EQC will cover these walls as long as they are within 60 metres of your home or garage. These walls are not just aesthetic, they are needed to help protect the house. If it's not obvious whether they do or don't "support" or "protect", an engineer needs to be appointed to get a ruling.

2. Retaining walls that hold up your driveway: They refer to these as walls supporting the "main accessway", from your boundary to each building on the property. EQC will cover these walls if they are within 60m of the building. Remember EQC will not cover the surface of your driveway, such as asphalt or concrete surfaces (your insurer should cover this, but check your policy).

3. Retaining walls which do NOT support or protect a building: This is where the most confusion lies, as it is assumed that these are not covered. This is not correct. EQC will cover any retaining wall within eight metres of a building, regardless of its use. It doesn't have to be protecting the house. Even if the wall is holding up a pool or patio, it will be covered if it's within eight metres. EQC won't cover the pool itself, or artificial surfaces on patios (your insurer will deal with that), but they will cover the wall and its support system.

For those who like a bit more detail, here are a few extra points:

1. Retaining walls are part of a land claim, so they don't form part of the $100,000 maximum payout for damage to your home. EQC may well settle your claim for the walls at the same time though.

2. The eight-metre and 60m rules apply to any building on your property, not just the main house (sometimes referred to as "appurtenant structures"). So if you have a separate garage, the measurements apply from these other buildings, out to each retaining wall in a horizontal line.

3. The wall must have failed as the result of an earthquake. Cracks or damage caused by old age, lack of maintenance or poor design/construction are not covered.

4. A link to the EQC Act can be found on eqc.govt.nz (go to "About EQC"). Check out Section 2 (1) and look up the definition of "residential land". Point (e) talks about retaining walls and it's important to note that it cross-references back to points (a), (b) and (c). It's this referencing which allows the inclusion of any wall within eight metres of the house and walls holding up driveways.

How does EQC value retaining walls?

Unfortunately, the legislation doesn't cover full replacement value. Instead, "indemnity" value is used for each wall (see part 2, section 19(b) of the Act). This is the depreciated value of the wall, allowing for age. If the wall can be repaired for a cheaper price, this will be paid instead.

When assessing a retaining wall, a registered valuer is appointed. EQC estimates the average lifespan of a good- quality engineered retaining wall at 100 years (probably generous because the Building Act allows for a life of 50 years). However, the 100-year rule is a guideline only and EQC leaves it to the valuer to decide. It tells me that old retaining walls that are not engineered have very little value and newer engineered walls, which comply with the building code, have a better value. As an observation, for those with newer homes, the outcome may not be too bad. If the valuer uses the 100-year guideline, a new wall should suffer very little depreciation.

Valuations take time as the scope of options has to be covered. The cost of full replacement will be calculated and adjusted for age to get the indemnity value. EQC then compares this to a repair solution to calculate the most cost-effective option. On a final note, it should be remembered that there are always shades of grey and each claim is worked through on a case-by-case basis.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.