Court of Appeal sets aside the EQC land class action
Case note: Toka Tū Ake – Natural Hazards Commission v Freer [2026] NZCA 396
CA314/2024 and CA315/2024. Courtney, Ellis and Campbell JJ. Heard 11 and 12 June 2025. Judgment delivered 26 August 2026. Reasons given by Courtney J. C J Curran, M L Campbell and M C Grant for the Commission. A R B Barker KC and G D R Shand for the plaintiffs.
Why this decision matters
Two things come out of this judgment, and they point in different directions.
The first is a hardening of the merits assessment at the certification stage of a representative proceeding. The Court of Appeal set aside a representative order because the two lead plaintiffs could never have carried out the land repairs on which their own entitlement depended. The Associate Judge had treated that as a stage two trial issue. The Court of Appeal held that was an error, and said in terms that the merits assessment "must be allowed to have some effect as a screening test, so that it can guard against misuse of representative orders".
The second is that, on almost everything else, the plaintiffs did rather well. The common issues were held to be capable of materially advancing the class members' claims. The limitation defence failed. The distinction the High Court had drawn between increased liquefaction vulnerability and increased flooding vulnerability claimants was rejected. The proceeding therefore appears to have been derailed by the choice of representatives rather than by any defect in its architecture.
For insurance practitioners, there is a third point. The Court of Appeal has now given appellate endorsement to the 2014 Full Court holding that residential land is insured under s 19 of the Earthquake Commission Act 1993 on an indemnity basis only. That proposition had until now rested on a first instance declaratory judgment.
Background
Mr Freer and Ms McEvedy own a residential property in Christchurch damaged in the 2010 and 2011 earthquakes. The damage included increased liquefaction vulnerability (ILV) damage to the land.
The Commission accepted the ILV claim in late 2015, by which time it had finalised its ILV settlement policy. The plaintiffs wanted to repair the land but could not advance a repair plan until they had settled the claim for their house with their private insurer, IAG New Zealand Ltd. In September 2016 they provided the Commission with a quote of $98,006.45 for remediation works which, although not stated in the quote, would have required the house to be removed and the foundations rebuilt.
In November 2016 the Commission wrote requiring documentation showing that repair works were to be undertaken, failing which it would settle on a diminution of value (DOV) basis within 14 days. The letter said the plaintiffs could return later if they decided to repair, while cautioning that the Commission was "not in a position to commit to the availability of a repair cost settlement at a future date".
In April 2017 the Commission settled at $22,214.84, being its assessment of DOV, on the footing that established ILV repair techniques could not be used while the house remained in place. The following year IAG settled the house claim on a repair rather than a rebuild basis. The land was never remediated.
Proceedings were issued in 2021. The first amended statement of claim pleaded a single cause of action for $132,785.16, being the cost of repairs up to the $160,000 cap in s 19(a), less the excess and the DOV already paid.
Procedural history
In Freer v Earthquake Commission [2023] NZHC 1301 (Freer (No 1)) Associate Judge Paulsen held that the proposed common issue, whether residential land is covered on an indemnity basis, was not reasonably arguable in light of the Full Court decision in Earthquake Commission v Insurance Council of New Zealand Inc [2014] NZHC 3138, [2015] 2 NZLR 381. He nonetheless gave the plaintiffs a further opportunity to formulate a viable common issue.
A second amended statement of claim followed on 7 July 2023, restructuring the cause of action around the Commission's settlement policy. Two new complaints emerged: that the policy did not accord with the Full Court decision or the EQC Act (the application issue), and that the Commission had adopted a deliberate strategy of settling all ILV and IFV claims on a DOV basis to minimise its liability (the strategy issue).
In Freer v Earthquake Commission [2023] NZHC 3662 (Freer (No 2)) the Judge granted a representative order on an opt-out basis limited to those two issues, but declined to allow the plaintiffs or a proposed alternative, Mr Wootton, to represent IFV claimants, and excluded former owners who had not repaired and subsequent owners taking an assignment.
Both sides appealed.
Issue (a): the challenge to the Full Court decision
The plaintiffs' primary object was to overturn the holding that s 19 provides indemnity cover only. They contended that the section, read plainly, covers the cost of repairs up to the stated limit, with payment for the value of the land only where repair is impossible.
The Court of Appeal held the argument was not reasonably arguable, for these reasons.
The words "deemed to be insured … to the amount" convey that the land is insured up to a maximum. They do not mean the maximum is always payable. That is no more than the general principle that a policy of insurance is a contract of indemnity, under which the insured recovers actual loss subject to any ceiling, and no more than actual loss. The Court cited Brett LJ in Castellain v Preston (1883) 11 QBD 380 at 386 and the Supreme Court's adoption of that passage in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158, [2017] 1 NZLR 352 at [35].
The plaintiffs' construction would require words to be read into s 19. The operative language is analogous to a standard insuring clause under which the insurer agrees to insure or indemnify, which absent express provision confers no more than a right to indemnity in the Castellain sense.
The express reference to indemnity value in s 19(b), for bridges, culverts and retaining walls, does not carry the negative implication contended for. Nor is there a basis for assuming Parliament intended parity of cover between land and buildings. Replacement cover is meaningful only for structures, because it supplies new for old. That concept is inapt for land, where no question of depreciation or betterment arises. As the Court put it, the only relevant questions for land are whether the damage can be repaired, whether the insured is going to repair it, and if not, what loss the insured has sustained.
On legislative history, the Court rejected the submission that the Full Court had misread the transition from cl 18 of the Earthquake Commission Bill 1992 to ss 18 and 19 as enacted. The difficulty in the original clause arose from the extended definition of "residential property", which prima facie extended replacement cover to land, and the split was a substantive response to that problem rather than a drafting tidy-up.
Finally, the Court dealt with the windfall reasoning. An owner who sells will never incur the cost of repair, so that cost is not something against which they can expect to be indemnified. Their loss crystallises on sale and is the diminution in value.
The qualification that practitioners should note
At [69] the Court restated an important limitation, drawn from the Full Court itself:
However, as the Full Court properly recognised, indemnity cover does not necessarily mean that a DOV payment is the appropriate measure of loss.
The Court quoted the well known passage from Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd's Rep 440 (QB) at 451, to the effect that market value is often "singularly inept" as a measure, because its selection assumes the insured can be made to go to market and buy a replacement. Whether the appropriate indemnity response is repair cost or DOV remains a question of fact in each case, turning on the claimant's intention to repair and the feasibility of repair.
That is the space in which individual EQC Act land claims continue to live.
Issue (b)(i): would the common issues materially advance the claims?
The Commission argued that the Judge had asked only whether there was a common issue capable of founding a res judicata, and had failed to ask the further question whether a representative order would in fact advance the objectives in r 1.2(1) of the High Court Rules. It relied on Body Corporate No DPS 91535 v 3A Composites GmbH [2023] NZCA 648, [2023] NZCCLR 27 at [65], where the Court observed that crossing the r 4.24 threshold does not make an order automatic.
The substance of the objection was that, even if the policy and strategy allegations were made out, every class member would still have to prove intention to repair, a feasible repair methodology, and that the cost was not disproportionate to DOV. The allegations could impugn the decision to settle on DOV, but could not establish anyone's entitlement.
The Court of Appeal rejected the argument, reasoning by analogy with Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312. The complaints against the Commission, that it did not act in good faith in formulating and implementing its settlement policy and so failed to consider individual claims properly, were not materially different from those made against Southern Response. Individual proof at stage two is not a bar, and the difficulty can be managed by careful class definition and, if necessary, subcategories. The Court added that its conclusion on the interpretation issue would in any event require the class to exclude owners who had sold and would never incur repair costs.
Issue (b)(ii): merit, and the setting aside of the order
This is the ground on which the appeal turned.
The Court restated the settled standard at [86]. A representative plaintiff's claim must be arguable. If it clearly lacks merit and cannot succeed, the court will not permit other claims to go forward in reliance on it. The assessment is provisional, "broad-brush impressionistic" rather than a detailed analysis of every allegation, and does not require the applicant to prove the pleaded facts, although a defendant may refute a clearly wrong and critical factual allegation by evidence.
Applying that standard, the Court concluded there was no realistic prospect that these plaintiffs could ever have repaired their land. The repair method required removal and rebuild of the house. IAG settled the house claim on a repair basis. On the plaintiffs' own pleaded repair cost of about $209,000, and with only $149,000 available after the excess and the sum already paid for visible land damage, they faced a shortfall of at least $60,000, and Ms McEvedy's evidence was that they lacked the means. Critically, that position was "unrelated to the Commission's own conduct" and was simply a function of the options available to them, which had not changed.
The Judge had therefore erred in deferring the question to trial. The passage at [94] is the one to cite:
The merits assessment of a potential representative plaintiff is provisional but must be allowed to have some effect as a screening test, so that it can guard against misuse of representative orders.
The representative order made in Freer (No 2) at [134] was set aside.
Issue (b)(iii): limitation
The Commission's fallback was that the application issue, first pleaded in July 2023, was a fresh cause of action outside the six year primary period, whether time ran from publication of the policy in September 2016 or the s 19 determination in April 2017.
Applying Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61] and ISP Consulting Engineers Ltd v Body Corporate 89408 [2017] NZCA 160, (2017) 24 PRNZ 81 at [22], the Court held the amendment was not essentially different in character. The first amended statement of claim, though "undoubtedly minimalist", complained that the Commission had failed properly to assess the claim on a cost of repair basis, and it was implicit that both the Full Court decision and the policy were under challenge. The Commission's own statement of defence, which pleaded the Full Court decision and the policy in justification, was consistent with that reading. The new allegations "do no more than provide particulars" of the alleged failings, and the broader focus on other owners' claims was a response to the representative application rather than a change of character.
Late knowledge fell away, but the Court indicated obiter that it would have held the plaintiffs knew by June 2016 that the Commission had not independently costed a repair.
Issues (b)(iv) to (vii): scope
Having set the order aside, the Court addressed the plaintiffs' remaining grounds for completeness.
ILV and IFV claimants. The Judge was wrong to hold that the plaintiffs could not represent IFV claimants. Section 19 does not differentiate between types of natural disaster damage, the Full Court treated both as covered, the Commission treated them as functionally equivalent for policy purposes, and the declarations were made in identical terms. The "same interest" requirement is a relatively low hurdle: Simons v ANZ Bank New Zealand Ltd [2024] NZCA 330, [2024] 3 NZLR 485 at [41]. The Court drew the parallel with the inclusion of repair and rebuild customers in the same class in Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431.
Mr Wootton. The proposed alternative IFV representative was properly rejected. He was not a party, no application had been made to join him under r 4.56, there was no draft pleading, his evidence showed neither intention nor ability to repair, and any claim of his would likely be time barred. The Court applied Ressels v Southern Response Earthquake Services Ltd [2023] NZCA 614 at [30].
Former owners who retained the claim. Properly excluded. Edwards v AA Mutual Insurance Co (1985) 3 ANZ Insurance Cases 60-668, where a wrongful declinature had prevented the insureds from rebuilding, was distinguished: these plaintiffs were never in a position to reinstate, so this was not a case of a defendant preventing performance of a condition precedent. The Court also referred to Medical Assurance Society of New Zealand Ltd v East [2015] NZCA 250, (2015) 18 ANZ Insurance Cases 62-074 at [21].
Assignees. Also properly excluded, applying Xu v IAG New Zealand Ltd [2019] NZSC 68, [2019] 1 NZLR 600. The submission that EQC Act cover is different in kind, being attached to the property rather than the person and raising no moral hazard, was rejected. Statutory cover under the EQC Act is subject to ordinary principles of insurance law unless clearly indicated otherwise, statutory cover is generally acquired through a private fire policy, and cl 3(f) and (g) of sch 3 to the EQC Act, permitting declinature for fraud and for owner negligence, show that moral hazard is not absent. If the vendor was not entitled to repair costs, the assignee can be in no better position.
Result
The Commission's appeal in CA314/2024 was allowed in part and the representative order set aside. The plaintiffs' appeal in CA315/2024 was dismissed. Costs were awarded to the Commission in CA314/2024 for a standard appeal on a band A basis, with no order for costs in CA315/2024.
Comment
The screening function has been reasserted. There is an obvious tension between the guidance in Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11], that commonality is not a high threshold and the court should be wary of looking for impediments rather than being facilitative, and a merits filter capable of terminating a certified proceeding. The Court's reconciliation is that the assessment remains provisional and impressionistic, but it is not a formality, and a lead plaintiff whose own claim is hopeless cannot carry a class. Where the defect is apparent on the applicant's own evidence, it will not be parked for trial.
Choose the lead plaintiff for the strength of their own entitlement, not for the strength of the grievance. The plaintiffs here were sympathetic and, on the Court's own finding, genuinely wanted to repair. That was not enough. Their entitlement to the remedy sought was contingent on a rebuild settlement they never obtained. Practitioners contemplating a representative proceeding should stress-test the lead plaintiff against the individual proof that would be required at stage two, and should expect the defendant to put in evidence directed at exactly that.
The proceeding is not necessarily over. The Court upheld the common issues, rejected the limitation defence, and widened the potential class to include IFV claimants. What failed was the vehicle. Substitution of a representative whose entitlement is not contingent is the obvious response, subject to limitation and to the practical point that any such person must be, or become, a party. The funder has indicated that the judgment is being reviewed with a view to a further appeal.
On the substantive point, s 19 now looks settled for EQC Act claims. Before this judgment the indemnity holding rested on a first instance declaratory judgment which the interveners had no right to appeal, a point Mr Shand pressed and which the Court acknowledged without accepting that it affected the analysis. There is now appellate authority. Barring the Supreme Court, the argument that land is covered for reinstatement cost up to the cap is closed.
But DOV is still not automatic. The Court took care to preserve the qualification at [69]. The Commission must assess the appropriate indemnity response case by case, and the application and strategy issues, that the policy was formulated and applied inconsistently with the Full Court decision and that the Commission pursued a strategy of minimising payments through DOV, survived as viable common issues. Individual claimants who can show a feasible and intended repair remain in a materially different position from those who cannot.
Forward look. The Natural Hazards Insurance Act 2023 replaced the EQC Act on 1 July 2024, but cl 3(1) of sch 1 continues the EQC Act for natural disaster damage occurring before that date. The great bulk of the Canterbury litigation, and this judgment, therefore remain EQC Act territory. The reasoning is nevertheless of more than historical interest, both because the indemnity principle it applies is general, and because the new Act's treatment of land cover carries forward the substance of the distinction between reinstatement cost and diminution in value.
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This note is a summary for general information and is not legal advice. The judgment should be read in full before it is relied on.
Steve Keall, barrister 14 September 2026