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Earthquake-prone buildings shake human confidence

New Zealand’s buildings must be assessed and remediated to ensure compliance with new legislation. There are many considerations including the impact on insurance.

The 2010 and 2011 earthquakes in Canterbury, and more recently in Seddon, have underlined the fact New Zealanders truly live in the ‘Shaky Isles’.

Given that our older building stock, generally speaking, is unlikely to withstand more intense shakes, the effect of earthquakes on earthquake-prone structures has once again been brought to the forefront.

Workers and business tenants are now taking more consideration over the safety of their workplaces. Landlords and owners are often experiencing higher insurance premiums and insurance deductibles, and finding that their cover has been restricted so that replacement value is unavailable.

The Government realised that the existing systems for managing earthquake-prone buildings were not achieving acceptable levels of risk.

Amendment Bill

As a result, the Building (Earthquake-prone Buildings) Amendment Bill was introduced to Parliament on December 9, 2013, the primary purpose of which was to improve the systems for managing earthquake-prone buildings. The proposed legislation would require completion of seismic assessments within five years and, if deemed to be earthquake prone, these buildings should be strengthened within another 15 years, unless a relevant exemption applies.

It would therefore appear that over the next 20 years or so, there would be steady flow of work for the many engineers and contractors involved with seismic strengthening projects, especially since there 15,000 to 25,000 earthquake-prone buildings throughout New Zealand.

Associated risk

The strengthening of a building requires connection of additional load-bearing features, either internally or externally, to the existing building form. There is a risk associated with the application of these features with an adverse effect on the building itself.

Since it is ultimately the main structural elements such as shear walls, columns and beams that require the work, seismic strengthening has its own unique set of risks, impacting on insurance in a number of ways.

Early engagement with your risk partners and insurers will help clarify these.

Project details

Details of the project such as reports, drawings and construction methodologies should be submitted. This will give insurers an understanding of what is being done, and owners the peace of mind that both the contract works and the structure are covered for these risks.

Many groups of people are involved with the structure and the works and they should be consulted since each of them has their own experiences and needs.

There are engineer’s initial assumptions around the structure in respect of the original code of practice in force at the time of building, as well as the need to address the various issues associated with the structure, such as location, ground conditions, changes of use, expected earthquake loads, as well as the possible reductions in the material strengths after taking into account its condition, history and maintenance.

What are the consultant agreements and levels of Professional Indemnity if design is novated to the Contractor?

Valid questions

The concerned contractors should be aware of and address the same issues regarding the strengths and condition of the building along with achieving the objective.

For example, we may be looking at strengthening a building from 20% NBS to 100% National Building Specification (NBS), but how do we get there?

Is there a need to remove walls to provide access for large plant? If so, how does this affect the building from an earthquake perspective, given that it is already earthquake- prone? Are new foundations, or any underpinning and temporary works design required?

Consideration must be made for interaction between product liability, contract works and existing structure insurance and the insured value of the existing structure during the works.

It is also important to consider how the liability of the contractor for damage to the existing structure is dealt with so that exclusions relating to the property worked upon and custody and control cover are understood.

What is the cover for damage arising from the underpinning if the existing structure is deemed a third party risk?

Tenants, including contractors, should also be aware of the works as these will affect their daily lives for an extended period of time. The noise, vibration and dust associated with these works will undoubtedly cause daily discomfort to building inhabitants.

Public liability

What level of Public Liability is necessary to ensure the contractor is protected?

We are very fortunate in New Zealand in that we have a quality pool of experienced engineers and contractors ensuring that seismic strengthening projects are usually delivered as required to the levels expected, but they can’t do it alone.

Early engagement with the tenants, engineers and contractors and with your risk advisers, such as insurance brokers and insurers, who understand the inherent risks and insurance issues with seismic strengthening and are able to provide early advice, means the goal of getting a seismically-strengthened building completed can be achieved optimally, with the risks identified and insurance coverage understood.

Jeffery Nathan is Account Manager of Aon Insurance Brokers New Zealand, Sponsor of the ‘Best Young Entrepreneur of the Year’ category of the Indian Newslink Indian Business Awards 2014.

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