s124 notices & physical damage

The High Court (Mallon J) on 6 May 2014 released its decision in Kraal & anor v EQC & anor [2014] NZHC 919.  The decision was about whether the homeowners’ loss of the ability to use their home by reason of an extant notice under s124 of the Building Act 2004 was physical loss or damage for the purpose the EQC Act.  The Court chose not to follow relevant US cases on point and instead decided that the loss of use of the property was not physical loss or damage so not covered by the EQC Act and because there was no cover under the EQC Act the Allianz insurance policy did not activate as it only covered amounts in excess of the EQC liability.  The Court appears to have ignored the leading cases on damage which conclude that damage can include economic effects.  The decision does not affect the claims of homeowners against EQC and insurance companies where the EQC/insurance cannot legally do the remedial work by reason of red zone/s124 notice.  In those circumstances the house is a total loss.