Street Maryan: Residential Tenancies (Damage Insurance) Amendment Bill — First Reading 
Street Maryan: Residential Tenancies (Damage Insurance) Amendment Bill — First Reading 
[Volume:630;Page:2336] 
MARYAN STREET (Labour) 
: 
 I move  
That the Residential Tenancies (Damage Insurance) Amendment Bill be now read a first time. 
 It is my pleasure to introduce this bill and at the appropriate time I intend to move that the bill be considered by the Social Services Committee. 
This bill has arisen out of a perceived unfairness in the application of the current Residential Tenancies Act 1986. The bill contains three small but significant amendments. The first amendment is to insert the following clause into section 45(1) of the principal Act after paragraph (d): “(da) insure the interests of the tenant against liability for damage to the premises;”. The second amendment is to amend section 45 of the principal Act by inserting after subsection (4) the following two subsections: “(4A) Subsection (1)(da) does not apply where the damage is intentional and the tenant is personally responsible for it.” and “(4B) Except as provided in this Part no tenant is liable whether to the landlord any insurer of the landlord (whether acting by way of subrogation or otherwise) any other tenant or any other person in the event that the landlord fails to take out insurance as provided in subsection (1)(da).” 
The purpose of these amendments is to protect innocent tenants against liability for damage to premises that they did not cause through providing for the extension of landlords’ insurance cover. The current situation is that under the Residential Tenancies Act 1986 tenants are liable for any damage that they or their invited guests cause intentionally or carelessly. In multiple-tenant tenancies tenants usually have joint and several liability. This means that tenants can be held liable for a breach of the tenancy agreement regardless of which tenant committed the breach. If a tenancy agreement is breached through careless or wilful damage to the property then the tenants are jointly and severally liable for costs of repairs under common law regardless of which of them caused the damage. 
Under the current law landlords are responsible for the payment of all insurance premiums payable in respect of the rented premises. Although landlords are not required to obtain insurance or to insure premises for the benefit of their tenants it is most likely that landlords do in fact have their properties insured as a matter of good business practice. 
A tenant’s liability for careless or intentional damage to a property is not affected by the fact that the property is insured. If an insurance company believes that a tenant is liable for damage it may step into the shoes of the landlord pursuant to the rights of subrogation to seek compensation from the tenant. Subrogation rights impart to the insurance company the right to take action against any party in the name of the insured. The amendments in this bill extend the provision to insure the interests of the landlord to insuring the interests of the tenant as well. 
Under the existing law tenants can insure themselves against the risk of being held liable for damage by obtaining personal liability insurance. Personal liability insurance is often part of normal household contents insurance or can be added to it. As I understand it some insurance companies will consider personal liability insurance without the contents policy attached. Policies may contain a number of exceptions or provide limited cover. The key point about that however is that very few tenants have such cover. That leaves most tenants engaged in tenancy agreements which under common law and in line with the Residential Tenancies Act leave them jointly and severally liable for damage to the property they rent regardless of whether they caused the damage. It seems to me to be unfair to insure landlords’ interests but not tenants’ interests. That is the unfairness that this bill seeks to address. 
In the end this bill does not absolve tenants from their contractual obligation to not damage the rented property either intentionally or carelessly. Further to that it is explicit that when damage is intentional and the tenant is personally responsible for it his or her protection under the amendment does not apply. 
The reason for this movement to insure the interests of tenants comes from some incidents in recent years in which innocent tenants were found liable for compensation when a house was damaged. One of the clearest and most definitive judgments on this issue came in the case of  
Harrison v Shields and others and 
Medical Assurance Society New Zealand Ltd.  
The presiding judge was Judge MacAskill. 
The case involved six flatmates at an address in Dunedin. Five of the tenants had signed a common written tenancy agreement. The sixth tenant had not signed it. On 11 June 1999 the only tenant at home at the time left some bacon cooking on the stove and went next door. While he was away the place caught fire and considerable damage was done. None of the man’s flatmates were home at the time of the fire. The other four signatories to the tenancy agreement did not intentionally or carelessly damage the flat by fire. As they were not present in the flat they had no knowledge of and were unable to control their flatmate’s actions. 
The flat was damaged by the fire. Some of the contents were destroyed or irreparably damaged. The landlord had insurance cover and the property was restored with a consequent loss of rental income while the repairs were being carried out. The insurer stepped in to recover the costs from the tenants as it was entitled to do under the rights of subrogation. In the event the judge ruled that the four flatmates who were signatories to the tenancy agreement as well as the flatmate whose carelessness caused the damage to the property were jointly and severally liable for the net recoverable loss of $67381.07 plus interest. 
When issuing the judgment the judge had these comments to make: “The outcome of this proceeding though in accordance with the law is unjust. It is unlikely that the defendants were ever aware that their landlord (or the landlord’s insurer acting by right of subrogation) might sue them for major damage to their flat even if caused by the carelessness of one of them. I have no doubt that while most residential tenants assume (almost invariably correctly) that their landlords insure and will be indemnified against damage to or the destruction of the insured property they have little or no understanding of the insurer’s right of subrogation.” Judge MacAskill continued— 
Sandra Goudie 
: Abrogate responsibility then why don’t we! 
MARYAN STREET 
: A little bit like the member opposite. She is welcome to take a call. 
Judge MacAskill continued: “They assumed that if a landlord is insured they the tenants are not at risk. Few tenants insure against their potential liability.” He went on to say: “Where the tenants are insured the insurers usually settle between themselves. Where the tenants are not insured they often have too few resources to be worth suing and are not sued for that pragmatic reason. Where not all joint tenants are insured a claim may be brought against all in order to recover from the tenants who are insured … Putting aside all these variables I am then of the opinion that in general the pursuit of substantial claims against tenants with respect to damage caused carelessly is oppressive in effect and I respectfully urge that the law be reformed … A simple and effective solution would be for the legislature to amend the Residential Tenancies Act 1986 to require landlords to insure the interests of tenants.” That is exactly what the bill is designed to do. That is exactly the injustice that this bill is designed to address. 
Nothing in this bill prevents the landlord from passing on any consequent increase in premiums to the tenants in rent. It simply seeks to place liability where it should lie and not where it should not lie. 
I suggest that the consideration of this bill is most appropriately addressed in the context of the current wide-ranging review of the Residential Tenancies Act.