Xu deals with a case where the house was sold on an "as is" basis, with an assignment of the original owner's rights under their insurance policy to the purchaser. In the majority of "as is" sales, the rights are not assigned, as the original owner will have settled their insurance claim for the EQ damage to the house. They keep the cash settlement and the sale price is reduced.
Xu may apply when a new owner finds defective repairs by either IAG or EQC. If it was IAG's work, IAG can still be liable for the defective work, for the failure to meet the repair standard under the Policy. If it was EQC's defective work, (where the house was insured by IAG), it is strongly arguable that EQC is liable for the full cost of re-repair (i.e. the EQC statutory cap does not apply) – there is a test case on this issue in August this year.
There are several other scenarios that will remain unaffected by the Supreme Court decision announced today.
Xu does not apply to Southern Response claims and Xu does not apply to other insurance policies where the replacement benefit in the Policy is not conditional on the named insured / homeowner incurring the cost of the replacement works.
Although this decision is disappointing for the homeowner in this specific instance, I believe the case in August will be the one many are awaiting with anticipation. That case aims to clearly identify who is liable where a home is sold as “fully repaired” and it is subsequently found that the assessment and repair of the earthquake damage was defective. These properties have become known as “onsolds”.