Anthony Harper partner Peter Woods says giving up the option to litigate is "like going to a fight with your arms tied behind your back".

Kylie Richardson has about three months to decide if she will take her insurer to court.

She is one of hundreds of Christchurch residents who will be affected when insurers start using a limitations defence to stop disputes going to court.

Richardson learned earthquake repairs for her family's Phillipstown home would go over the Earthquake Commission's (EQC) $100,000 liability cap on Wednesday. Their claim will now be passed to IAG, following two failed EQC repair attempts since 2014.

SUPPLIED Insurance claims specialist Dean Lester says the limitations defence is "a massive problem" for those whose claims are delayed by matters outside of their hands, such as when incorrect EQC assessments or repairs are done.

She said it felt like they were starting from the beginning again, and the future was unclear because they did not know what IAG would do.

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Because of the looming limitations defence, which IAG will start using in July, Richardson must decide soon whether she wants to file in court – despite not yet dealing with IAG for her house claim. If she doesn't, and there is a dispute, she will not be able to go to court.

EQC/SUPPLIED EQC chief executive Sid Miller says EQC has used the limitations defence in "a small number of cases" and will consider doing so again in the future.

Richardson said the uncertainty of the situation was stressful and frightening, and would not have happened if she had been found overcap from the start. She said she did not want to go to court, but would listen to her lawyer's advice.

THE LIMITATIONS DEFENCE

The Limitation Act provides a defence against litigation filed more than six years after the Act on which it is based. Many insurers argue the period started from the date of the earthquake.

Seven years on from the quakes, insurers agreed to a grace period where they would not use the defence, which varied from company to company.

IAG intends to use the defence from July 1. A spokeswoman said the limitation period "does not extinguish claim entitlements" and IAG remained committed to resolving all valid claims.

Southern Response is less clear. A spokesman said the board was considering what the company would do after its grace period ended on September 4. A public announcement would be made "well in advance".

It means those with outstanding claims have until then to file against their insurers in the courts or give up litigation as an option, as their insurers will use the limitations defence. It also applies to those in dispute with EQC who believe their claim will go overcap.

Those not currently in dispute with EQC, but who need to go to it for future reassessment (when unscoped damage or poor repairs are found), will lose the choice to go to court before they know they need it.

Anthony Harper partner Peter Woods said giving up the option to litigate was "like going to a fight with your arms tied behind your back".

"I think it means that the insurer can say, this is our position, take it or leave it. But if you leave it, what can you do?"

Woods said filing against private insurers like IAG before the claim had gone overcap from EQC was "an extraordinary thing to do", but IAG's position meant homeowners had no choice. He believes hundreds of people will rush to file before the date, placing a huge burden on the courts.

Insurance advocate Dean Lester said the limitations defence was "a massive problem" for those with claims delayed by matters outside of their hands, such as when incorrect EQC assessments or repairs were done.

"They're in a position where their insurance rights, and their ability to take legal action through the courts, are being reduced."

WHEN DOES THE COUNTDOWN START?

There's disagreement over when the limitations countdown starts – when the earthquake occurred or when the claim is settled. IAG and Southern Response adopt the former, EQC and Tower the latter.

The issue has not been clarified in court. Woods said because the consequences were so fatal if IAG is right, he thought any lawyer would advise customers not to take the chance; "Even if it's a 10 per cent risk, you just can't take it, so you have to file".

EQC chief executive Sid Miller said the commission had used the limitation defence in "a small number of cases" and would consider using it in the future.

Insurance Council of New Zealand chief executive Tim Grafton advised customers to clarify how they might be affected with their insurers.

Christchurch Labour MP Duncan Webb's Fair Trading (Oppressive Contracts) Amendment Bill, drawn from the ballot on Thursday, would make insurers and other businesses warn people in disputes six months before the limitations period ran out.