So that CERA rumour turned out to be tru-ish, then didn't it.....
I am exactly in the same position as you are. We have a house that has barely been damaged, probably not over $25000 to fix. But due to being in the red zone, we have to move. BNZ (mortgage and insurance both, via IAG) have indicated that they will not be doing replacement value for our house either.
The good news is that PM John Key appears to be aware of the situation and is talking about it - see story here: http://www.odt.co.nz/news/national/166412/negotiations-not-easy-key
He seems to be indicating that the current approach of the insurers is abhorrent to him also, so perhaps there is hope of govt intervention in our cases. I certainly hope so!
Good luck to you, and if you ever find that you're having to resort to the legal system, I'll go with you. :)