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QC called in over class action quake fight

A minister’s intervention might speed up a protracted legal fight over Christchurch earthquake claims – with taxpayers picking up the bill for a top lawyer’s involvement. David Williams reports.

A top Auckland QC has been brought in to broker a deal between Christchurch earthquake victims and Crown-owned insurance claims company Southern Response.

Earthquake Commission Minister Megan Woods’ office confirms Miriam Dean QC – who is heading a just-announced review of retail electricity prices – has been facilitating negotiations between a group of homeowners with unresolved insurance claims and Southern Response.

Grant Cameron, of GCA Lawyers, who represents the 24 homeowners, says Dean’s involvement has been helpful. “We have had some very positive discussions which have resulted in us presenting a proposition to our clients and we’re just waiting to see what that may lead to.”

Southern Response chief executive Anthony Honeybone confirms the company is in the final stages of negotiations over the class action. Cameron says the negotiations centre on finding an appropriate dispute resolution process, through which each claim could be considered and settled individually.

Southern Response refuses to say what Dean’s involvement has cost, but taxpayers will be paying given it’s the Crown-owned company charged with settling AMI’s earthquake claims.

Last October, the Court of Appeal paved the way for a representative action in the High Court taken by two dozen Christchurch quake-damage claimants. They allege Southern Response had a deliberate strategy of minimising its financial liability for claims, using delaying and misleading conduct. The insurance company strongly denies the allegations.

Days after the judgment was issued, Woods – who, while in opposition, frequently criticised Southern Response for the way it was handling claims – met with GCA Lawyers partner Cameron. She took the face-to-face meeting against the advice of Treasury, which wanted Cameron to send a written proposal. Treasury warned Woods against contradicting Southern Response’s position on the claims or providing specific undertakings about the case.

In February, Woods wrote to Southern Response chair Ross Butler and the class action group urging them to enter negotiations to find an appropriate settlement process, outside the courtroom. Dean’s name was suggested by Southern Response and approved by Woods.

(Treasury drafted the letters for Woods after consultation with Crown Law “to ensure that shareholding ministers are not opened to legal risk through sending these letters”. It said the letters were appropriate, but warned “any perception of Crown intervention in the class action creates precedent and fiscal risks”.)

Woods Letters Class Action by David Williams on Scribd.

The class action, backed by an Australian litigation funding company, was launched in August 2015. Initially, it involved 47 AMI policy holders, but 19 have since settled and four are now negotiating their claims directly with Southern Response.

Woods’ willingness to step in continues her ministerial record of intervention. In February, her intention to appoint a ministerial adviser to peer into the Earthquake Commission’s (EQC) outstanding Christchurch claims led to the resignation of EQC chair Sir Maarten Wevers. Last year she oversaw the tearing up of an early contract for Christchurch’s metro sports facility. 

Treasury warnings

Woods’ letters over the Southern Response class action were written amidst a flood of warnings from Treasury over any direct intervention, official documents reveal.

A February 20 Treasury report, written to Woods and Finance Minister Grant Robertson, and released to Newsroom under the Official Information Act, said litigation is an operational issue for Southern Response. Direct Crown involvement may increase the Crown’s fiscal risks and have a knock-on effect for claims against Southern Response, private insurers and EQC, the report said. “We consider that the Crown should not be directly involved in this litigation.”

Treasury even referred Woods and Robertson to the Cabinet manual, which warns ministers of potential conflicts when dealing with community or lobby groups. “If the Crown is seen to favour the 24 claimants remaining in the class action, it risks creating an inequitable situation for all remaining claimants in Christchurch as well as those claimants who have already settled their claims.”

Woods tells Newsroom she hasn’t ruled out intervention, should negotiations break down, but says the current process should continue “before we make further decisions”. Southern Response’s claims management is an operational matter, she says, but she supports an improved approach and efforts to find an alternative resolutions for customers.  

Treasury warned Woods that any change to the way Southern Response claims were settled could have ramifications for the wider insurance market.

Creating an expectation

The biggest danger from the class action, Treasury told the ministers in February, was the potential for general damages to be paid by Southern Response. To date, courts have only awarded general damages in one Christchurch quake claim, the briefing said – a $5000 award against Tower, for not acting in good faith and withholding information. GCA Lawyers is seeking an initial $25,000 per claim, plus $15,000 for every year without settlement.

Treasury’s report said: “We are concerned that if Southern Response were to make a payment for the general damages sought, this would create an expectation among other claimants with outstanding claims against Southern Response that they are entitled to the same payment. In addition, it could potentially open up all settled claims in the same way.”

The briefing said EQC could also be exposed to additional claims and court action – involving “undoubtedly large amounts” – should general damages be paid as part of a settlement for these cases, or if the Crown intervened in the settlement process.

GCA Lawyers partner Cameron says general damages are a live issue in any form of litigation. He agrees that general damages don’t normally form part of an out-of-court settlement, but would not comment on whether it would be pursued for his clients in this case.

Treasury’s briefing said progress in resolving the Southern Response class action claims was dependent, in part at least, on information from claimants. Cameron retorts: “There would never have been court proceedings filed certainly by our firm without there being, we felt, very strong evidence of mismanagement of claims, and a failure to perform under the policy by the insurer.”

The best way forward, Treasury said, was for Southern Response to continue litigation, in case negotiations with class action claimants failed.

Waking up to sleeper claims

Taxpayers have pumped almost $1.5 billion into Southern Response. The company’s outstanding net claims liability at December 31 last year was $493 million – which, Treasury tells Woods, was fully covered by an uncalled Crown facility. The latest figures show Southern Response has 773 outstanding claims. A tally from last September said 40 claims were being pursued through the courts and Southern Response had joined EQC in a further 51 claims deemed under “cap”.

Home insurance earthquake claims up to a $115,000 cap are dealt with by EQC. Repairs assessed to be over that amount go to private insurers. A big issue right now are “sleeper” claims, involving under-cap homes repaired through EQC that need further repairs, because of missed or previously unidentified problems, of a magnitude that would push them over the cap. The Government is worried about the cost of such claims, possibly in the hundreds of millions of dollars. A tussle is developing between EQC and private insurers about liability.

Quake insurance is experiencing major ructions in New Zealand right now.

The Government has flagged changes to EQC’s cover that will be brought in by the end of the year. These include increasing the cap to $150,000 plus GST, removing cover for contents and enabling claims up to two years after a natural disaster, rather than the current three-month time limit. Tower Insurance has announced that thousands of its customers living in quake-prone areas face premium hikes. Meanwhile, Christchurch law firms are warning insurance companies’ limitation deadlines for taking claims are expiring in the coming months.

Insurance Council chief executive Tim Grafton couldn’t be reached for comment on these issues yesterday.

Treasury’s February briefing to Woods reveals the Ministry of Justice has been working on a proposal for a Canterbury Earthquakes Insurance Tribunal. The briefing said a paper would be going to Cabinet “shortly” for consideration. Justice Minister Andrew Little couldn’t be reached for comment. Woods says the tribunal idea is “subject to a Budget process”.

* This story was changed to correct the name of Southern Response chair Ross Butler and to clarify Southern Response is an insurance claims company.

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