A High Court ruling against Tower has raised questions over the extent to which legal disputes could see the insurer’s 2010/11 earthquake claims cost blow out.
Justice David Gendall has ordered Tower to pay a Christchurch couple $1.62 million for their quake-damaged home to be rebuilt, further to it originally, in 2013, offering to pay $362,084 for the house to be repaired.
With Tower forced to pay four times more to settle the claim than anticipated, the property’s owner, Greg Young, questions whether the insurer has put enough money aside to pay the 564 quake claims still on its books. Tower expects 100 of these to involve legal disputes.
“They’ve got absolutely no idea what the cost of the repairs is,” Young says.
Therefore he believes one can’t trust the figures Tower is using as it seeks Reserve Bank approval to ring-fence its problematic quake-related business from the rest of its business.
Winching technique too unusual to cut it
Coming back to the court ruling, Gendall says Tower breached its contract with the Youngs by opting to repair their home by winching it up the hill it slid 116mm down during the February 2011 earthquake.
He says the winching technique doesn’t align with Tower’s policy to use “building materials and construction methods commonly used at the time of loss or damage”.
He therefore deems the four-storey Mount Pleasant house irreparable and has followed Tower’s quantity surveyor’s advice and put a $1.62 million price tag on the rebuild.
The Youngs had wanted $2.10 million.
A Tower spokesperson says: “We are pleased that this judgement supports Tower’s industry expert’s costing.”
Young, who’s an architect, believes it’s possible to rebuild his home for $1.62 million, but says there’s no “fat” in this figure.
Tower guilty of withholding information
Gendall has also ordered Tower to pay damages of $5000 for not acting in good faith by withholding information from the Youngs.
He has ruled Tower breached its contract by in 2011 withholding a subcontractor’s report that said the Youngs’ foundations couldn’t be fixed.
Although it was only a brief report, it was crucial, as it recommended the house be rebuilt rather than repaired.
Gendall considers the fact it was withheld from the Youngs until 2015, a “serious breach of the defendant’s obligation of good faith”, and acknowledges it “may have prolonged matters to some extent”.
“While the duty to disclose all material facts is often enforced against the insured, I have no doubt that a corresponding duty, especially at the stage of lodging and processing a claim, applies to the insurer,” he says.
“It seems to me fundamental that an insurer should be required to disclose all relevant information material to a claim that the insurer knows or ought to have known.”
While pleased with Gendall’s ruling, Young is “insulted” by the level of damages awarded. He says $5000 is a “parking ticket” for a big company and isn’t nearly enough to deter an insurer from withholding key information from its policyholders.
The Youngs had wanted to be paid exemplary damages of $100,000.
Tower cleared of delaying settlement process
Gendall says: “Although the plaintiffs [the Youngs] have effectively, to a significant measure, succeeded in their claim in this proceeding, a number of the items of relief sought are not appropriate here.”
For example, Gendall has rejected the Youngs’ allegation Tower unfairly delayed the claims settlement process.
He goes further to say the Youngs are “partially responsible” for prolonging the process, as they dug their heels in around some of their cost estimates that were wrong.
“There is no doubt in my mind that there have been real delays in this claim since it was promptly made by Mr Young in 2011. While I can understand the frustration of the entire negotiation process and the effects it has had on the entire Young family here, I do not find that the defendant was entirely at fault for the delay in this insurance claim,” Gendall says.
“The claim must be viewed in the context of 25,000 other earthquake claims the defendant has processed since the Christchurch earthquake sequence began and the strained capacity of the available experts’ pool to provide assistance and reports.
“No suggestion has been made in this case of the Young’s claim “going to the bottom of the pile” if offers were not accepted.
“Undoubtedly though, this whole matter has seen a large range of experts engaged over different periods of time to consider, negotiate, and report on what must be seen as a novel repair strategy on a difficult site.
“Some of this, however, related to the need for additional surveying evidence following Mr Young’s continued reliance on the early Budget Set Out figures which were clearly in error.”
Youngs’ wellbeing not Tower’s responsibility
Gendall also rejects the Youngs’ claim Tower didn’t act in good faith by flip-flopping on its stance around whether their property was a repair or rebuild.
He dismisses the Youngs’ demand to be compensated for the impact the stress of living in a damaged house has had on their son, who was 10-years-old at the time of the quakes.
“While some criticism may possibly be levelled at the defendant for not addressing or responding in a sympathetic and real manner when it was put on notice about [the child’s] condition, I do not accept that it was either reasonably foreseeable in the policy for Tower to compensate the health and well-being of its occupants…”
Overall, Gendall rejects the Youngs’ accusation that Tower breached good faith by being arrogant.
“The plaintiffs [Youngs] allege that there have been many high-handed actions by Tower in this case. However, overall on all the evidence which is before the Court, I do not find generally that Tower acted unprofessionally in its correspondence or dealings with Mr Young.
“To the contrary, some comments made by Mr Young, especially to and about Mr Sinclair, seem ill-intentioned.”
‘An agreement is difficult to achieve when the other party is not willing to negotiate’
A Tower spokesperson says the judgement shows “Tower approached dealings with the Youngs in good faith and wanted to reach an agreement.
“However, an agreement is difficult to achieve when the other party is not willing to negotiate and unfortunately, the case proceeded to court, which was not an ideal outcome for either party.
“As with all claims, we are committed to dealing fairly with our customers, in accordance with their insurance policy, and working hard to make sure they can get their lives back on track.”
Yet Young says: “Tower knew the house had moved from day one, but they played games around it and ignored the effects it had on the family.”
He accepts that while some of his accusations didn’t hold up individually, they should have been able to carry some weight collectively.
Damages limited
Gendall says damages can only be awarded if “the insurer unjustifiably rejects the insured’s claim”. But this hasn’t happened in this case, as the disagreement has centred on the winching repair method.
As for ‘exemplary’ damages, Gendall says he wouldn’t have made Tower pay these because “exemplary damages for breach of contract are not permitted in New Zealand”.
If they were awarded, they would be “reserved for extreme cases of flagrant wrongdoing” to deter “similar misconduct in the future”.
Gendall has ordered Tower to reimburse the Youngs $25,000 for temporary accommodation costs, and has left the parties to settle expenses and experts’ fees among themselves.
Neither Tower nor the Youngs have said they would appeal the decision.
For more on this case, see this story, and this one.
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21 Comments
The judge takes quite a sympathethic attitude to the defendant. He's been listening to deny-delay-defend cases like this week after week, for four years or so, yet states that exemplary damages are reserved for "extreme cases of flagrant wrongdoing". Apparently, the deliberate withholding of crucial claim information does not cut the cake. And the award of $5000 in damages is probably less than the amount the insurer has saved in interest since the claim was first lodged. What do insurers need to do to qualify for exemplary damages being awarded against them, one wonders? Poison the claimant?
Looking forward, Tower's figure of 100 litigants may prove very optimistic, and the Reserve Bank will need to be very careful with the reserves required for its proposed run-off company.
Tower advertises itself as offering peace of mind. Looks like the only thing the judge believed about their case was the costing by the QS and that is the only thing Tower can bring itself to comment on , so far?Doesn't say much about all the assessing and costings prior to the involvement of that QS. If Tower had gone in and done a proper assessment (oh yes they did, but it seems it somehow got hidden) then this court case need never have happened & you can bet your boots that this is more than likely for all the other claims that have had to be filed in court. Peace of mind anybody?
Tower hid evidence from the claimants and the Court and fabricated evidence .. these are CRIMES under the Crimes Act and should be prosecuted by the Police. The judge in this case should have also looked closely at modern legal trends and noted Whiten v Pilot Insurance Co where a $1 million was awarded for punitive damages against the insurer for this type of behaviour in an insurance case. The reason it is important in an insurance case is the huge imbalance of power between the insurance company who has all our money and the claimants who have no home and in many cases now have no money.
Wouldn't the insurance company require the damaged building to prevent that happening? So what would be sold would just be the land, if they decided not to rebuild. For example, if you damage a TV and claim under insurance, you don't get to keep the damaged tv to repair yourself or sell, the insurance company takes it. They may then get something for it by selling it.
Some insurers insist on demolishing the old house, others are less focussed on this. Be interesting to learn which approach is taken in this case.
An key take out from this decision is that unconventional repair strategies are unlikely to be supported by the judiciary. In this case the proposed method was developed by a reputable engineer and had every prospect of success, but that wasn't good enough for the court which decided it will not allow experimental repair approaches.
Speculation this case will have a knock on effect to other Tower claims and their overall event estimate, is misplaced. This case was over an exceptional set of circumstances. Tower would have very few claims where their reserve was dependent on unusual technical building method arguments like this one.
Whether they have sufficiently reserved for claims where there are no exceptional technical issues is an entirely different and valid question. Setting correct claim reserves requires very experienced judgment and the only way to get the correct answers is painstaking file by file review by people who have the right mix of insurance and construction knowledge. A culture that is overly optimistic about possible claim outcomes, can easily develop where the balance between these two skill sets is not correct or where 'bad' news is not welcomed by management.
It will be interesting to read the actual judgement when it comes on line. Suspect there will be some precedent involved that will advantage claimants more than Tower. The concealment by Tower of information that should have been given to the claimant is worrying and goes someway to confirming the general opinion there have been underhand tactics employed by various insurance companies. Hopefully this warning will be sufficient to ensure that this sort of detail is not withheld in future. The short of it is that Tower lost this one but do not think for one moment they will reduce their hardball approach. FInancially it would seem, there is no other way.
Another rather unsavoury blemish reported on Tower this week in that they kept and withheld a payment from EQC that should have gone to the claimant because it had nothing to do with Tower. Apparently a misunderstanding come clerical mistake. That can happen of course in any matter of events but if the claimant is correct in saying that when speaking to Tower he was admonished and advised he had no right to this information, then it looks all a bit too disquieting. Appears to be a lot of things flying off the wheel at Tower these days, desperate times perhaps?
It probably is just an administrative issue. The process of intra insurer/EQC payments can be very complicated.
But this is a wider issue.
When settling a claim, insurers commonly demand the owner signs over to them, future payments from EQC for land damage.
Insurers say costs are higher than they otherwise would be, for foundation repairs on stuffed land. Their reasoning is if EQC had fixed the land, the repair cost would have been lower so EQC land claims proceeds should go to the insurer.
A flaw in this argument is that often the repair cost would have been the same whether or not the land had been damaged.
Another issue is that EQCs liability and claim payments for land damage extends well outside the building footprint, which is where the insurers liability for building damage ends. It is arguable whether or not insurers should hang onto the whole payment under these circumstances.
Payments from EQC in respect of increased flooding vulnerability should not be held by insurers unless they have paid for work specifically required to address the increased flood risk - usually lifting the finished floor level of the house.
OK fair enough but even the loquacious Mr Grafton is on record here stating that this one, which is as per you last para, had nothing to do with the insurer. Anyone who has been in any area of commerce for any length of time knows that snafu's are unadvoidable. As the Americans like to say it's the putting right that counts but In this example here though, it apparently took some strong effort by the claimant to get it put right in the face of what looks like some obduracy and obfuscation by the particular Tower staff involved. That is the rub of the issue and why presumably what usually as an issue, could be seen off as let's say an oversight, is considered sufficiently questionable so as to make the national press and of course is not that long after the censure by the judge, in the above court case, concerning withholding of information.
Yeah, all reasonable positions. You are entitled to be suspicious but there is nothing to indicate it was deliberate. Be very risky for a corporate to cynically engage in such behaviour. Bound to be found out.
But does raise the question of how much Tower has included in the overall 'recovery' they are seeking from EQC for the extra cost they have paid for better foundations due to land deterioration but where EQC say the site has no increased vulnerability to liquefaction, or flooding. Lots of such cases down in swampy old CHCH.
Wouldn't bet on EQC being too keen to make concessions as that could undermine their stance on land claim obligations. Not worthwhile for individuals to pursue legal action on land determinations on an individual claim basis but very much an option for corporate insurers. Which, if successful, raises the possibility of EQC having to revisit land claims where they have said nyet.
Fat lady ain't sung yet.
Yes agreed there is a lot of water still to come to the bridge, let alone pass under. As for the fat lady, do believe she may be sharpening those Viking horns in ready anticipation, Ragnarok, Armageddon? Trust you have not put the hex on Tower, many a true word spoken in jest and other doomsday cliches abound,
Yet Tower maintains they acted in good faith, despite the court ruling they did not. Strewth, spin at its worst.
Tower has tried to pull far too much crap, as proved by court rulings, to be trusted by setting up a ring fenced company. This cannot be left to proceed as it is not nearly enough money.
Well if you keep on and on repeating the same things over and over again then you start to believe they are true even if nobody else does. It's sort of self-indoctrination and a big part of what is surely a prevailing culture of denial, a bunker mentality.That would seem to be the persona of all the PR work by Tower. The thing is when something looks bad from the outside it is invariably a lot worse from the inside. The Australians used to have a good expression for it, "white anted."
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