By Andrew Hooker*
In a recent statement, the Chairman of the Board of Tower Insurance, Michael Stiassny, bemoaned the fact that Tower is still receiving fresh claims and is involved in substantial litigation following the earthquakes in 2010/2011. He maintained that this was partly due to what he referred to as a “litigation industry”. He said:
“An entire litigation industry has sprung up to agitate disenfranchised customers to demand not just fair resolution, but a windfall.”
Being at the forefront of insurance claims in Christchurch, I have a reasonably good handle on the people who seek legal advice. Some of the following facts might help Tower to understand why insurance companies find themselves in this situation:
1. When, more than six years after the first major earthquake, there are still large amounts of claims unpaid, it seems somewhat strange to blame the lawyers acting for those poor people. Rather, perhaps the insurance companies could actually pay the claims, and then people wouldn’t need to resort to a “litigation industry”;
2. With very limited exceptions, I have never seen anyone come into my office seeking to be greedy or to demand more than what that person should have got years ago, from their insurance company. Indeed, of the perhaps five to 10 new customers that we see every week in Christchurch, most of them are very humble, and simply confused as to why their houses are still damaged, and no one wants to step up;
3. Like any profession, there can be no “industry” without a need. If insurers paid their claims, there would be no “litigation industry”. It is absolutely staggering how many “botched” repairs are coming to the surface. More than 50% of the new files coming into our Christchurch office relate to botched repairs, primarily by EQC. Mr Stiassny rightly referred to the way in which EQC handled many of these claims. From what I see, the problem is massive. There are repeated and significant new claims coming into our office every week where EQC has done a cheap and nasty repair job under the $100,000 cap, often without proper engineering advice or inspections. When the home owners pay for their own engineer’s report, it is apparent that the repairs were totally inadequate.
Tower partly attributes its woes to people seeking a windfall. It is not a windfall, it is what their policy promises.
You see, years before the earthquakes, insurance companies bought business by making extremely generous offers as to how they would settle claims. For example, insurance companies once only provided replacement insurance when people could meet certain very strict criteria about the age and condition of their house. When insurance companies introduced no sum insured policies, the criteria were even stricter. But in a desperate grab for business off their competitors, insurance companies relaxed their criteria, and seem to have been prepared to offer full sum insured policies to almost anyone with a pulse. Well, now it is payday, and insurance companies having to honour these incredibly generous policies ought not to criticise their customers for seeking a “windfall” or the lawyers acting for them in enforcing those generous promises.
A windfall in the form of new for old is exactly what the insurance companies promised their customers. Do these insurance companies now expect their customers to feel sorry for them having to honour those generous promises? The customers of Tower may consider the $500,000 one off payment made to its departing CEO in 2015 (or his remuneration package of over $2 million) as a bit more like a windfall.
What I guess is even more depressing is that the pattern that seems to be repeating itself in Kaikoura. Here we have EQC publicly announcing that it is going to cash settle claims. If past experience is any measure, EQC will throw some crumbs at many of its customers, and then walk away. Those customers, when they attempt to do the repairs or find out that the “crumbs” were woefully inadequate, and they needed a whole loaf of bread. Hopefully this won’t take five years, as is the case in Christchurch. But if insurers want to avoid this problem in Kaikoura and probably Wellington, perhaps they could inspect their customers’ houses now, instead of sitting on their hands.
One final observation. In the hundreds of earthquake cases I have been involved in, I cannot recall a case where an insurance company accepted the insured person’s repair scope until litigation was pursued. In mlany cases, through the litigation process, managed by our High Court, the insurance company subsequently acknowledge and make significant payments.
The High Court earthquake list process provides a very good forum to resolve disputes, very often without the need for a trial.
Therein lies the flaw in Tower’s attempted side swipe at lawyers acting for insureds. If the insurance companies were so averse to litigation, then perhaps they could have properly assessed their clients’ claims shortly after the earthquake, so that their valued customers would not need to resort to the litigation industry that Tower now partly blames for its financial situation.
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Andrew Hooker is the Managing Director of Shine Lawyers NZ Limited practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He also runs an insurance information website - www.claimshelp.co.nz
14 Comments
Thanks Andrew. That confirms what I would have expected. Generally Kiwis are pretty fair minded and if the the settlements were anything like fair they would be accepted and there would be no call for litigation. In my estimation the average kiwi will put up with a hell of a lot more than they should before making a stand; perhaps that is what the insurers were banking on. It seems that everybody agrees that the poor leadership by the Government and EQC set the insurers off down this unacceptable path. As with most things - do it once, do it right; then you are able to put things behind you and move on. Long term, this is generally the most cost effective approach.
Most if not all Insurancie policies give the insurer the authority to negotiate with EQC on behalf of the insured. That is where the first breakdown in the process occurred because the insurance companies either failed to firstly assess the true extent of damage and cost of repair and/or negotiate with EQC accordingly. It is obvious there was collusion between the insurance companies and EQC to leave cblaims under the cap. As Mr Hooker has said previously if a house that has been put under the cap ends up being a rebuild either the assessment of its damage was deliberately wrong or incompetent or both. In other words you cannot get it that wrong unless you want to!It cannot be the insured's fault if those claims are only now coming in front of the insurance companies either because a proper assessment has now been made or because of botched repairs. Had the insurance companies done their duty in the first place this would not now be happening. Of course these repairs/rebuilds are one heck of lot more expensive now. The Tower chairman appears to have a convenient or poor memory . The Skyward case against Tower very clearly stated that the claimant would be receiving a windfall because that is exactly what the Tower policy dictated.
I'm aware of many Christchurch property owners who have received just that - a windfall. I've helped some of them secure it. If windfall means an entirely unexpected increase in housing equity then the gain has been massive for a good number, particularly those who cash settled at replacement cost and retained their land and occupiable but constructive total loss houses.
This outcome is not a policy 'entitlement' as Hooker would have us believe. Policies usually say if you cash out, you get indemnity value. But given the scale of CHCH, insurers waived this condition.
Conversely many have gone backwards as well through poor repairs or repairable but red zoned or on a flood prone site. Tale of two cities.
I'm aware of cases where advocates have ramped up expectations to ridiculously high levels and the let down has been painful. A good deal of legal action over earthquake claims has failed in the courts.
There are some horrid stories of EQC and insurer ineptitude and outright individual maliciousness in CHCH but Stiassny makes a fair point and the policy entitlement interpretation is not as black and white as Mr Hooker might have us believe. But then he's incentivised to present the perspective he has.
Every coin has two sides. There have been opportunistic claims and the insurance companies can point to these readily enough. Perhaps the latest being Jarden against Lumley. The High Court sorted that one out very smartly .. But it took the Appeal Court and Supreme Court to conclude the Skyward case against Tower. If policies are not black and white then it seems the only option is to have the court sort it out. Over six years on now, that would indicate those with unresolved claims and who have filed, see the court as their only hope. That is the reason behind the great majority of litigation, these are ordinary people, not profiteers.
Yep,agree - mostly ordinary people who definitely need assistance to progress their claims. Legal action is sometimes the only remaining avenue where individuals within EQC or insurers have unreasonably dug in but because lawyers have a vested interest in the litigation track, they should be scrupulously honest about the prospects of success and the wretched ordeal that court action is, for claimants.
I have the greatest empathy with folk who are genuinely being shortchanged but have also observed at first hand the naked greed of others.
I agree. There have been some who have been irresponsible in the claims they have made. And some lawyers who have facilitated this. The Courts have dealt with these people. But it would be very unfair to allow this to taint the vast majority of people who just want their claims settled. I have found that the cases I am involved in, most insurers, including Tower, will be reasonable and pragmatic when presented with an honest and reasonable claim within the policy terms. I believe it is unfair to make a statement labelling claimants as seeking a windfall without qualifying that by saying that this is a very small percentage of people. I see about 5 new clients a week, and almost all are good people who are at their wit's end, not people who are seeking to make a windfall.
Yes, agree the courts down in CHCH dealt firmly with the better call Saul brigade but a few of the cases run by the blue blood end of town also appeared to have low prospects of success from the outset, in my opinion.
Genuine litigation funding plays an important role for soundly based cases but the wastage in court time and legal costs caused by advocates (some offshore based) pursuing highly speculative cases through the courts in the windfall hope of grabbing some of the proceeds, is significant.
After following may of the cases in CHCH, I think the judiciary have done a good job. You will likely disagree but I think they have been rigorously objective in an environment where they must have been tempted to play father christmas at times. With a couple of exceptions where I suspect the judge was actively searching for ways to biff some extra cash into the pot, I've been impressed at the quality.
Think there has been over 700 claims filed in the high court? Of these the vast majority have settled before actually appearing in court. What would be interesting to know is whether this is mostly the Insurance Coy's conceding, as people like to say, on the court steps, or conversely the collapse of the claimants case. Can you put a handle on that, generally?
Andrew will have a better feel but my impression is that insurers will dig in and fight to the death where policy response or damage assessment process determination decisions risk creating a precedent but will take a pragmatic cost benefit approach where the argument is solely that of quantum or pre existing versus EQ damage, where experts disagree. Yesterdays Prattely case is probably one of the former.
There is a rush of filing because of the limitation period expiry.
My experience is that if you assertively but reasonably engage with insurers and not confront as your default position, a way through can usually be found without the need for legal action. But there are also some unfortunate god complexes out there and bashing heads becomes the only option.
A problem for the insurers is that such massive amounts turn on seemingly insignificant interpretations of repair standards where just a few millimetres of tilt either way can add or subtract hundreds of thousands of dollars to a claim.
Many commentators about how lousy insurer and EC are , have little understanding of just how complex these claims are to adjust and settle.
Sure every house is different as too is the relative EQ damage. And there are a lot off different insurance policies out there with a lot of different clauses. Therefore the only logical and essential starting point to each claim had to be a fair and proper assessment of the actual damage. Mr Hooker's earlier comments about hopelessly inadequate scoping ring true when a house kept under cap emerges as a rebuild. Again you cannot get it that wrong unless you want to.The insurance companies went to great lengths to advocate that they knew what they were doing and were beyond fault. However if they had done a proper job on these initial assessments there would have been a heck of a lot less court filings I would wager.
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