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QC urges High Court judge to put an end to insurers’ 'tactics of delay and dissembling facts' to force their clients to accept lower payouts

QC urges High Court judge to put an end to insurers’ 'tactics of delay and dissembling facts' to force their clients to accept lower payouts
Greg and Lisa Young's quake-damaged home

A prominent lawyer is urging the New Zealand Courts to draw a line in the sand when it comes to the conduct of insurance companies dealing with Canterbury earthquake claims.

Representing the owners of a quake damaged home in their legal battle against Tower Insurance, Peter Whiteside QC and Harry Shaw have told a High Court judge in Christchurch:

“An end must be put to the insurers’ tactics of delay and dissembling facts to force the weaker insured party to accept less than that party’s entitlement.”

Whiteside and Shaw have made this call on behalf of Greg Young and Lisa McAra-Young in their closing submission presented in court on October 14.

The Youngs allege Tower has breached its contract with them by refusing to pay for their Mount Pleasant home to be rebuilt.

Tower has refused to provide a copy of its closing submissions, but says: “We have acted in good faith in all dealings with the Youngs and are disappointed to have not been able to settle this claim directly, rather than through the courts.

“As the case is still before court, we are unable to comment any further.”

In 2013 Tower offered to make a cash settlement of $484,689 for the Youngs' four storey house to be repaired by winching it up a hill it slid a disputed 115 millimetres down following the February 2011 quake.

Yet the Youngs are adamant the winching technique won’t work, so are demanding Tower fork out $2.1 million (including inflation costs) for the property to be rebuilt.  

Winching an uncommon construction technique so breaches contract

Whiteside and Shaw argue the novel winching proposal breaches their contract with Tower, which says the insurer has to use “building materials and construction methods commonly used at the time of loss of damage”.

They have called upon a number of expert witnesses who have opposed the method, including an engineering geologist, Warren Sillitoe, who says it’s a “crackers idea”, with “way too much grey… to prove it can work”.

They say the fact it took Tower’s engineers over a year to come up with the idea shows it isn’t a commonly used construction method to repair quake damage.

Punitive damages demanded to show Court is taking a stand

Whiteside and Shaw say the Youngs should be paid “general damages” for the “stress, humiliation, illness and inconvenience” caused by the saga.

Yet they go further to say “punitive damages” (paid if a defendant is wilfully malicious, violent, oppressive or fraudulent) equating to a “significant award” should also be paid. 

“This is a case where for nearly six years now, in a huge financial power imbalance, the Plaintiffs have been forced to fight tooth and nail to achieve their rights to full replacement value of their home following a disaster,” the Youngs’ lawyers say.

“The New Zealand Courts need to take a stance in relation to the conduct of the insurance companies following the Christchurch earthquakes…

“Tower should not get away with its conduct in this case and should pay damages to the Plaintiffs for its failure to provide the peace of mind that the Plaintiffs contracted for when the insurance was taken out.”

Canadian case, where insurer was made to pay $1m in damages, relevant

They urge the Courts adopt the approach a judge in Canada took in a case between a homeowner, whose house had been burnt down, and their insurer (Whiten v Pilot Insurance Co).

The insurer was made to pay its client $1 million in punitive damages, further to declining their claim by wrongly attributing the fire to arson.

The judge said the insurer had a calculated strategy to “starve the [home owner] into a cheap settlement”.

The Court said the $1 million was not so disproportionate as to exceed the bounds of rationality. It emphasised this was a situation involving a homeowner’s “peace of mind” contract, the financial power imbalance, and the vulnerability of policy holders following a disaster.

With this case in mind, Whiteside and Shaw say general and exemplary damages should be awarded to the Youngs for the following reasons (among others):

Withholding information

They allege Tower deliberately withheld key information from the Youngs on a number of occasions.

For example a settlement proposal report, given to the Youngs in December 2011, didn’t include a report written by a Sub Floor Construction employee, who had told the Youngs their foundations couldn’t be fixed.

Whiteside and Shaw say Tower’s former earthquake recovery manager, David Ashe, “had to accept in cross-examination that Tower had ample notice of the existence of the report because it had been asked for by Mr Young on several occasions.”

They say the evidence is overwhelming that Tower and the project manager it contracted, Stream, deliberately withheld the report from the Youngs for two and a half years, knowing it did not assist Tower’s case and hoping the Youngs would get tired of asking for it.

“It was of course only supplied in the holiday break by a [Tower] staff member holding the fort and but for that would probably never have seen the light of day.”

Whiteside and Shaw also allege there was “serious misconduct” by Tower in relation to it withholding a geotech report, despite a Privacy Act request being made, until the court case started.

Delaying progress

The Youngs’ lawyers accuse Tower of to-ing and fro-ing.

For example, the insurer’s earthquake team leader, Philippa Andrews, at the beginning of 2013 agreed the Youngs’ property needed to be rebuilt, so authorised a quote to be sought.

By the middle of the year, Tower made a complete u-turn, only offering to pay for a repair job.

“The huge delays in this case are self-evident,” Whiteside and Shaw say.

“No effort has ever been made by Tower or Stream to speed up the process.”

They say the insurer and its contracted project manager deliberately delayed providing the Youngs with the reports they needed, particularly throughout 2014 and 2015.

They say Tower didn’t put any pressure on Stream, so “Nearly all the delay in resolution of this claim lies with Tower”.

Ignoring the Youngs’ health and wellbeing

Whiteside and Shaw allege Tower “preferred to ignore” the advice it had been given around the effects the quakes had on the Young’s mental wellbeing - particularly their child who they’d sought counselling for.

They say Tower “continued to take advantage of the delays by failing to face up to its obligations under the insurance policy.

“This is a situation where the courts in Canada would not hesitate to award exemplary damages.”

While the closing submissions have only just been presented, the case was heard in court over 10 days in August/September. See this story for coverage of the opening submissions and a timeline of events. 

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So they are looking for $18,260 for each millimetre the house moved, plus general and punitive damages? And they would get a brand new house too at the end of it (or $2.1m + extras to spend as they please).

I can't possibly think why this didn't settle earlier.

1. If the insurer had met its contractual obligations in good faith and within a reasonable timeframe there wouldn't be any general or punitive damages.

2. If the basis of your insurance policy was replacement and your damaged house could not be repaired it would be a pretty sad turn of affairs not to end up with the replacement the contract said you would get.

3. I guess calculating the replacement cost based on how much a house moved is *one* way of calculating something, but it has nothing too do with the contract or dispute in question.

It would seem from the above that the insurer's contractual obligations and whether the house could be repaired are the issues in dispute. If it was clear cut, it wouldn't have gone to court.

My overall query is the home owner's motives. It is one thing to be the plucky underdog standing up against a big bad insurance company. It is another to be seeking millions, and when you don't get it as a settlement, release closing submissions to the media.

It would seem you have have little experience in settling a quake claim. It took me 5 years of insurers prevarication and obfuscation to get to a point were a scope of works that was reasonably close to correct arrived and whilst a final settlement process was rapid the offer was still exceed by the payout by almost $900K and the case in question has an even larger gap. The number of cases already decided with the precedents set should enable most claims to be settled yet there are still 1000's in limbo with several hundred before the courts awaiting a hearing with the common theme of delay, deny and lie by insurers.

"If it was clear cut, it wouldn't have gone to court."
Oh dear. You don't get out much, do you?
It is very clear cut that the insurers are playing games. Delay, deny, defend.
Very few cases actually make it to court, as the insurers settle, sometimes just hours before due in court, with the homeowner being forced to sign a gagging order as part of the settlement.
It is only the news media that has provided much help to homeowners who have had to fight not only the insurance companies, but the government, and their departments EQC and Southern response.
Sunlight can be a useful disinfectant.

Bloody Insurers , what happened to the element of "good faith " which underlines the entire Insurance process?

They are , it seems , really keen to sign you up and take your money , but paying a claim ............ not so keen .

This article is largely a transcription of the plaintiffs submissions. There is little information on Towers position so not nearly enough information to draw the conclusion you have.

Do you think there is a valid reason to withhold engineering reports and ignore the requirements of the Privacy Act?

No. They are obliged to release such a report and should have, with the possible exception of commercially sensitive information about pricing. But who is the 'Sub Floor Construction employee' who completed this report? Qualified engineer or a chippie with an opinion? Relevant or not ? - we can't yet tell. Which is why it is too early to draw a conclusion on whether withholding of this report has any bearing on the outcome or if it was an inadvertent oversight or something more sinister.
We shouldn't ascribe motive until we have the facts.

Very wise Middleman.

From personal knowledge this is a standard tactic by Tower and you have to wonder why the CEO, CFO and a Director have all resigned - rats leaving a stinking ship perhaps!

If Tower isn't worried why won't they release their closing submissions? They are hiding behind "it's before the court..." Which is simply rubbish

I know I've never been sympathetic to the insurance community, but you'd think after all these years they would at least be a little tiny bit embarrassed that they have taken years of premiums but still not completed the job that's been paid for and promised. Not even a little tiny tiny bit? You'd think the goberment would be to.
Easy to point the finger at the insured, but reality is the companies have the power to complete things well within a reasonable (3yr?) time frame and have CHOSEN not to.
So I'm hoping the judge gives the people ever ting they ask and more, send e message, this is not bloody good enough.

Yes and often the premiums were on the pre quake values when they clearly know the actual current insured value is lower!!!

Insurance Council NZ website shows insurers have paid $18 billion for ChCh quake claims.
That's over $8mn every single day since the first Sep 2010 event. Hardly the actions of an industry trying to avoid payouts. Young's lawyer's wouldn't want the facts to get in the way of their highly emotive plea to the court.

Just the kind of comment to be expected from an insurance company who don't give a damn about the claimants. It is clear that this insurance company is worried given their behaviour

The damage occurred simultaneously for all the victims

In a perfect world the insurance industry should have settled all damage claims simultaneously

We all know it's not a perfect world .. but 6 years?

At least one insurance company has gone to the wall and Tower itself are in financial strife as a result of the Christchurch earthquake. It doesn't look to me like an industry gouging the ordinary punter in pursuit of super profits.
The call for exemplerary damages sounds like a high pressure tactic to catch media attention and lo and behold it has worked. If it succeeds in court, and in these troubled times it is possible it may, it won't be a success for all. I see another round of huge premium increases on the horizon.

The lawyers involved will be well aware the courts have been very conservative on awarding punitive/exemplary damages for CHCH EQ claims.The size of this damages claim has to be a profile raising stunt.
While Towers winching strategy seems a bit unconventional, it was apparently developed by a reputable engineering firm. All over CHCH houses are being braced, lifted and repositioned onto new footings.
If Tower were managing the repair and the winching technique didn't succeed they would then have to pay out a total loss.
Not enough background information and technical information to form a judgement so it'll be interesting to see the outcome.

The insurance industry grossly underestimated the risk of a major quake in Canterbury not due to their negligence in any way, it's just not possible to estimate risk of natural disasters with little hard fact to go on so I have some sympathy but insurance is a contract and the industry players have failed miserably with the tacit assistance of Govt and EQC to honour their liabilities in a timely way. Whilst it takes time to accurately assess the cost of a repair or rebuild delays costs money - try telling the IRD that paying you tax late should not incur interest or failing to file on time or not declare income shouldn't incur a penalty so either treat insurers the same way or admit the IRD policy is wrong and refund those charges! The politicians and judiciary have let the citizens down badly.

The insurance industry did not predict the Christchurch Earthquake. Of course. But their job is to deal with the unexpected. A car crash is reasonably unpredictable for the individual cardriver, but for a big company the costs of crashes to them in New Zealand, over the year is much more predictable.
While the Christchurch Earthquake was not predictable, it's quite predictable worldwide that there will be a number of similar level disasters. There is a global reinsurance industry to deal with that.
The whole idea of reinsurance is to establish and cater for those risks. There was extreme negligence when adequate reinsurance was not supplied.
Customers were paying to protect vital things cover but they were not covered.
That is so important, a number of people should have been led away in handcuffs for their negligence.

The best catastrophe modellers in the western world got CHCH earthquake exposures wrong. Clearly your concept of 'extreme negligence' is different to mine.

LOL Middleman. The point of my post was that we will always get natural disaster prediction wrong. The extreme negligence lies not in the prediction skill. But not properly doing the re-insurance approach to deal with outlier events. Which is what people relied on them for.

That's my take too KH. Fact is no one predicts any individual disaster, and if I remember correctly insurance have done quite well out of the lack of expected catastrophe since 2010, as expected swings and round abouts. 6 years, way to long, no excuses.

OK, but given modelling/prediction directs the amount of reinsurance deemed appropriate, why would you buy more than the best experts advised, based on an extremely remote probability 2500 year return period event, such as CHCH ? Answer is that you wouldn't - unless you wanted to destroy your business.
Easy to be clever after the event.

Really Middleman. I hear you saying only to buy reinsurance for the events you predict. Surely the reinsurance is to cover the extreme liabilities and things that are unpredictable. My view is you have to cover the unpredictable as well as the predictable. Further what I hear you also saying is the industry took premiums from folk, but wasn't actually offering them cover. Sad.

Christchurch has been hit by lots of significant earthquakes. As an example, the ChristChurch Cathedral has been badly damaged by earthquakes previously in 1881, 1888, 1901, and 1922 before the 2010 earthquake. If they ignored these facts, then that is definitely negligence.

Suggest you do some research on the epicentre of the earthquakes you cite, mainly the Hope fault well north of CHCH. These did not originate from the Darfield fault that hit CHCH this time. The shaking characteristics from those ones was very different to 2010/11.

That just reinforces how susceptible Chch is to EQ damage unfortunately.

Not so

There is a Youtube Documentary published by some ChCh University people in 1990's how much of the central area was prone to and at risk of serious liquefaction

It wasn't news - it was known

The Insurance industry should have known and acted then to adjust their risk - they didnt

Around the year 2000 I attended a court case, involving the death from mesothelioma of an Education Department employee who had been involved in building classrooms in the 1950's and 1960's using blue asbestos sheeting

The Education Department defence was "they didn't know and couldn't possibly have known"

The day I attended, the barrister for the complainant spent the whole day producing ream after ream of published scientific articles from the 1930's and 1940's showing the dangers of blue asbestos

It was well known

Yes, the liquefaction study was known but you are not accounting for a critical factor - location of the fault. Proximity to the fault determines shaking intensity. If it had been the predicted alpine fault rupture 100KM away that had happened most insurers and reinsurers modelling and reinsurance cover would have proved to be sound.

Middleman, you protest too much my friend. Here is a link to the first part of a study commission by EQC on the "The Earthquake Hazard in Christchurch" in 1991:

It's like a look into the future.

Your industry has failed miserably in Christchurch, but I take my hat off to your continue attempts to defend it.

Your industry knew the risks, but decided to take the gamble and booked the short term profits, but lost in the long term.

Now you are trying to pretend you never laid the bets in the first place.

That is why there is a 'flood' of claims going to the High Court and why Tower, I predict, may very well have its hand out for a bailout/buyout as we speak.

Basing likely maximum exposures in CHCH on the Alpine fault movement was sound and nothing in this report (which was well know to the industry back then) indicates that decision was wrong at the time.
Your prediction on Towers possible future is old hat, every two bit analyst has been forecasting the same for months now.

Middleman. You just aren't getting it. For example. I woke this morning alert and fighting fit. I estimate then that my driving will be just perfect over this long weekend. So you think I should cancel my car insurance over the weekend because it's a sure thing I can beat any threat. (or is insurance for the unpredictables, with big downside.

MIddleman, how about this one called " Measurement of Earthquake Ground Shaking at Characteristic Sites in Christchurch" from 1993:

Or this one called "Liquefaction at Kaiapoi in the 1901 Cheviot, New Zealand, earthquake" from 1994:

There are heaps more.

But I guess you answer is the same - "its was just too unknown" - well I am sorry but your answer does not reflect the facts.

Your industry issued promises that it is really struggling to keep.

You are right Tower is going down the loo - but the question is - who will be next after them and will the government bail them out?

Paying tax and negotiating your way through a house claim of the most extreme complexity ever encountered in a developed economy disaster - spot which of these two things is not the same !

Tower have run out so reinsurance. Tower have no cash flow. Tower tried to draw down $50 million facility THE DAY AFTER it was granted. Forget all the carry on about who did or did not predict what an EQ in CHCH might do. Fact is Tower did not have and still do not have enough reinsurance to cover the EQ claims on them. There is only one way out. Delay every claim for as long as they can & try and stop claimants filing in the court by offering mediation. That is the latest trick. On the face of it there are at the very least 450 unsettled claims on Tower. It seems to be the standard scope Tower has on their books is somewhere between $300K & $400K but off the cuff I am aware of 15 of these being over $1mill. Let's just say there are 300 claims in which they are $500K understated. Where are they going to find that.

Yep & the CFO & a director have obviously seen the light, or a very red dawn. Can't really blame all the Tower folk crying with their web comment that its not true & Tower is absolutely spotless. After all they want to keep their jobs don't they. The stupid irony is if Tower had got the assessments fair & true, and the settlements quick & clean in the beginning they would have saved themselves millions and millions.