'A failure to perform'

Southern Response to face a class action lawsuit over "failure to meet its contractual obligations".

8th Mar 14, 12:01am by Guest

Content supplied by Southern Response claimants group

Christchurch earthquake damage claimants tired of unnecessary delays has announced plans to take a class action against their insurer, Southern Response.

This today on the back of another group confirming they are taking a class action against EQC.

A spokesman for the Southern Response claimants group, Graham Bloomfield, says the group has engaged the services of lawyer Grant Cameron and will seek a declaration regarding unacceptable delays in the settlement of their claims for damage from the Canterbury Earthquakes.

“A class action involving many Southern Response claimants is appropriate given the very large number of people being denied their insurance policy rights.”

“We believe the delays people have faced, and are still facing, are unreasonable and unacceptable. It is now over three and a half years since the first earthquake. There are still people living in severely damaged houses and other people whose houses have been demolished who have no time frame from Southern Response for repair or rebuild. People are being told to effectively put their lives on hold for six years. We simply do not accept that that is fair and reasonable but Southern Response continues to delay.”

The group believes that it is time that the Government undertook a public and independent review of the delays that Southern Response is causing and the flow-on that is undermining the rebuild of Christchurch.

The group will also seek substantial damages from Southern Response for each member of the class action.

“The additional costs people have incurred must be recouped,” says Bloomfield. “We will seek damages for the immense stress and health issues this insurer has caused for hundreds of their clients. There must be consequences for this kind of behaviour.”

The group was formed as a result of the protests late last year which were organised by Southern No Response.

All Southern Response claimants interested in being a part of the class action will meet at 7pm on Thursday 13th March at the Westpac Business Hub, 55 Jack Hinton Drive, Addington. The meeting is strictly for Southern Response Claimants only and they will need to register on www.eventbrite.co.nz and search for “SR Class Action”.

Content supplied by GCA Lawyers

Christchurch lawyer Grant Cameron, confirmed today that GCA Lawyers expects to shortly progress a full class action against insurer, Southern Response.

Following the near collapse of AMI, the Government became 100% shareholder in Southern Response, a company created to ensure policy-holder's claims were met in full.

However, since the Government’s intervention the company has been subject to mounting protests as claimants call upon it to perform.

“We have watched the emerging position for some period but have now been approached by key parties who feel the time has come for definitive action”, said Mr Cameron.

“On the information to hand it seems this insurer has abjectly failed to meet its contractual obligations and so we anticipate a large class action for breach of contract will shortly proceed.”

Mr Cameron confirmed the legal issue was the insurer’s failure to respond in a timely manner to a large number of claims and advised that, “if breach of contract is established, claimants will not only seek early settlement of their claim on fair terms but they will also seek substantial damages. This is because the insurer’s failure to perform has forced claimants to incur many extra costs, some of which are significant.”

He then added, “Further, damages are also due to the majority of claimants because of the extreme stress, anxiety, and mental anguish inflicted on these people, by reason of the insurer’s non-performance. There are some very sad stories here which will no doubt emerge in the coming weeks”, he said.

“The matter is now going to be confronted at a major meeting on Thursday 13 March, where claimants who have registered their interest will receive full advice as to the path forward,” he said.

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15 Comments

by Kumbel | 9th Mar 14, 5:10pm 1394338249

Puddleglum's post is a must-read. Even on paper the CBD "recovery" plan had more holes than Swiss cheese. And sadly this piece was prophetic. Thanks for promoting this blog.

Non-Cantabrians need to remember that this is what the current government will do in any extreme circumstance: abandon the majority of taxpayers and ratepayers in favour of a few. Property rights, democracy and integrity come way down the priority list.

by PeakEverything | 9th Mar 14, 12:41am 1394278868

Hugh, do you have any comments on this subject?

by redcows1 | 9th Mar 14, 10:04am 1394312698

I'm always struck by the irony that those insured with AMI may have been better off on the whole if it had been left to collapse into liquidation. Of course I don't have the figures but as time goes on it seems more likely.

by redcows1 | 9th Mar 14, 11:52am 1394319173

Because they would have been treated as creditors in the winding up process and paid out in cash, and I'm presuming that would happen in less than 31/2 years.

The figures as I remember them would mean a payout of some 75% of what they would otherwise have expected.

Obviously for those who have had their work completed this would not hold, but for those who have another 1?,2?,3? Years to wait? It certainly can't be argued that there aren't some who would have been better off.

I do accept that I come from the point of view that they should never have been bailed out in the first place with the resultant cost to the tax payer and bloated beauracracy that developed.

by Stapleton | 9th Mar 14, 1:38pm 1394325519

Don't mean to butt in Hugh and Redcow, but Hugh that is a excellent question.

Treasury estimate is currently $300mln, however Southern Response have declined to produce interim financial statements for half year ended 31 December 2013, so no way of knowing for sure until the full year audited financial statements are due out in Sept this year, however:

At time of AMI sale to IAG (apr 2012) SR's total claims liability estimate was $1.8bln, By June 2012 it had grown to $2.0bln, by June 2013 it was $2.2bln.

IAG have about the same claim exposure as SR (about 7,000 claims) and they have currently (Jan 2014) provisioned $2.7bln, so in summary I expect the estimated cost to the taxpayer will eventually be $1bln or close to it.

Question is, how much of the $1bln is being paid in claims handling and project management costs and endless assessments which are not producing any productive results?

by redcows1 | 9th Mar 14, 3:12pm 1394331135

I'm not sure if you were being facetious or not Hugh, as Stapleton alludes to, how long is a piece of string and a government costed one to boot? I'm sure there are people out there with the ability to put the figures together to show the relative positions of the average southern response insuree currently, verse AMI insolvency.

by redcows1 | 9th Mar 14, 7:08pm 1394345302

Obviously neither am I Hugh. I'm just a confused onlooker who can't understand the value of insurance if it takes this long to settle. Thinking on my figures while milking, if you had a $100,000 claim at 5% compounding you could have settled for $80,000 three years ago and have had that damage fixed rather than living rough as so many seem to be.

Despite my dislike of the insurance industry I have had no problems with my small mutual co which seems to be par for the course in Christchurch, big isn't always better.

by Kumbel | 9th Mar 14, 9:47pm 1394354857

In the insurance industry the claim is called "The Moment of Truth". When you, the punter, sign up in good faith having read all the marketing material about "peace of mind" etc you actually have no idea whether your money is going down the drain or not. It is only when you make the claim on your policy that you find out whether it was all hot air or a genuine promise. In the case of Christchurch it turns out it was hot air.

General insurance has a short tail. They charge a premium for the coming year based on what they think their expected claims will be for that one year. The moment the policy expires they are off the hook. In the case of vehicle and contents policies historic data provides a pretty accurate forecast for the coming year. Housing is a little bit different because the black swan events affect house policies disproportionately more than the other types.

As it turns out insurance companies (and AMI in particular) ignored the evidence in their face and took a gamble that we, the taxpayers, are now having to stump up for. Waymad and I are forever pointing out that the instability of eastern Christchurch has been publically documented by CCC's own engineers for more than 20 years. And, as I repeatedly say, the Minstry of Civil Defence and Emergency Management told the incoming government in 2001 to expect a major earthquake in the South Island any time soon.

You would think that the AMI Board, CEO John Balmforth and his senior management team would have looked at those risk factors and set out to reduce their exposure.

Apparently not.

by Kumbel | 9th Mar 14, 10:13pm 1394356396

Because the rest of NZ are already tired of our "whining" (to quote Gerry Brownlee). And more importantly from a political point of view don't think it will ever happen to them. As long as the bulk of NZers think CHC is a special case instead of realising that this is the "Moment of Truth" for the whole country then central government will get away with doing nothing.

by Stapleton | 9th Mar 14, 10:17pm 1394356636

Where in the world is Mr Balmforth, Mr Nolan and co now?....literally

by Kumbel | 9th Mar 14, 10:24pm 1394357090

Good question. In JB's case: Australia never to return one hopes.

by Stapleton | 9th Mar 14, 10:47pm 1394358442

http://www.stuff.co.nz/business/money/4856873/Quake-hit-AMI-insurance-b…

"At some stage we will need to go back and have a look at whether the company was run prudently," English said. He added that there was nothing to currently suggest it had not.

AMI had $600mln of reinsurance before the earthquakes, which now look like they are going to cost $2.7bln, including $1bln from the taxpayer - nothing to suggest it was not run prudently? Wonder when the 'go back and have a look' will happen?

by waymad | 10th Mar 14, 12:40pm 1394408419

A small note of correction about the whole SR thang.

It is NOT an insurance company. Certainly not a going-concern one.

From the website:

"Southern Response is the government-owned company responsible for settling claims by AMI policyholders for Canterbury earthquake damage which occurred before 5 April 2012 (the date AMI was sold to IAG)."

It is, AFAIK, the 'bad bank' created specifically to handle the claims that were agreed not to be part of the 'good bank' - the ongoing AMI company now wholly owned by IAG.

As such, be careful whatcha wish for, because guess where the payments for such claims, cases, class actions and other sheninigans, plus the fees for Legal Eagles and other Birds of Prey, are gonna come from.

1 - taxpayers - your short pocket, their long arms.

2 - re-insurers of the 'old' AMI (pre 5 April 2012)

3 - EQC - funded by Guess Who

4 - Clawbacks from policyholders (e.g. contributions for 'betterment') - this will be minor/immaterial.

And, there's a corollary:

Where Aren't claims gonna be paid from?

- fees, premiums, and other current revenues.

- Reserves

Because, ya guessed it, there Aren't Any of Either.

by waymad | 10th Mar 14, 1:11pm 1394410287

The core of the class action is, of course, the very factor that Clueless Councils up and down the land, all ignore.

The time value of money.

I suggested, some time ago, to DIA, in respect of the DC debate, that Councils be forced to collect, calculate, and divulge, the economic consequences of their process delays, by a simple metric: the project value committed, times the IRD UOM rate ruling at the time. I do recall giving a worked example. Oh yes, it's all here.

This would gave a crude but instant measure of the wider economic cost being caused to applicants, by regulatory agencies.

by Rumpole | 10th Mar 14, 1:36pm 1394411811

Two practical questions of general & widespread importance:-

1) Is failing to deal in a timely manner with a claim breach of contract.

2) Will interest be added to claims on payment to compensate for delay etc.

More questions that may be very significant:-

A) Where EQC & Insurers assessment of damage and repair costs differ vastly and the insurers figures are later proved closer to the actual cost will EQC be made financially liable for delay and any costs in establishing actual repair cost in excess of a normal assesment.

B) When will the Solicitor or Attorney General investigate the claims of fraud/collusion/deceit claimed by EQC truths blogger.

C) IN view of the appalling antics of EQC & the insurers generally will Government introduce legislation to regulate the indistry along the lines of US law which provides for sanctions were insurers fail to setttle "Clean" claims within a reasonable period - usually 30 days but perhaps 6 months would be reasonable for major events - with pre ordinared consequences for failure - usually interest at more penal rates.