Seamus Donegan asks if the litigious approach to Canterbury earthquakes would really get the best outcomes

Seamus Donegan asks if the litigious approach to Canterbury earthquakes would really get the best outcomes

IAG New Zealand's Deputy General Counsel for Enterprise responds to an opinion piece by insurance lawyer, Andrew Hooker, wrote for Interest.co.nz last week. Hooker argued “the brute force of litigation” is required to get insurers to “play ball” on settling remaining Canterbury earthquake claims. IAG responds by asking if the litigious approach really does get the best outcomes or whether it serves the litigation community more often than the customers it purports to help.

*By Seamus Donegan

Unfortunately the article from insurance lawyer Andrew Hooker promoting the filing of legal claims to promote resolution of insurance settlements deserves a response from IAG.

Mr. Hooker recounts information contained in Associate Judge Osborne’s decision in the Gidden case. Mr. Hooker was not involved in the case and client confidentiality prevents IAG from explaining our actions with any other facts. What Mr and Mrs Gidden asserted to be a binding agreement, IAG has always considered to be an agreement about a process towards settlement of the claim. What that settlement would be was always going to depend on factors which were unknown at the time.

The real background readers need to know, and which Mr. Hooker does know very well, is that in nearly every domestic earthquake claim the issues are:

  • What is the extent of the damage to the home;
  • Can the home be repaired or must it be demolished and rebuilt;
  • What is the scope of the required work;
  • How much will that work cost to execute.

These questions can only be answered by experts of different types. Assessing the damage and deciding what should be done to repair it or whether a rebuild is needed, requires help from structural engineers, building surveyors, and geotechnical engineers. After this is all agreed, the cost of a repair or rebuild requires an estimate by a quantity surveyor.

In an isolated event, such as a house fire or a landslip, insurers can work through these issues relatively quickly with customers using independent experts. However, multiplied by close to 9,000 homes damaged in a sequence of earthquakes over a period of years, and one begins to appreciate the sheer scale and complexity of what we and our customers have faced in Christchurch.

Many experts working on both sides in Christchurch are performing great work and it is possible and often quite legitimate for experts to disagree on the extent of damage, the best way to repair, the feasibility of repairs and what the costs will be. However, combined with the sheer scale and complexity of earthquake damage, where the land and buildings are often both affected, we also encounter experts who feel pressured into commenting on matters outside their areas of expertise, particularly when a combination of two or more disciplines is needed.

Sadly there are some "experts" who regularly and quite deliberately stray well beyond their field to promote a position which meets the expectations placed on them sometimes by lawyers and sometimes customers. For instance, when an a surveyor, whose expertise lies in measuring floor levels, decides to investigate and give opinion evidence on the possible existence of voids below a slab floor, based on tapping a hammer on a concrete slab, this sort of involvement assists no one and simply gets in the way of resolving issues. Readers may refer to the recent Court of Appeal decision in the Jarden v Lumley General Insurance case for details.

There are other "experts" who lack independence because they have a financial interest in the outcome of the claim because of their fee arrangements or business structure. A recent Court of Appeal decision, Prattley Enterprises Ltd v Vero has extensive commentary on this problem.      

It is also perhaps human nature that some people with damaged homes will prefer a new home instead of a repaired one.

Litigation, enriches the lawyers who specialise in suing insurance companies, but it doesn’t fix homes and doesn’t get people into fixed or new homes any faster. In our experience, the opposite happens. Litigation does not give ‘control’ to a customer – it gives it over to an adversarial approach that becomes lawyer-led, not customer-led, and certainly does not speed up the process.

The process slows down, because expert opinion must go through the filter of legal advocates who are often more interested in the tactics of ‘winning’, than reaching a settlement. Experts become witnesses and in the process become more positional and uncompromising, often on instructions from the lawyers that hired them, particularly if the lawyers have contingency fee arrangements.

Egos and ‘point scoring’ between professional colleagues takes over from getting to the right answer for the home owner. It’s much more expensive for home owners too. More often than not, customers are immediately forced by the courts to come up with their own expert evidence on every aspect of their claim and the customer’s costs soon begin to escalate. Plus they have their own lawyers’ fees to pay on top. Even when a case is ready for trial, we typically have to wait a further 10 to 12 months to get our five days of court time.

So far we have resolved over 6,750 over cap residential house claims through reinstatement or cash settlement. This represents a spend of more than $3 billion dollars. Out of the nearly 9,000 over cap residential claims we have received to date, less than 100 have lodged court proceedings, with all but one settling before trial. Fewer than ten others have been decided on preliminary points and now, the Gidden case. That means 1% have resorted to legal action. To answer Mr. Hooker’s question more broadly, “does this mean IAG has acted in good faith?”  Absolutely!

Perhaps that same question needs to be asked of, and more scrutiny given to, the role of claims ‘farmers’ and those involved in promoting the litigation process as a desirable settlement mechanism, and the role this process has had in adding to delay’s in settlement. I’d suggest it is part of the problem for many, not part of the solution.

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Seamus Donegan is IAG New Zealand's Deputy General Counsel for Enterprise.

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Seamus Donegan is quite right. Litigation should not be required.

Best way to fix this is to change the Legislation so that insurers are forced to act better in the first place.

12
up

Lots of meaningless words. I have three. FIVE BLOODY YEARS.

After 5 years - litigation seems somewhat knee jerk.
jeez - give the insurance cos a break.

In the second to last paragraph, of those 6,750 settlements, how many would express that they feel they received a fair deal from IAG, or were actually pressured/forced into accepting a settlement that was in fact less than what they believed they were insured for?

I suggest that Mr Donegan is trying to protect his company's reputation in the face of publicity that indicates it is less than what is desired.

Hard to argue with what Seamus says and if all parties acted in utmost good faith disputes would be reduced and easier to resolve, Egos and a must win attitude is not confined to policyholders and there are myriad examples of insurers/insureds pushing their own agenda's and many experts are seen as biased by the opposing side when their findings do not coincide with their own view of the damage or meaning of policy wording. The Judiciary have let homeowners down by initially making decisions on very narrow issues and not pushing for declaratory judgments. Politicians likewise have failed by allowing EQC to prevaricate and delay, maintaining an under cap value that has subsequently proved untenable with repairs failing to meet building code with Gerry Brownlee and Ian Simpson culpable. Noncents is on the right track and the US legislation in many states sets out time limits for clean claims (ie ones were it is clear insurance cover applies and there is no argument as to a third party being liable), a common theme in this legislation is a 30 day period with 90 days as the point at which a claim can be challenged, interest until settlement is enshrined yet still insurers fail to comply and reading public satisfaction surveys reveals many insurers as awful or worse albeit much of the survey perception is around health insurance. I was fortunate to have a US based loss adjuster assess business equipment damage, quickly instigated and settled so it is not an impossible task even with a large claim load.
Whilst 30 days for a major event is probably far to short the Feb 2011 is now 62 months historic so Seamus is saying we have insufficient resource to settle what amounts to 36 claims a week over the period. If so few cases actually end in a court hearing then the compromise reached suggests that both parties have taken unreasinable positions and a better system of resolution outside formal court proceedings is required, I know mediation is available so is it a genuine useful tool or seen especially by policyholders as tainted or biased in favour of insurers? The major downside of the issue is a loss of trust which already extends to Politicians, Local Authorities, Bearecrats, Bankers, INsurers and Large Corporates and civil society will breakdown if trust is completely lost. I suspect that a major problem has been the underestimation of risk by Insurers and EQC alike and I still reliance on property GV figures as a basis for Insured value rather than the actual cost of re building/replacing so the Insuracne Industry may need to research and educate property owners to ensure they are fully covered and insurers have the capacity to pay claims.

The judge, who was across ALL the facts, disagreed - the full judgement was there to see

Donegan has a swipe at those taking legal action but doesn’t balance this with the precedent setting EQ policy response issues that were only resolved by determined people doing just that. Insurers are then bound to adhere to court decisions when adjusting subsequent claims and as a result many CHCH people received what they were entitled to, not what insurers thought they should get. The Gidden decision is potentially another of these.

Hooker omits to mention the ruinous financial cost of legal action if you lose and even if you secure a litigation funder or contingency fee arrangement, the draining emotional roller coaster that you get to ride. And there is a good number of cases Hooker will be aware of where EQ legal action has failed. Going to court is expensive, risky and stressful and should in my opinion be the last resort, not a primary option as Hooker seems to be proposing.

A self-serving puff piece from New Zealand's worst transnational for 2015 (http://asiapacificreport.nz/2016/05/02/iagstate-insurance-win-roger-awar...). "A clear winner", the three judges agreed, "a consistent finalist", another said, and a company that "simply refuses to play by the rules of the business game" said another. This same judge said, "The insurer takes the risk, assesses it and charges a price. IAG took peoples' money but it has not taken the risk. Instead it has tried to shift the risk back to its customers."

IAG won this award ahead of Serco. You know, prison-fight-club-Serco.

redcows is right, lots of meaningless words, and his own words, FIVE BLOODY YEARS, say it all.

Does not 'say it all’. IAG might be genuinely screwing redcow but it’s also possible she is pushing for a settlement beyond policy entitlement. You don’t know (and neither do I) the circumstances so neither of us can tell whether the claims of unreasonable delay are justified or not.

Just to put the record straight, I live far from ChCh and the only skin I have in this game is I'm a New Zealand and I give a rats. I certainly couldn't see myself putting up with dealing with the insurance cos like so many have. Five years and they have NOT got what they paid for even yet.
Of course the ChCh experience would indicate I would not have to wait that long. I'm insured with a small mutual, big is not nessacarily better.

And how many of the big players in CHCH do you think would be still standing if they were small insurers, not backed by international deep pocketed parents ?

Para 6 "working on both sides" - wait, does that mean the friendly insurance company is NOT on the same side as their customers? A slip of the tongue, Seamus?
In my experience, one claim down and one to go, after a badly botched repair resulting in over a year of skirmishing and dodging with lots of head nodding but no action, getting a lawyer involved quickly resulted in tens of thousands of dollars appearing in our bank account. It wasn't litigation, but it was professionally directed mediation, and the insurance company ended up with major egg on their face and paid significant compensation for their stupidity.

Good result in the end by the sound of it. The key is your phrase ‘professionally directed’ mediation. Will usually deliver better outcomes than racing in with proceedings. Occasionally though you have no choice if you are up against entrenched people within your insurer who are bunnies or ego driven point scorers.

The friendly man/woman from the insurance company..."Loss Adjusters". That says it all. They are certainly not paid to "adjust" your loss up

What other course of action does a homeowner have, but litigation, if an insurer plays the "delay, deny, defend" game? Sure both sides can rely on experts, but what if one side restricts or otherwise limits the brief in favour of their side?
In the case of the EQC Engineer, CPEC determined that what an engineers brief to their client was carried more weight than the IPENZ Code of Ethics, and their duty of care. That has effectively legitimised engineering prostitution.
The "as new" cover in a replacement policy is still one of the most contentious issues, particularly relating to foundations and other structural elements, and yet has in a number of cases been clarified by the courts.
Some engineers are still comfortable with the courts reviewing their work, and some now seem reluctant.
I wonder why that is?

A question for Mr Donnegan. When, five years after an earthquake, the insurance company has still not settled the claim, wouldn't even the most patient person run out of patience??

And speaking or "enriching", how enriched is an insurer for holding on to clients' money for five years before paying out?

I'm certainly not as enriched as IAG's Australian CEO who earned over $10M last year or its NZ CEO who pocketed a mere $4M . (http://www.stuff.co.nz/business/industries/71714771/IAG-chief-Jacki-John...)

I wonder who is winning the enrichment game?

Maybe the book Delay, Deny Defend might provide a bit of insight. http://www.delaydenydefend.com/

Of course - it's worth gold

If a company has an Internal Rate of Return of 10% pa and can postpone a $1 million payout for 5 years using the money elsewhere, it eases the pain and reduces the eventual payout by 50% or $500,000

Many businesses use an IRR closer to 20%

The same tactic is couched in Fonterra's 90 day delay in paying out suppliers

A somewhat rambling article with claims not backed up by specific details. I believe that one of the issues the Christchurch fiasco is the reluctance, based on legal precedence, of NZ courts to award reasonable damages to the affected. Many of us have not had an actual assessment of our properties after 5+ years. This is clearly in breach of our contracts but unfortunately we cannot effectively hold insurance companies accountable in court compensating us for our lost lives. So the endless lies and endless wait continue.

Jeez Louise! The earthquake did not happen 5 years ago as constantly referenced above. There have been 50 earthquakes over magnitude 5 throughout that entire period every single one with the potential to cause more damage and requiring new notifications to EQC. Indeed there was a 4.1 this morning.

Jeez Louise! The earthquake did not happen 5 years ago as constantly referenced above. There have been 50 earthquakes over magnitude 5 throughout that entire period every single one with the potential to cause more damage and requiring new notifications to EQC. Indeed there was a 4.1 this morning.

In our case pmb2, the house was deemed to be a rebuild after the Feb 22 Earthquake. Subsequent quakes have not affected our claim.

What a self serving article that shows better than anything that we, the IAG customers, have been reduced to mere figures. I feel sure that they pat themselves on the back every time a customer is forced to accept shoddy EQR repairs. Those 100 settled before court hearings? They are the people like me that have stuck to their guns and forced IAG to accept their obligations. IAG haven't settled out of the goodness of their hearts. They have made settlement offers, subject to the customer keeping their mouths shut, because they know that they, in most cases, will lose. This article is to make people believe that they are reasonable and acting in good faith. Most of us know differently. For those that believe that they do indeed act in good faith, you will find out the truth only in your time of need.