Southern Response quake claimants get extra $25m from Supreme Court ruling

Monday, 27 July 2015

A landmark Supreme Court judgment is expected to sting Southern Response for another $25 million in earthquake claims costs.

Southern Response, a Government-owned company settling the earthquake claims of the failed AMI Insurance, says its home ownership claimants should know in the next four weeks how much extra they were getting in payouts following the court judgment.

Chief executive Peter Rose said advisers estimated the extra costs would be about $25m from the Supreme Court decision.

It only applied to Southern Response claims that had been settled from October 1 2014.

The company estimated 427 cash-settled repairs and rebuilds from October 1 to July 24 qualified for the extra payment plus another 588 claims would qualify from the end of July 2015.

In October the Court of Appeal ordered Southern Response pay $300,000 in costs associated with rebuilding the $1.4m property of a red-zoned customer.

The Supreme Court confirmed that decision last week, finding in favour of Avonside Holdings. The costs were for work such as engineering fees and surveying costs.

Southern Response had disputed the payment, arguing that because the property was red-zoned and the owners were buying an existing house elsewhere, such professional costs and contingency fees were hypothetical, and should not be paid out.

Rose said the insurer was now acting to include those costs and fees for cash payouts from October 1, 2014, when the Court of Appeal ruling was made.

For insurance settlements entered into before October 1 there would be no change, Rose said.

'Those claims were settled in good faith on a full and final basis, and will not be reopened.'

Rose said during the next four weeks Southern Response would be working closely with affected customers to determine how this decision related to their specific claim.

There were an estimated 223 'cash outs' for rebuilds in the period from October 1 to July 24, and a further 204 cash payments for repairs.

Also there were a further 588 anticipated rebuild and repair cash payouts that would likely be made from the end of July, according to an estimate made by an insurance actuary. 

Costs relating to the design of a home would vary considerably between those that came off the plan and those relating to a high specification residence with a lot of architectural input. 'We will come up with a fee we believe is the realistic professional fee,' Rose said.

Canterbury Communities' Earthquake Recovery Network spokeswoman Leanne Curtis said the interaction between insurers and their claimants on Canterbury earthquake settlements remained complex.

Different insurance customers seemed to get different outcomes on their rebuilds and repairs depending on how strongly they argued their case. Also responses to claims and the settlement process varied widely from one insurer to another.

Rose said the extra $25m of expense to Southern Response would be covered by reinsurers and the Government, now acting as a financial backstop to the insurer.

'We have adequate capital to cover that,' he said.

In the last two years there had been an emergence of customers preferring to go down the path of cash settlements rather than managed repairs and rebuilds.

'Our view is if they believe they can capitalise on it, they'll either do a repair that is a cheaper repair or get a cheaper house and keep the difference.' 

Earthquake Strategy Manager Casey Hurren said as at June 30 Southern Response had completed 4,610 settlements out of a total 7488 claims. The number of claims had increased by about 1000 in the last 18 months, mainly as the result of Earthquake Commission work.