Govt liability in Southern Response class action could exceed $400m

A house in Avonside, damaged in the February 22, 2011 Canterbury earthquake. Photo / 123RF

Data on 200 cases that are part of the class action against Southern Response suggest the government's liability to the about 3,000 potential plaintiffs could exceed $400 million.

The cases are those whose claims were settled before Oct. 1, 2014 by Southern Response, but where the government-owned insurer concealed from claimants the true cost of rebuilding their homes. Southern Response took over claims on policies written by AMI before the private insurer failed in 2012.

In July 2015, the Supreme Court held that Southern Response's behaviour was unlawful, but the company chose to correctly settle only those claims that occurred after Oct. 1, 2014.

In August last year, the High Court in Christchurch ordered Southern Response to pay more than $200,000 in compensation, including interest and GST, in a different but essentially similar case to those represented by the class action.

Karl and Alison Dodds were the successful couple in that case while Brendan and Colleen Ross are the representative plaintiffs in the class action.

Of the 200 cases, the highest amount concealed from a policyholder was $447,129.50.

"The data received is shocking. Generally, the amounts concealed are in six figures with the average concealment on this limited sample being more than $149,000," said Grant Cameron, the solicitor for the class action.

"If ultimately all 3,000 policyholders are entitled to recover the concealed funds, Southern Response will face over $400 million in compensation, damages and costs," Cameron said.

The class action won a landmark Court of Appeal decision last September allowing it to proceed on an "opt out" basis, meaning that it represents all potential claimants unless they expressly opt out.

The government has appealed that decision and the Supreme Court had been scheduled to hear the case on May 23 and 24, but that has been delayed by the coronavirus crisis and the national lockdown.

The government is also appealing the decision in the Dodds' favour.

Cameron told BusinessDesk it is difficult to estimate the government's potential liability because the exact number of claimants would not be determined until Southern Response has provided accurate data on all potential claimants.

And the courts will still have to determine which payments should fall within the claim and which outside – such as the cost of house demolition, if the house doesn't need to be demolished.

"Subject to final claimant numbers being confirmed and clarity being received about which payments might fall outside the claim, we still have a large claim. I have suggested $400 million as a minimum," he said.

"Then there will be a very large interest bill, given that settlements took place from soon after the quakes and through to October 2014 and of course, the ever-lengthening period to payment is driving up that cost, regardless of the interest rate that might finally be imposed or agreed," he said.

"The costs award will itself be large."

Australia-based litigation funder Maurice Blackburn is backing the class action.