Southern Response has been found to have behaved deceptively in a potentially precedent-setting High Court case that could cost taxpayers hundreds of millions of dollars.
Justice David Gendall found the Crown-owned earthquake claims company engaged in misleading and deceptive conducts and misrepresented Karl and Alison Dodds' entitlements during a Christchurch earthquake claim for their damaged Huntsbury house.
The case is about Southern Response's policy of producing two differing detailed repair/rebuild assessments, or DRAs, which outlined the costs of rebuilding or repairing a customer's home.
The first, known as the abridged DRA, was given to the customer and showed lower costs than the office DRA, which contained extra items and was not given to the customer. The DRAs were worked out by project manager Arrow.
The Dodds' reached a settlement with Southern Response in December 2013, based on the abridged DRA they were presented, which showed rebuilding their house would cost about $895,000. This figure was repeatedly given to them as the full cost of rebuilding their home.
They were not aware of the office DRA at the time, which was about $200,000 more.
The Dodds' chose to buy a replacement house up to the value of the abridged DRA, rather than having their damaged house rebuilt on its existing site or somewhere else.
Years later, the couple discovered the existence of the office DRA. They said they felt deceived and misled.
The High Court found that by providing an abridged DRA that led the Dodds' to think this was the complete rebuild cost, Southern Response had engaged in misleading and deceptive conduct. It was ordered to pay $178,894, plus interest and costs.
Southern Response had argued that as the Dodds' had chosen not to rebuild their house, they were not entitled to some costs that appeared on the office DRA (administration, design, demolition costs, project management costs and contingency).
It was decided those costs would not be given to claimants as "they were confusing".
In his judgment, Gendall said Southern Response "created a false impression" by providing the abridged DRA in a way indicating it was the complete and only estimate received from Arrow.
He said it was reasonable for the Dodds' to assume Arrow would produce an accurate costing, and a document claiming to be a complete rebuild estimate must include all costs foreseen by its authors.
"Editing or redacting parts of such an important assessment document, and then suggesting it is the complete and only assessment of total rebuild cost as occurred here, is misleading and deceptive."
The Dodds' were represented by Peter Woods and Tim Grimwood, of law firm Anthony Harper.
Woods said the judgment was a "great result" for the Dodds' and others who had been short-changed, but was it disappointing it had taken this long to bring Southern Response to account.
The Dodds' had been told they had $895,000 to buy a house, so that was what they spent, but if they were told they could have spent $1.1m, they would have spent that, Woods said.
There were a lot of cases waiting for this result, which would be precedent-setting, Woods said.
Southern Response chairman Alister James said Southern Response would be "taking some time to assess the information" and would not comment further.
A spokeswoman for EQC Minister Grant Robertson, who has oversight of Southern Response, said the case was "an operational matter for Southern Response".
Southern Response has 20 working days to appeal the decision.
In court, representatives of Southern Response said there were 1630 other customers who settled under the same option as the Dodds' (buying a replacement house).
Several other similar cases are going through the court system, including a group action being represented by Grant Cameron, of GCA Associates.
Cameron has estimated there are about 3700 people who have settled based on abridged DRAs. If they are all paid the difference between their abridged and office DRAs, it would cost the Government hundreds of millions of dollars.
Last year, Finance Minister Grant Robertson gave Southern Response indemnity "in respect to certain litigation".
"The indemnity enables Southern Response to continue to focus on its core purpose of settling the remaining outstanding claims of its policyholders," Robertson said at the time.
In a previously heard case, Southern Response unsuccessfully argued that because the property in question was red-zoned and the owners were buying a house elsewhere, some professional costs and contingencies were hypothetical and should not be paid out. A judgment was made on October 1, 2014 and Southern Response changed its policy afterwards.
At the time, then-Southern Response chief executive Peter Rose said insurance settlements made before the judgment were "settled in good faith on a full and final basis, and will not be reopened".
Southern Response – set up by the Government when insurer AMI failed in in 2012 – has been winding down, with open claims now below 400. All outstanding business will to be passed on to a "receiving agency" when it effectively closes at the end of the year.
Tens of millions of dollars of unresolved cases are yet to be settled, but payouts have been guaranteed.
It drew anger after being slow to settle cases and pushing back against homeowners, and last year was heavily criticised after it emerged it had employed a security firm to spy on claimants, the fiasco forcing the resignation of former chairman Ross Butler.
- Stuff