The
High Court ordered reinsurer New India to pay $17.5 million on claims for
earthquake damage to infrastructure assets suffered by Waimakariri Council and
Christchurch City in the 2010 & 2011 earthquakes. The court dismissed New India’s argument that
insurance cover was voided because of non-disclosure.
Council claims were
made through the Local Authority Protection Programme Disaster Fund. Since the 1990s, central government has agreed
to carry 60% of repair costs for infrastructure assets following natural
disasters. Individual local authorities
are responsible for the rest. The Fund
is an umbrella scheme providing insurance cover to participating local
authorities for their 40% balance of repair costs. It covers “horizontal” infrastructure: water
mains and sewers; not roads and bridges.
The court was told New
India Assurance Company was one of the reinsurers contracted to the Fund when
the Canterbury earthquakes hit. Faced
with claims for $17.5 million, New India denied liability on grounds of
non-disclosure.
Insurance law allows
an insurer to void a policy and refuse to pay out if there was a failure to
disclose any material facts at the time the insurance policy was taken out or cover
was renewed. Insurers say they cannot
assess the risk unless they have all the material information and if they were
misled as to the level of risk they can back out.
For customers, unaware
of what facts might be considered material, this rule bears similarities to an internet
scam: fees are paid in advance for promises which are never honoured.
New India said a
re-writing of the Fund’s trust deed in 2007 was a material event and should
have been disclosed. The trust deed sets
out the relationship between the Fund and participating local authorities and
describes what claims will be accepted. New India said the re-writing
potentially increased the amounts any reinsurer would be required to pay. The Fund said there was no material
difference between the old and the new trust deed. Associate Judge Doogue agreed. Under both deeds, the trustees had a discretion
in determining what claims were covered.
Replicating this discretionary power in the re-written deed did not
expose insurers to any greater risk.
All up, the Fund made
earthquake related claims totalling $180 million on behalf of Waimakariri
Council and Christchurch City.
NZ
Local Authority Disaster Fund v. New India Assurance – High Court (6.06.13)
13.027