‘No win, no pay’ agreements are all the rage in insurance litigation, but what amounts to success depends on the fine print. The High Court ruled Christchurch advocacy firm Proclaims Management was not entitled to any success fee on ‘over-cap’ ex gratia payments made by government to settle on-going claims against EQC.
The Earthquake Commission (EQC), now rebranded as the Natural Hazards Commission, faced its own seismic shock with never-ending litigation from disgruntled property owners following the Christchurch earthquake sequence some ten years ago.
Complaints about disallowed claims and shoddy repairs for those claims accepted led to threats of a class action against EQC for negligence. This led to EQC re-opening claims for re-repairs and government stepping in with offers of ex gratia payouts where further claims against private insurance companies were no longer available.
Back in 2011, Hoani Hipango and Chris Fleury set up Proclaims Management Ltd, an insurance advocacy service intended to help clients navigate insurance claims for earthquake repairs.
New Zealand is unusual in offering natural hazards insurance to all insured residential property owners. Take out private fire insurance and part of the premium is diverted to Natural Hazards Commission. It currently provides first tranche insurance cover against natural hazards up to a limit, or cap, of $300,000.
At time of the Christchurch earthquakes, the cap was $150,000.
The High Court was told Proclaims Management signed up multiple clients more than five years ago offering to assist with claims against EQC for re-repairs and subsequently for ex gratia grants on offer.
Its standard ‘no win, no pay’ contract required clients to pay an upfront fee of $2500, pay costs of all expert engineering reports in support of their new claim and in return surrender fifteen per cent of any payment received.
Not all its clients are happy. They dispute fees claimed by Proclaims. Their humour was not improved by later learning that Proclaims received a kickback from some firms providing expert reports in support of their claims: Proclaims’ clients paid for the reports; five per cent of this fee being later paid under the table to Proclaims.
A High Court test case clarified what payments Proclaims is entitled to with its ‘no win, no pay’ contracts.
Critical, was wording of Proclaims’ client contract; describing the success fee as calculated on fifteen per cent ‘of the money achieved from EQC and the Insurer.’
It was clear Proclaims’ clients have to pay fifteen per cent of compensation received for re-repairs where the cost of re-repairs brings the total repair bill up to the then statutory EQC cap of $150,000; so-called ‘under-cap’ payments.
But no success fee can be claimed for that compensation received by Proclaims’ clients for ‘over-cap’ repairs, Justice Preston ruled.
Over cap compensation is paid by neither EQC nor an insurer; it is a politically agreed, taxpayer funded, ex gratia payment with no admission of liability by any insurer. It was a politically expedient way of dealing with never-ending Christchurch earthquake litigation against EQC. Taxpayers ultimately bankroll EQC if premiums are insufficient to cover claims.
Government chose to use EQC as its agent to process and disburse the ‘over-cap’ payments, but it is not an EQC payment, Justice Preston ruled.
Proclaims then argued it is entitled to payment for work done in respect of ‘over-cap’ payments as a quantum meruit claim. This legal rule applies where one person receives a benefit, but was never under any contractual obligation to pay for the benefit received.
Proclaims argued the value of over-cap work done equated to fifteen per cent of any over-cap payment received. Justice Preston dismissed this calculation as a nonsense.
She ruled a $500 quantum meruit payment is sufficient in each case. Proclaims did little beyond registering clients as parties interested in claiming. The paperwork and specialist reports needed to support an ‘over-cap’ claim had already been prepared as if it were an ‘under-cap’ claim. EQC, acting as government agent when actioning ‘over-cap’ claims, resolutely refused to engage with Proclaims, instead dealing direct with ‘over-cap’ clients.
Proclaims Management Ltd v. Bately – High Court (11.10.24)
25.012