Competing law suits against Bay of Plenty Regional Council claiming damages in excess of seventy million dollars for damage to Edgecumbe homes following flooding in 2017 saw the High Court allow insurers’ subrogated claims led by IAG go to trial, a proposed class action promoted by Australasian litigators Shine Lawyers disallowed.
There is no love lost between the insurance industry and class action litigators.
BOP Region had already signalled which of the two adversaries it prefers to face; allowing multiple insurers to join IAG’s litigation against BOP Region even though they were technically out of time.
The High Court was told IAG Insurance, Vero Insurance, AA Insurance, Tower and QBE Insurance (Australia) have collectively paid out some 490 policyholders for damage to their Edgecumbe properties after a Rangitaiki River stopbank was breached in April 2017 following cyclone Debbie.
Exercising rights of subrogation, these insurers are suing BOP Regional Council seeking to recover their losses. Subrogation is the legal rule allowing insurers to ‘stand in the shoes’ of customers paid out on an insurance policy, enforcing whatever legal rights the customer may have in order to recover what are now the insurer’s losses.
BOP Region is responsible for flood management, charging property owners a differential levy. Insurers allege negligence, nuisance and breach of statutory duty by BOP Region. It denies liability.
Separate from insurers’ claim for compensation, Shine Lawyers has signed up 550 prospective plaintiffs in a class action similarly seeking compensation from BOP Region. There is considerable double-counting, with about three-quarters of Shine Lawyers’ clients being property owners who have previously received insurance payouts.
At its simplest: a successful claim by affected insurers against BOP Region sees these insurers recovering part or all of insurance claims paid out; a successful claim by Shine Lawyers sees its clients getting a share of whatever financial payout is recovered.
A win for either of these two plaintiffs requires either a favourable court ruling or successful negotiations with BOP Region and its insurer.
As part of pre-trial procedures, the High Court was asked to rule how each claim could continue, or whether they should be combined. This pre-trial hearing descended into a slanging match with rival plaintiffs denigrating the other’s case.
The insurers claim does no more than recover their claim costs, with no further benefit for either insured or uninsured property owners, Shine Lawyers said.
Shine Lawyers claim is riddled with conflicts of interest, insurers said. In particular, Shine has an incentive to settle out of court in circumstances and at a time which best ensure Shine maximises its fees on time spent plus its agreed twenty per cent share of any payout. Plus, Shine’s clients could be facing up-front costs even if there were never any payout, insurers claim.
Associate Judge Taylor allowed the insurers’ claim to continue.
It is arguable that these insurers could additionally claim for property owners uninsured losses, providing further compensation for insured property owners, he said.
Shine Lawyers strongly dispute whether it is legally possible for insurers exercising their rights of subrogation to recover more than the amount paid out on a claim.
Shine argued insurers have conjured up a non-existent right labelled equitable subrogation to bolster their argument that more than claim costs can be recovered.
Judge Taylor dismissed Shine Lawyers proposed class action application.
Most of the property owners affected will likely best benefit from their claims for uninsured losses being advanced by their insurers with legal costs carried by these insurers, he ruled.
McConnachie v. Bay of Plenty Regional Council and IAG New Zealand Ltd v. Bay of Plenty Regional Council – High Court (2.04.26)
26.126