Tower takes EQC to High Court over Christchurch quake payouts

Destruction in Manchester Street in Christchurch's CBD after the February earthquake. Photo / Brett Phibbs

Insurance company Tower is taking the government's Earthquake Commission (EQC) to the High Court over how much it will pay out on claims resulting from the Christchurch earthquakes.

"As disclosed in Tower's financial statements" for the six months ended March 31, "Tower is disputing the position of the EQC on claims in respect of the Christchurch earthquakes which has the effect of limiting claims to a maximum amount in any policy year," Tower said in a statement to NZX.

"If this is correct, the EQC limits do not apply per event and a maximum aggregate limit in a policy year (unless a payout has been made)," the company said.

When it released its results for the six months ended March 31, managing director Rob Flannagan said Tower had provided more than $350 million to cover claims from the quakes.

The EQC has classified 10 separate quakes in Canterbury since September 4 as separate events for insurance purposes. The EQC will pay up to $100,000 per house and up to another $20,000 for contents and private insurance companies cover any further damage.

Flannagan told Business Desk the amount at dispute could amount to "millions of dollars."

"It will shift the money from the EQC to the insurance companies," he said. "It's a question of who pays. The customers are still protected and it will either be the EQC reinsurers or it will be our reinsurers (who pay). They're not necessarily the same people."

However, the $350 million already provided for "sort of does" cover Tower's liability, even if the High Court judges the EQC's interpretation is correct, Flannagan says.

"When you do these provisions, there's a lot of estimates come into it." These include inflation estimates and lots of other judgment issues, he says. "We carry a bit of fat in there - there would be sufficient in there to cover what we know now."

Tower shares are trading at $1.80, down 2 cents from Friday. The fell as low as $1.71 in March after Tower said the earthquakes could cost it between $15 million and $20 million off the current year's bottom line. It booked a $7.5 million loss from the quakes against first-half profit.