Who’s likely to take legal action after flood and cyclone disaster?

The amount of money involved in fixing up damaged homes and properties in the wake of Cyclone Gabrielle and the upper North Island January floods is likely to see legal disputes arise around business interruption claims and neighbours who go to war over who is to blame for the damage, a legal expert says.

MinterEllisonRudd Watts partner Andrew Horne said he wasn’t seeing any legal action from the weather events yet but previous disasters showed it often took some time to get to the point of taking action.

“You saw that in the Canterbury earthquakes where for the first couple of years people were very focused on trying to get their businesses back running, get buildings back and resolve insurance claims and it was only after a couple of years when people felt they weren’t making progress that litigation began to ensue.

“I would say we are some distance away from seeing that sort of thing. And I don’t think we will see it in the same way that we did in Canterbury.”

Horne said the insurance industry and EQC had come along in leaps and bounds from the position they were in back in 2010/11.

“A lot of lessons have been learned. A lot of systems are a lot better than they were and it’s a different sort of event.”

Horne said EQC did not cover storm or flood damage to private residences. “You don’t have the complication of having to deal with EQC and with private insurers which caused quite a few issues in the Canterbury earthquakes.”

Claims involving landslides and slips will involve EQC but these are now handled via a private insurer rather than people having to make a claim with both separately.

Could insurers take legal action against the council for allowing houses to be built in flood-prone areas?

Horne said there was always a theoretical potential for that sort of claim but they were difficult claims to bring.

“Most findings against councils are where they have assumed a specific legal duty; say to ensure that a building complies with the building code.”

“And if they can find it signed off as complying with the building code and it doesn’t, there was a claim there.”

Andrew Horne, a partner at MinterEllisonRuudWatts. Photo / Supplied

Horne said it was more challenging to find that a council had been negligent or in breach of some other legal duty when carrying out normal maintenance on drains or tree trimming.

“Particularly when you get an event like this which, while not unprecedented, is very unusual. The council would say we can build the drain network to deal with a one-in-20-year rain event but you can’t expect us to spend the kind of money it would cost to deal with a one-in-100-year rain event - it’s just not economic to do that, and now and then we just have to accept that the drains are going to overflow. We won’t be able to identify every tree that’s going to fall down a bank that’s on council land.”

Where will legal action likely come from?

Horne said the first legal action he would expect to see would be commercial claims by businesses against insurers for business interruption insurance.

“Businesses know already they have suffered a business interruption loss. They will be applying to their insurers for urgent payments to keep the staff paid and to keep things ticking over so insurers are under a lot of pressure to settle those claims quite quickly.”

But he said the challenge was they were often quite complex and the more complex the business the more complex the claim was likely to be. They were so complicated most policies provided a sum of money to pay a specialist broker to calculate the business interruption loss to try to make it go smoothly, particularly for big industries.

“Often they are settled but my experience is they tend to result in disputes with insurers more often than other sorts of claims. If you have a damaged building you can get an assessment for what it is going to cost to repair in most cases fairly easily. It is often a fairly straightforward exercise.”

But Horne said when you were trying to work out the income a business would have earned if not for a certain event then people had all sorts of ideas about how well their business was going to perform and the insurer may have a different view.

“Those do tend to result in disputes.”

Neighbours at war

Horne said he also expected to see legal action occur between neighbouring landowners.

“There will be instances where what one landowner has done on their land will affect what happens next to them - they might have dug a ditch or they might not have maintained a retaining wall or allowed a tree to grow and not prune it so it became a danger and falls through the house next door. There may be some instances like that where insurers on behalf of their insured or property owners will take action against neighbouring property owners.

“There will be isolated incidences because the facts of every dispute will be different.” He said those cases arose from time to time even without a cyclone or flood to trigger them.

“I wouldn’t be surprised if we see a few disputes of that nature.”

Will they go to court?

He said most commercial claims were settled before getting to court as often the cost of litigation and hassle wasn’t worth it.

But he said that could be different for individual property cases.

“What you find with people’s houses and properties is there is a strong emotional attachment to them and people can take on litigation relating to their home or land in a way - people can be more emotionally connected to a case and more likely to bring a case that doesn’t actually make good sense to bring. You do tend to get private individuals bringing claims and pursuing court proceedings in a way that isn’t always sensible.”

He said often people were so aggrieved they wanted someone to be held responsible for it.

Horne said disputes usually took a while to percolate and people only issued proceedings if they had become frustrated and felt they had no other option.

“It’s an expensive process, you have to brief your lawyers, there’s usually a long period of negotiation and if you can’t get a resolution the courts are really the last resort. And that’s as it should be of course.”

What’s the timeframe?

Horne said there was typically a lag and with an event like this and it could be one to two years before people started to ramp up the litigation.

“That’s what we saw in the Canterbury earthquakes.”

A person who issued high court proceedings could expect it to take a couple of years before it got to a trial.

Precedences?

Horne said thinking back to Cyclone Bola there wasn’t a lot of litigation after that event.

“It was a different time and I think people were perhaps less litigious then than they might be now and more inclined to accept insurers’ assessments of loss and damage, and not necessarily think about suing the council as they might now after years of leaky building litigation where that has become a more common event.”

He said there was a different mindset as a nation now and people were more ready to look for legal claims than they might have been 30 years ago.

“I think that it is more likely that some legal claims will arise out of this.”