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Thursday, April 30, 2015

Legal class action against Southern Response?

Wednesday’s Press has an article Southern Response class action ‘no win, no fee’ here.

The proposal, offered by law firm GCA lawyers, is for “disgruntled customers of a major earthquake claims-holder to join "no win, no fee"class action lawsuit.”

Sounds too good to be true (and potentially is). Click on the link to continue.

The following extract from the Press article is important and needs to be read very closely:

The law firm had now found an international backer for the potential $1billion class action case, Cameron said Tuesday.

This meant homeowners would not have to pay for anything to join the action and were not at risk to face adverse costs.

If the action was successful, the firm backing the claim and GCA would take up to 20 per cent of the amount awarded in damages.

The backer, international consortium Litigation Lending Services, would pay any upfront costs, including engineers and other experts, and would take on the risk of paying for adverse costs if the case was lost, he said.

Sounds good, but perhaps not as good as you might hope. If you lose it probably won’t be too bad in that all you will lose is time – maybe lots of it. There is a huge amount at stake so Southern Response and it’s backers will put up a fight. How much time can you afford?  Might it not be quicker to act independently? Will the money be worth it?

Should you win then you will still lose at lot of time, plus some of the money awarded by the court. Will you come out better off?

So far so good? What about some of the legal aspects? Maybe a bit of editorial oversight at the Press would have helped.

As has been mentioned frequently in the recent past New Zealand law does not cater for “class actions”. This is an American process that cannot just be imported into New Zealand because it sounds like a good idea. Class actions are quite focussed with a number of claimants having exactly the same issue – not quite the same as the varied issues faced by a collective of insurance claimants. Surprisingly this was not flagged in the article.

Also not flagged was the enthusiastic sizing of the damage payments that might be anticipated. According to the law firm mentioned:

“Each claimant could get anything from $10,000 to $30,000 a household for costs and an additional $25,000 to $50,000 for intangible costs such as stress.”

New Zealand courts have proven very reluctant to award large amounts of costs (damages), and then only as a consequence of really really big stuff-ups with no mitigating circumstances. How mitigating will an unprecedented disaster be?

For a more qualified analysis of the legal hurdles faced by proposals for class action, whether or not New Zealand insurers actually have a legal duty of utmost good faith towards policy holders, damages pay-outs, and more, there is an interesting article Proposed utmost good faith class action ‘misleading’ on the website Insurance Business New Zealand here.

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