16 Apr 2015

Christchurch in huge insurance claim dispute

6:22 am on 16 April 2015

Christchurch City Council is preparing to take its insurer to court over a claim worth nearly $1 billion.

Christchurch City Council

Christchurch City Council Photo: RNZ

The counil has been in negotiations with Civic Assurance since the earthquakes destroyed most of the city's major facilities four years ago, and is now proposing asset sales and record rates rises to raise the money it needs to rebuild the city.

Nobody at the council was prepared to comment on negotiations with its insurer but it is understood a major stumbling block is its $143 million claim for the city's old sports stadium, Lancaster Park.

The council said the park was a write-off but Civic is adamant it can be repaired.

Months of negotiations have failed to resolve the issue, and now council documents show it is reserving the right to go to court.

Civic Assurance chief executive Tim Sole would not go into details of the case but said he did not think legal action would be necessary.

"One never knows, but I don't think legal action is what anybody wants or needs."

Civic Assurance has its own problems to resolve, namely a dispute with its re-insurer R+ V Versicherung.

But Mr Sole insisted Civic's ability to secure payments from its reinsurer had nothing to do with delays to its payouts in Christchurch.

"We've yet to agree, not just on Lancaster Park, but on a number of buildings, what the appropriate amount of money is.

"But that's just healthy tension between the insured and the insurer."

The $912 million hole that has been left in the council's budget by the outstanding insurance payout is the reason so much doubt hangs over the future of major anchor projects such as the repair of the town hall and a new stadium to replace Lancaster Park.

The developer and spokesperson for central city property owners, Ernest Duval, said investors needed certainty on when these projects are going to happen before they would open their own wallets in the CBD.

"The risk that we now face is that we have built sufficient buildings on the periphery, Victoria Street, Addington, all these areas that have satisfied the demand, and that there is a diminishing business case to come into the CBD."

If Civic does pay out on the council's claim, it will be the largest ever settled in this country.

The current record-holder is the University of Canterbury which settled for $550 million and, before it, Lyttelton Port which settled for $440 million.

But the chief executive of the Insurance Council, Tim Grafton, said there were important differences between those and the council's present claim.

"We are talking about, in the case of the Port, a number of assets in a similar location, similar sorts of assets, ditto the University.

"The difference is the council's assets are more dispersed and there are different types of assets."

Jay Feinman is a law professor at New Jersey's Rutgers University specialising in post-disaster insurance.

He said it was common for insurers to drag the chain on settling claims.

"If all they have at risk is what they owe, and perhaps interest on that money, it's in their economic interest to delay the payment and to aggressively pursue their position, because they have nothing to lose."

The council is understood to have given itself a timeline of December before it makes the decision to head to court.

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