Millions wasted in CCC blunder

MARTIN VAN BEYNEN
Last updated 05:00 22/06/2013

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Get ready to pick up the tab for an $11 million insurance mistake by Christchurch City Council.

The error arose when council staff failed to insure the new $21m composting plant in Bromley when it opened in 2009.

An investigation by The Press into council's insurance shortcomings has confirmed ratepayers will pick up the tab for the plant's repair as no government subsidy is available.

The problem comes to light as a raft of insurance difficulties with council assets emerge, including questions over crucial valuations.

General manager corporate services Paul Anderson said the mistake was a "straightforward clerical error in my team so I'm responsible for that".

The plant was insured while it was built but it was omitted from a schedule of completed assets.

"My team didn't pick it up; our brokers didn't pick it up," Anderson said.

Asked whether disciplinary action was taken against the staff members responsible, he said the "insurance team" was now "not the same as it was at the time".

Last week The Press showed how about $200m of expected insurance payouts was at risk due to disputes with reinsurers of above-ground assets, insured, in 2010-11, with the Local Authority Protection Programme (LAPP).

Some of the problems stem from the wording of reinsurance contracts entered into by local authority insurer Civic Assurance, which administers the LAPP.

LAPP is technically not an insurance company and Civic issued an insurance policy to it to cover its liabilities and then obtained reinsurance elsewhere.

Most reinsurers have paid up but AIG Insurance NZ is disputing $160m claimed by Civic and another $35m is at risk in a wrangle with German insurer R+V Versicherung.

The Versicherung case, heard recently at the High Court in Wellington, has raised a number of worrying issues about the policy which Civic wrote to back LAPP.

The case shows the Civic policy had drafting errors and was different to the offer in an information pack provided to reinsurers. There are now doubts about whether assets such as the Christchurch Music Centre in Barbadoes St and the Bromley waste water facility are covered.

The case, which is now in arbitration, involves complex arguments about the contractual limits

to the amounts the reinsurers must pay and what assets are covered. Judicial comments so far are not encouraging for Civic.

Anderson said reinsurers who had already paid out or who still had outstanding liabilities would be looking carefully at how the case unfolded. It was possible some companies would want their money back, he said.

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Staff had not quantified the amount at risk but the council had plenty of options to deal with the new losses if they eventuated.

Cr Tim Carter, who has been critical of council chief executive Tony Marryatt being a director of Civic and the conflict of interest issues raised, told The Press the insurance problems were very disappointing. "Christchurch should have got what amounted to a Lotto win. We could have taken the money for buildings we didn't want and got brand new buildings for those buildings written off."

He said the $11m was significant but not when compared with the amount the city was under-insured.

Cr Helen Broughton, corporate and financial services committee chairwoman, said her committee was not prepared to give up on the $11m and wanted legal avenues fully explored. She wanted to find out if council could become a party to the legal action between Civic and reinsurers.

Anderson said a comparative analysis showed Christchurch's insurance position was far better than other major councils such as Auckland, Wellington, and Hamilton.

SAD SUMS

A failure to insure a council facility has cost ratepayers $11 million. The best current estimate of total costs to Christchurch City Council (CCC) as a result of the earthquakes is $4.43 billion (includes facilities and below ground assets, emergency and response costs).

CCC expects to receive $1b in insurance payouts although at least $200m of that is in doubt.

After insurance payouts and government subsidies, the council still has to find $1.38b to fund quake recovery costs which include $175m for improvements or betterment.

Many expected the council's insurance policies to provide much more than $1b. Fixing below-ground assets alone will cost the council $560m above the insurance payout.

Some assets may have been substantially undervalued by valuers employed to set reinstatement values. This means repair or replacement will far exceed the amount insured. 

- The Press

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