Millions of insurance dollars in jeopardy
At least $200 million of insurance funds the city council is relying on to replace and fix its damaged assets is at risk, reports show.
Although legal advice has given the council confidence the funds will be paid, it will have to reconsider its forecasts and possibly the size of its special earthquake rate on Christchurch households if the money fails to arrive.
The potential problem comes on top of under-insurance issues and criticism of Christchurch City Council chief executive Tony Marryatt's conflict of interest caused by his chairmanship of council insurer Civic Assurance.
The council hopes to recover about $1 billion from its insurers for earthquake recovery costs, $800m of it for buildings, facilities, and other above-ground assets.
During the period of the most devastating earthquakes, the council insured its assets with the NZ Local Authority Protection Programme Disaster Fund (LAPP), a charitable trust run by Civic, a company created and owned by local authorities to provide them with insurance. Civic is also one of several reinsurers to LAPP.
The insurance disputes are with two companies that have reinsurance contracts with Civic.
AIG Insurance NZ Ltd, in its 2012 annual report, discloses a spat with Civic in which it alleges its liability for its share of the $800m bill is $97.5m - $145m short of the amount Civic contends it is owed. The parties are in arbitration, and still considering procedural issues.
The other argument Civic is embroiled in is with German insurance company R+V Versicherung AG, which claims its liability should be capped at $39.6m. Civic claims R+V should pay at least $88m.
The High Court in Wellington has rejected a request by Civic for a summary judgment declaring R+V has no arguable defence to the claim by Civic. The matter is now also in arbitration.
Civic Assurance has alerted its local authority members to the risks in its 2012 annual report, delivered this week at its annual general meeting.
In a note to the report, the company says its reinsurers "have not unanimously agreed to meet the claims made".
The note refers to the two matters under arbitration and says Civic is pursuing one other party.
"Based on external legal advice, the directors believe that the cases against these two reinsurers are sound and that the amounts . . . are legally and contractually payable."
City council general manager corporate services Paul Anderson was reluctant to comment during arbitration but said council management was keeping a close eye on developments, and remained confident legal advice supporting Civic's position was correct.
The legal wrangles were slowing down the claims process, but the council was not reviewing its forecasts in light of uncertainty over the payouts, he said.
This month, New India Assurance Company was ordered to pay Civic about $17.5 million after a court case.