Learning to play game of claims
Thousands of Canterbury home-owners are still locked in insurance hell. So what kind of practical help is available? JOHN MCCRONE reports.
You can't fight them if you don't understand them, says long-time insurance professional Peter MacLeod.
Take this case, he says, reaching for a file. His client has a smart house halfway up Huntsbury Hill. The earthquakes shoved the land into the back retaining wall, twisting its entire structure. The internal framing is racked 5cm out of true.
"Every nail will be bent, every joint stressed. Clearly it is beyond economic repair."
MacLeod says if the Canterbury earthquakes were being dealt with in normal fashion, the insurance claim handled by an experienced loss adjuster with a clear understanding of policy obligations, then a speedy decision would be made to pay out, move on. Common sense would rule.
But no. The curious way the earthquake recovery has developed means every insurance company is now working through a construction firm partner.
The Earthquake Commission (EQC) started it by appointing Fletcher, claiming that stepping in to do the earthquake repairs itself would take a load off claimants' minds - everything necessary would be done for them - and also prevent price-gouging by the building industry.
Then all the other insurance companies followed suit, signing up a project management organisation (PMO) like a Hawkins or an Arrow.
It sounded good to someone, says MacLeod, however it has had the effect of putting engineers in the front line of the decision-making and engineers naturally believe a broken home is something that can always be fixed if you are prepared to fish around for solutions.
And so the proposal has come back on this Huntsbury property. At least they are no longer suggesting just shaving the doors to fit the bent frames. But now they want to hoist the whole house in the air, relevel the foundations, drop it back down and hope it all returns to true, says MacLeod.
He rolls his eyes. This is the mentality people are up against.
As a chartered loss adjuster, MacLeod used to handle EQC land damage claims - he co-wrote its field office manual. For Lloyds syndicates, he has mopped up insurance cases after Pacific hurricanes. You learn to draw a line before things get silly, he says.
But in Canterbury, the insurers are being persuaded to take on risky and extravagant salvage operations that only mean extra stress and delay for the owners.
It is more work for the construction companies. Yet what about the policy promises of a home returned to "as new"? And how much are these patched-up homes going to be worth afterwards, MacLeod asks?
It is a glimpse, an insight, into why insurance seems such a mess in the aftermath of the Canterbury earthquakes.
The system is not necessarily evil or malicious. But you probably need to understand precisely what is going on, the hidden drivers of decisions, to avoid being left a sorry loser by the way it is all working out.
For Melanie Tobeck of the protest group Southern No Response (who has formed her own support organisation, Claimants4Claimants), this was one of her own lightbulb moments - the way the insurance process has become derailed by "how can we fix it?" taking over as the first question.
Tobeck says for those whose land was so badly damaged that the Government red-zoned it, well, they were lucky. The forced move was a shock, but then they were resettled.
And for those the insurers deem a rebuild, again the process has progressed more normally. The outcome is going to be a new house and so their negotiations can focus on the fairly easy question of the going market price of that.
But Canterbury has perhaps tens of thousands of homes where the EQC or insurers are both pushing for repairs and using contracted PMOs to keep a tight lid on the resulting cost. It is this that has been causing a systemic injustice.
Tobeck, a business consultant who lives in West Melton, has been through it first-hand. Her home was one of the first to be repaired following the September 2010 earthquake. "Our insurer said go now while there's still enough good tradespeople around. You'll get a top job."
But she suspects because the budget was so tight, the work was shoddy. The wrong kind of paint was used. The wrong mortar, too - relaid bricks came away in the hand. Her slumped patios were never actually fixed.
It has been a battle ever since. The insurer claimed the work was signed off with zero defects. When the PMO and contractors eventually showed up to inspect, they dragged along a lawyer - a partner in a prominent law firm - to witness each site meeting. "She was tripping around our paddocks in her high heels."
Tobeck says there looks to be agreement the job will have to be redone at twice the price - another $400,000 on top of the $200,000 already wasted. And how much more will have been added in professional fees to spend three years wrangling over what must be one of the rebuild's more simple cases?
"I hate to think what the hidden cost of it all was," she says.
It is these apparently irrational attitudes that are making those still trapped in insurance impasses so angry and despairing, says Tobeck. Yet three years on and people are beginning to understand the game. "At the time, we didn't know what we didn't know." Now as the motivations of the insurers become clearer, so too are the effective ways to fight back, she says.
WHAT TO DO
So what are the choices once you decide not simply to accept what the insurance companies say you are due? Where do you go for help or a second opinion?
The most visible response to the peculiarities of the Canterbury situation has been the emergence of the claims resolution specialists - particularly Bryan Staples' Earthquake Services.
Almost immediately following the earthquakes, US-based insurance recovery outfits like Risk Worldwide and WorldClaim arrived to set up branch offices in Christchurch. But these international experts have tended to act for commercial property owners or those with high-end homes.
Their cost seemed overkill to the average home-owner, especially while there remained a belief the PMO process being run by the EQC and insurers would end up treating people fairly.
Another alternative was the small pool of local independent loss adjusters, those like Peter MacLeod of MacLeod Claims Management who were prepared to take over negotiations with insurers for a fee.
However, as more claimants got angry with their treatment, and as the cost of fighting back against dug-in insurers armed with expensive lawyers became apparent, a market for contingency-based, "no win, no pay" advocates developed.
Staples' Earthquake Services is easily the largest of these - and now also the most controversial following New Zealand First leader Winston Peters using parliamentary privilege to accuse Staples of tax evasion, failing to pay his immigrant labour and employing unqualified contractors to produce earthquake damage reports.
But warnings had already been raised over the dangers of Staples' emotive approach by the Insurance Council of New Zealand and others - "irresponsible advocates" hyping up claimants with unreasonable expectations of what they deserve - and also the true cost of his approach.
Staples takes a cut of around 10 per cent of any uplift in a settlement, which if worked out as an hourly rate for professional help is certainly not cheap.
And then because Staples' standard tactic is to hit insurers with a law suit as a starting point for negotiations - some three-quarters of the High Court earthquake list are his clients - there is the risk of claimants being forced to trial and having to bear that further cost, too.
Staples' answer is that he is covering the upfront expense of commissioning engineering and survey reports, the ammunition to hit the insurers. And usually the insurers choose to settle at the court door. It is a game.
Staples adds his contingency fee model would not work unless there were so many Canterbury home-owners who could not afford to fund the action themselves - and if there were not routinely a large gap between what people are being offered and what the insurers ought to be paying over.
There are other smaller advocate firms offering a similar claims-fighting package. The benefits are a sympathetic ear and a promise to remove the psychological and financial barriers to taking action.
But the risk of being tied in for more than you bargain, coupled with the question of whether outright aggression is in fact the most effective tactic, is leading others to suggest that the "self-managed" approach and exploring free advice has become the better way to go.
There are two key free services available now.
The Canterbury Insurance Assistance Service (CIAS) began as volunteer effort staffed by local loss adjusters working pro bono, but is now funded by Christchurch City Council. The catch is it is limited to the vulnerable - mostly the elderly and the unwell.
Because of public pressure to expand CIAS, the insurance industry, along with government agencies, formed its own free Residential Advisory Service (RAS). This is open to all claimants but functions as an advice bureau, explaining the steps to progress a claim rather than taking over the negotiation of a settlement like an advocate.
The natural suspicion was RAS would turn out to be just a stooge of the insurers. Yet because it has employed the independent expertise of Community Law, and also enjoys an inside track with the insurers, RAS has gained a reputation as a good first port of call.
Then there is the self-managed route - which basically means biting the bullet on hiring in professional help by the hour, but trying to make it efficient by tapping into the networks of trust that have also begun to emerge with so many seeking the same answers.
Tobeck, who through Claimants4Claimants is organising a claims workshop for 200 people today, says it is daunting to know where to start because so many different kinds of building reports seem needed. And each is an expense.
For most of those disputing a repair strategy or wanting to turn a repair into a rebuild, they will need an engineer's report, which could easily cost $5000.
They might need another foundation specialist report or a geotechnical report. Then a surveyor's levels report could be $3000, and a quantity surveyor (QS) report the same again.
Add in legal advice and even before considering any court action, the bills could be up around $20,000 or $30,000 before you know it.
Tobeck says few people have such cash in hand but she is finding that banks are sympathetic to it being added to the mortgage. The hard decision claimants have to make is whether it is a gamble or an investment. What is it worth to protect their investment in their homes?
A further problem is finding an expert who is both qualified and independent. The insurance companies and PMOs have signed up most of Christchurch's pool of specialists, says Tobeck.
However, this is where the networks of trust have developed - professionals who have come across other professionals they would now recommend.
Word of mouth is establishing reputations, agrees Stewart Harrison, a QS at Ian Harrison Associates, who says early on there was a lot of "deadwood" that has since disappeared.
Harrison says a good expert will be concerned not to waste your money. They can now sum up your prospects quite quickly.
"As a QS, I could look at a house and think well it's pretty modern, a group-built home on a subdivision, and the insurers are offering the equivalent of $1400 a square metre. Well I know they're probably $400 or $500 short there, so automatically it's worth going in to bat for that."
But Harrison says if the offer is $1800 to $1900 per sq m, it is likely only another $50 or so could be squeezed out of the insurers. And there he just needs to give the claimant advice on the questions to ask about the hourly rate and profit margin being factored into the insurers' calculations.
The trick is to understand how the insurance companies reach their decisions, learn to talk their language. So maybe for $200 of an expert's time, you can get armed with a general idea of what you deserve and the critical levers for entering into negotiations.
Harrison says frustration makes many claimants want to threaten the insurers with lawyers. But a clear head and the right information is what really counts.
KEEP A COOL HEAD
Dr Duncan Webb, a partner at lawyers Lane Neave, agrees. Webb says the first thing he tries to explain to clients is that they are dealing with overwhelmed bureaucracies whose main goal in life is to make the world fit into their own template processes.
"The basic goal of a claims handler is to close a file within a reserve that has been allowed by an underwriter. So if you can understand the decision-making framework that they operate in, then you can provide them with the material they need to make a decision.
"If you meet their threshold on something, then they will change their minds. And most of the insurers are happy to tell you what they need to be told."
Webb advises against buying too many reports until you know which are critical and always to make litigation the last resort as it is so emotionally draining as well as open-ended in its cost.
Staying rational, when the insurance process seems anything but, is not easy, Webb admits. However, as everyone is now saying, the better you understand why the insurers act the ways they do, the better the chances of reaching that reasonable outcome.