A firm hand guides Council through shaky ground – Law News speaks to lawyer Tony Paterson
Christchurch has recently marked the fifth anniversary of the February 2011 earthquake that, while plunging the city into chaos, also brought out new levels of resilience and community spirit in its citizens. Somewhat coincidentally, February 2016 also saw the Christchurch City Council finally receive the payout from its landmark settlement with its insurers.
The full and final global settlement (with the Council’s insurer the Local Authority Protection Programme Disaster Fund (LAPP), Civic Assurance and Civic Assurance’s main reinsurers) reached in December 2015 followed months of “complex and challenging negotiations”. It covers some 1500 or so individual above-ground asset claims as well as business interruption losses following on the quakes, and sees the Council receiving $635 million – the largest such settlement in New Zealand’s history. The money received is now able to be spent as the Council considers best, giving it the freedom and flexibility to decide how and when assets are repaired, replaced or otherwise dealt with.
Despite the considerable shortfall between the amount originally claimed by the Council (some $925 million) and the ultimate payout, the settlement finally achieved was considered reasonable and fair given the nature and extent of the disputed claims, the positions of the parties and the values of achieving a global settlement.
Indeed, all parties appear satisfied with the outcome and glad to put the long months of negotiations to bed. In a statement released by the Council shortly before Christmas, Christchurch Mayor Lianne Dalziel said the insurance settlement was “great news” for the city: “Knowing our full and final insurance settlement gives us certainty … [i]t is an enormous relief. It is a fair deal for all parties and from a Council perspective avoids the need for us having to proceed with litigation around our major facilities.”
From the insurers’ point of view, Tim Sole, Chief Executive of Civic Assurance said, “All concerned wanted to see mediation succeed. [The settlement] provides the Council with an upfront lump sum payment, avoids the prospect of costly and prolonged litigation, and enables the City, Civic and its reinsurers to move on”.
Law News recently spoke with Tony Paterson of Markit Law, who acted as the lead adviser for Christchurch City Council throughout the difficult and delicate negotiations, to find out more about what was involved for him in getting all parties on the same page, and his experiences of living and working in Christchurch.
More than a lawyer
Not only has Mr Paterson practised in the area of insurance law for the past 30 years, but he has a unique and intimate knowledge of the insurance industry, particularly where earthquakes are concerned. “I was fortunate that, in the mid- 1980s, I was able to assist as a young, ‘wet behind the ears’ lawyer with what was then the country’s largest insurance claim after the Edgecumbe earthquake,” he says, later going on also to advise on claims arising from the Gisborne earthquake.
In October 2010, while buying an ice cream in Kohimarama in Auckland where he then lived (more of a contrast to earthquake-ravaged Christchurch can hardly be imagined!), he received three phone calls one after the other, each seeking a lawyer to assist with major earthquake-related claims. Amongst the instructions which he accepted was the Lyttleton Port Company Limited’s claim, which he helped guide to what was then the country’s largest settlement in 2013.
Then, in late 2012, Mr Paterson was again approached – this time with a request to act as the lead adviser for Christchurch City Council, which had been referred to him by another major claimant whose claims he had just helped resolve: “They were looking for someone who was able to do more than tell them what the policy said, someone who understood the industry, knew the people involved and could guide them on how best to advance their claims,” Mr Paterson says – qualifications which he certainly had. Little did he know, however, how much his acceptance of these instructions would come to change his life.
Although being engaged in a legal advisory capacity, Mr Paterson’s work for the Council quickly escalated beyond simply providing “the usual legal advice”, expanding to advising on claims preparation and management, guiding strategy and leading the complicated insurance negotiations.
“My original role was as legal and strategic advisor, and in that capacity I was giving anything up to 60 opinions a month in the early stages of my engagement. However, my role evolved to give guidance on insurance claims management, and ultimately expanded to claims negotiator as well,” he says.
“There were 1500 damaged assets, a further 2500 damaged social housing units, thousands of damaged contents, plus business interruption losses on top of all of that. The Council had assets of every type you can think of, spread across Christchurch and Banks Peninsula – there was the potential for any kind of legal, technical, document management and interpersonal issue that could conceivably arise. I found myself having countless meetings with councillors, management, programme and project managers, engineers and experts, and generally helping manage the direction of the claims. I could receive or send up to 70 emails a day, and would have spent on average something around 30 hours a week dealing with engineers and their reports. On top of that, I sat in meetings often for more than 20 hours a week. It was a very ‘hands-on’ kind of involvement.”
Ultimately, between the workload and the need to feel part of what his clients were going through, what began as a weekly commute between Auckland and Christchurch became a permanent move to the damaged city for him and his wife Sue in April 2013.
As well as engaging with the Council, the negotiations required Mr Paterson to interact with representatives of LAPP, Civic and its reinsurers, who collectively would decide whether or not to pay out on the Council’s claims.
“We were involved in five negotiations spread over 18 months, invoving one or many different parties. At one mediation session, there were over 40 people in the room. In the final negotiation, there were just the two of us on the Council’s side of the table – myself and Peter Gudsell [the Council’s Chief Financial Officer] – and 19 on the other side [i.e. representatives of the various insurers and reinsurers],” he recalls.
“There were lots of different interests to be reconciled. While the insurers obviously all had a common interest in resolving the claims, they were not necessarily agreed on what that entailed. We had to understand each of the parties’ objectives and how that interacted with what we needed.”
Although (as with many negotiations) it seemed at times that settlement might never be reached, and that at least parts of the claim might end up in litigation, a global settlement (including the controversial Lancaster Park stadium) was eventually achieved.
As anyone who followed the drama in the media will know, Lancaster Park was the biggest ticket item that the Council and insurers were wrangling over, with the Council on one hand arguing it was damaged beyond repair, but the insurer saying it could be restored more cost-effectively than paying out the full amount insured under the policy. Mayor Lianne Dalziel was quoted in early 2015 as saying that there was “a world of difference” between the Council’s and the insurers’ standpoints: “A global settlement would certainly be in the interests of the city but we have to be prepared to go to court to argue the issues that are standing between us,” she said (The Press, 21 February 2015).
Mr Paterson said getting past this kind of standoff was a matter of looking at all the issues, what the road blocks were and working out which ones could be resolved, which ones could be part of a deal and which ones needed to be parked for a while.
“The goal was always to get everything resolved, but it was not necessarily going to be possible to get everything resolved at the same time, and in the end it took five negotiations to get there. As a negotiator, you have to work out what you can achieve and, if you can’t resolve it all, what the next best alternative is, which may include litigation. You strive to come to a resolution without litigation but it is a tool and you always have to be prepared for it if you can’t achieve your client’s objectives,” he says.
“For me, it was about keeping my eye (and my client’s eye) on the end objective. You had to recognise that with the number of assets, parties and stakeholders involved, there were all types of interests to be managed. Arriving at a global settlement was important, as trying to get every individual claim resolved was not possible – there were just too many interests and issues. You also have to remember the context – dealing with the Council is not like working for a corporate or an individual – the outcome of the claims affected the community as a whole. There was real value for the community in having certainty in knowing how much money would be available, being able to push on with restoring their broken assets and in having flexibility as to how to spend it.”
Living and working in a quake-ravaged city
When the Patersons moved to Christchurch, “a number of our friends questioned why we were doing it,” says Mr Paterson. Although it has been a huge challenge, it is a move they do not regret.
“Initially, I would travel to Christchurch and was lucky enough return to a home in Auckland that was undamaged – that was not the case for my clients, many of whom had to cope with not just what had happened to their business and place of work, but also with their own homes that were damaged or destroyed, friends and family who had been killed, injured or traumatised, and of course the damage to roads and infrastructure. They had to cope with things that were not part of their life and work experience, not just dealing with large, complex and difficult insurance claims,” he says. “It has been much better being here – we are able to commit to our clients and understand their frustrations by going through the same things that they are going through.”
Mr Paterson is very humble about the outcomes he has helped his Christchurch clients achieve, and is quick to attribute credit to his team and to his wife. But in any case, there is little time to rest on his laurels – he still has many hundred millions of dollars’ worth of claims on the go.
“I’ve still got some significant claims to resolve, but after that we probably need a break! Somehow or other you have to keep your head above the water, keep a sense of humour when the going gets tough, but it’s very surreal when every single moment of every day for the last five years, I’ve felt that I’ve had at least three minutes of work for every minute I’ve had, all the time knowing that what you do matters and can make a difference” he says.
“The earthquake on Sunday [14 February 2016] was a little reminder. For the first time in four years, we all got under our tables and desks at the office – the quake was big enough to make us do that. Maybe it will make people on all sides of the fence nervous enough to push on for resolution.
“As time goes on, the risk increases that further unresolved claims will become litigious. It is a challenging insurance environment with lots of assets not yet fixed, and how do you deal with continuing risks? These are questions for insurers and brokers, but it is a fact of life here that in ongoing claims, with ongoing repairs, there is also ongoing risk, and that needs to be borne in mind.”