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Formal review of Christchurch City Council Insurance

Media Advisory 24 September 2013

From: Cr. Helen Broughton, Chair of the Corporate and Financial Committee, Christchurch City Council

Subject: Formal review of Christchurch City Council Insurance


The Christchurch City Council is undertaking a formal review of a number of issues relating to the Councils insurance by an independent barrister QC.

The review follows a decision ratified by the Council on the 25 July that was publicly excluded. However, at a subsequent meeting of the Corporate and Financial Committee, I successfully moved that the decision regarding this review should be taken out of Public excluded.

The decision being announced today was delayed until matters concerning the CEO future were resolved.

Background

For some time I have been one of five Councillors (Cr’s Tim Carter, Glenn Livingstone, Yani Johanson and Jimmy Chen) concerned about a number of issues with respect to the Council’s insurance.

Regrettably, a number of our colleagues had previously believed that there was no basis for these concerns, which delayed advancing this review. However, as more information became available it was clear that they better understood why a review was required.

In announcing this review, I would also like to acknowledge the concerns previously expressed (June 2012) by Canterbury Employers' Chamber of Commerce chief executive Peter Townsend, about the low insurance valuations of some quake-hit council facilities. I note that at that time, Mr Townsend said the council needed to investigate these issues further.

I also believe that when considering why this review is important, one must also consider the report following the: “Inquiry (19 April 2012) into how Christchurch City Council managed conflicts of interest when it made decisions about insurance cover.” http://www.oag.govt.nz/2012/christchurch-city-council-inquiry

Focus of insurance review

There are three areas of concern;

1. The appropriateness of the placement of the Council’s insurance with Civic in 2009 and the consequent placement with LAPP in 2010.

*The Council moved in 2009 from NZI to Civic at the firm direction of “executive management”

o It has been public record that the movement from Civic to Lapp 2010 was outside delegated authority. The GM Finance signed off on this transfer alone, when the delegated authority is for the GM Finance and the CEO. [ The CEO could not do this as he was on Civic}- However in this situation the signoff should have come to Council.

o Civic is largely dependent on reinsurance monies.

2. A detailed assessment of the strength of Council’s contractual position with Civic.

3. A review of the two contracts referred to by Judge McKenzie in his judgement in the Civic versus R and V Versicherung of 9 April.

There are two contracts- the original dated June 2010 and a replacement policy dated 20 September 2012. To quote directly from Justice McKenzie:

“The replacement policy asserts there were errors in the original contract. There must be a proper and full enquiry into whether that is so. The reinsurer’s liability depends on the interpretation of the original contract not the replacement contract.”

The Judge also refers to complexity with respects to the relationship between Civic and Lapp and contractual issues raised from this.

Why is this review important?

The role of this review is to ensure that we understand:

1. where and why mistakes were made;

2. what are the implications to the council and its ratepayers; and

3. what changes need to be made to ensure that we don’t make the same mistakes again?

Normally insurance contracts with reinsurer’s mirror the contract between the contract between insurer and entity {CCC} .We need to establish if this was the case In Christchurch’s contract.

The Corporate and Financial Services Committee will receive an initial report by the end of the month. At that time, the committee will need to determine if the scope needs to be widened and whether central government needs to be involved.

In announcing this review, I will be writing to the Minister of Local Government and the Minister of Earth Quake Recovery to brief them on this matter.


ENDS


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