Court directs Western Pacific reinsurance money to earthquake claims

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6 February 2012

New Zealand’s High Court has ruled that earthquake claimants are entitled to all the reinsurance money from Western Pacific, meaning the failed insurer’s creditors will probably receive nothing.

Western Pacific went into liquidation last April and the $NZ34 million ($26 million) in reinsurance money from the Christchurch earthquakes is its only substantial asset.

Liquidators David Ruscoe and Simon Thorn of Grant Thornton estimated a claims shortfall of $NZ24 million ($18.6 million), including the proceeds from reinsurance and premiums to keep it active, when they reported to creditors on December 21, noting they expected the claims to increase.

The liquidators asked the High Court to clarify whether the reinsurance could be paid to all creditors and not just policyholders with claims from the earthquakes.

They argued the money should be paid to all creditors, but the court ruled the reinsurance should be paid on the policies that had been triggered by the quakes.

Justice Simon France did allow for the liquidators’ expenses and reinsurance premiums to be recovered from the funds.

If the reinsurance had been available to all creditors, the liquidators estimated a payout of 50 cents in the dollar.

Mr Thorn told insuranceNEWS.com.au that an appeal is being considered and he plans to issue another report to creditors this month.

The judgement means that policyholders with non-earthquake claims are unlikely to be paid and there will be a shortfall on earthquake claims.

Western Pacific has claims of $NZ14 million ($10.8 million) from the September 2010 earthquake and is likely to receive reinsurance of $NZ13 million ($10 million).

Reinsurance of $NZ21 million ($16 million) is expected for the February 2011 earthquake, but the company has received $NZ32 million ($24.8 million) of claims.

The liquidators have estimated an appeal will cost $NZ75,000 ($58,000) to run and have asked if any creditors are prepared to fund it.