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Wivenhoe Dam ruling highlights public insurance gaps

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Governments should reconsider their existing insurance arrangements in the wake of last week’s Wivenhoe class action verdict in the NSW Supreme Court, according to law firm Clyde & Co.

The court found the State of Queensland and statutory authorities, Seqwater and Sunwater, “vicariously liable” for the actions of flood engineers who failed to follow guidelines for the Wivenhoe and Somerset dams, which contributed to the 2011 Brisbane floods disaster.

The verdict paves the way for plaintiffs to seek compensation unless an appeal is lodged. Justice Robert Beech-Jones, who presided over the trial, has adjourned proceedings until next February to allow the parties to consider the judgement.

Queensland Attorney-General Yvette D’Ath says the Government will closely examine the ruling before making any comment on a possible appeal.

Clyde & Co Corporate Regulatory Partner Avryl Lattin describes the ruling “as an illustration of potential exposure” for governments who rely on self-insurance in an environment with “a lot of very active litigation funders and active plaintiff firms”.

“The State Government [in the Wivenhoe class action] does not have insurance so the state is liable for that vicarious liability,” Ms Lattin told today.

“I think the lesson is the potential exposure for state governments and... at the moment the state governments are not getting insurance."

The same problem extends to natural catastrophe coverage, Ms Lattin said.

“[State governments] are self-insured and usually in the event of natural disasters, the funding for payments made to people affected or funding for infrastructure that needs to be repaired comes from the state budgets.

“Now I think there has to be a question of should it be after the fact, or should the state governments try to build more resilience into their strategies and be purchasing things like parametric insurance upfront so that in the event of an incident, there is a payout that is covered.”

According to a report the law firm released yesterday, parametric insurance for the Great Barrier Reef is a viable risk mitigation tool that governments should seriously explore.

A parametric cover, similar to that which Mexico has adopted for a portion of the Mesoamerican Reef, could help ensure the long-term viability of the reef as extreme weather events become more prevalent.

“For reefs, one of the main areas of damage can be because of cyclonic activity,” Ms Lattin said.

“So while climate change is known and the existing damage to the reef is already known, in terms of future events, there could still be scope for parametric products for particularly severe events that may come in the future.

“We have seen insurers take on risk for climate-related events even in known areas. Where there are such events, parametric insurance is becoming more widely used.”

The Great Barrier Reef Marine Park Authority, the lead manger of the World Heritage-listed site, is insured for risks through the Federal Government’s insurable managed fund Comcover.