Leaky Buildings (2)
Friday, November 1, 2013 at 5:42PM
Bill Barclay

Further to my 25 October post, the following information has been gleaned from the Annual Report - page202 - I was kindly referred to this page by Laurna White, who is one of the new communications / PR staff.

Clearly, the level of anticipated liability has increased somewhat, but even at that level, I am still puzzled by the Mayor's reference to this category being one of the three major risks facing Council.

I guess we will just have to wait and see what turns up over the next twelve months.

Note the critical figures: 2012 Provision - $1,214m

                                    2013 Provision - $2,191m

                                    Future estimate -$8,835m

There are 17 outstanding claims totalling $9,289m- of these 7 are under the FAP scheme. Settlement average payouts are are 40% nationally, and 16% locally, so the Future Estimate appears to well and truly cover our likely overall liability, but these can change dramatically as we well know.

Perhaps Glenn is right to list this as one of the three major risks!.

Notes to the Financial Statements (continued)

FOR THE YEAR ENDED 30 JUNE 2013

Note 28 - Contingent Liabilities (continued)

The term leaky homes claims refers to claims against the Council for damages relating to a leaky building. Risk and liability related to Council’s building control functions such as building consent processing, inspections and issuing code compliance certificates cannot be avoided. Where the Council has failed to discharge its duty of care when providing building control services and loss has been suffered as a result, the Council may be found negligent. This is the basis for claims for damages against the Council.

The term leaky homes claims has also been extended to include cases where owners have opted for the Governments financial assistance package scheme. The Government has established a financial assistance package (FAP) forowners of leaky homes to get their homes fixed outside of the weathertightness tribunal or courts processes. Under theFAP, central government meets 25% of eligible homeowners agreed repair costs, with local authorities contributing 25%

and homeowners funding the remaining 50%, with a loan guarantee underwritten by the Crown, provided applicants can meet bank lending criteria.

TCDC is a participating local authority in the scheme. Homeowners who participate in the scheme would forgo the right to sue the Council or the Crown. Ultimately, it is the choice of homeowners to sue or otherwise participate in the financial assistance package.

Where claimants elect to sue, the Council must accordingly defend whilst maintaining a preference, where possible, to settle claims without the need for hearing and thereby avoiding the uncertainty, cost and stress of protracted litigation.

When we last measured, across the country anecdotal evidence suggests that the average settlement amount in such cases is around 40% of the original amount claimed; the Councils track record is around 16%. This difference is likelyattributable to two factors: our insurance arrangements and the staff mandate to minimise the financial impact of suchclaims on the Council’s ratepayers.

Councils insurance arrangements cover legal costs capped at a maximum indemnity aggregate of $500,000 for eachinsurance year/period which covers all claims notified in that particular year. Councils excess is $100,000 per claim.Settlement amounts for leaky homes claims are not covered by insurance.

There are seventeen current claims; seven of these are part of the FAP scheme. An additional claim has been foreshadowed but has not yet been brought. Such a claim might not ever be brought; however our information gleaned during management of another case in this area highlighted this as a possibility. For the purposes of planning for and managing this risk, this possibility has been factored in at this stage. Of these, 16 claims were registered on the WHRS website as active as at 30 June 2013 (2012: 16 claims) The amounts sought by the claimants of these unsettled claims total to $9,829,824 including four for unknown amounts (2012: $2,379,000 including eight for unknown amounts).

A provision for $2,191,325 has been recognised for accounting purposes for the potential settlement of claims that have been notified to Council at balance date (for further information see Note 21 provisions) (2012: $1,213,815). However, based on the information obtained during this financial year (and that of previous years), Council has estimated that it may face a further $6,349,956 in emergent claims (2012: $8,835,000).

 

 


 

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