Third-party property damage claims in New Zealand are likely to rise after the significant weather events in North Island early this year, according to a report from law firm Wotton + Kearney. 

Insurers have already seen an influx of first-party claims regarding the scope of cover available to farmers, residents, businesses and local authorities arising from flooding, slips and other weather-related damage. 

The NZ Insurance Market Trends Update says in the next 12 months an increase in third-party property damage claims arising from weather-related recoveries is expected. 

“For example we anticipate more claims against local authorities involving the failure to adequately maintain drainage and roading, as well as group actions for consenting to developments in flood-prone areas,” the report says. 

“We expect there will also be claims due to neighbours’ failures in maintaining retaining walls or adequately preventing the escape of landslips or other substances from their property.” 

Similarly, there may be claims for a failure to adequately protect products or stock stored or grazed on behalf of a third party. 

“We expect to see these weather-related third-party claims increasing as time goes on. We anticipate that they may raise a variety of coverage and defence issues in the general liability space,” the update says. 

“One central issue that is likely to arise is the perennial question of whether property damage has been suffered.” 

The update says the Auckland floods and cyclone Gabrielle disaster are likely to lead to claims against brokers too. 

“We expect to continue to see a flow of claims against insurance brokers arising out of the Auckland floods and cyclone Gabrielle,” the update says. 

“Given the wider area damage from the recent natural disasters, many instances of under-insurance are being exposed. 

“Many sum insureds have not been updated recently to factor in the increase in construction costs, and many businesses are regretting their decision not to take up additional extensions. We have already started to see some claimants seeking to take advantage of oral discussions.” 

Wotton + Kearney says the annual update examines legal and claims trends, legislative and regulatory developments as well as significant recent decisions that impact the industry. 

“As active market participants and close watchers of insurance trends in New Zealand and around the world, we’ve looked at the significant legal decisions over the past year and drawn on our market insights and experiences to identify the areas to watch in this space,” New Zealand Managing Partner Antony Holden said. 

The directors’ and officers’ (D&O) space is an area where claims are likely to worsen as economic pressures persist. Directors have come under scrutiny based on recent legal cases involving companies that have gone into liquidation. 

“Economic pressures, evident from the end of 2022, continue without relief. These are increasing the prospects of financial distress, particularly for companies involved in construction and investment,” the update says. 

“As a result, alleged breaches of directors’ duties during a company’s financial distress look set to continue as the primary driver of D&O claims.” 

The update says the focus on directors’ duties during such distress has been “emphasised” with the highly anticipated Supreme Court ruling in Yan v Mainzeal Property and Construction Ltd. 

The court was asked to consider the scope and extent of director liability when trading insolvent, including the extent to which a director might be liable for new debts incurred while a company trades insolvent. 

The court found the directors of Mainzeal had breached their duties by agreeing to carry on the business in a manner that was likely to, and did, create a serious risk of substantial loss to creditors; and caused the company to incur obligations without reasonable belief that those obligations could be met when required. 

Click here to access the report.