A Canterbury quake claim class action against Southern Response will proceed on an “opt out” basis following a ruling last week in the Supreme Court of New Zealand.

The Supreme Court decision, which upheld an earlier ruling made by the Court of Appeal last year, means policyholders who had settled their claims with the state-owned insurer before October 1 2014 are now part of the lawsuit unless they expressly choose not to participate.

Southern Response, which was set up to settle the claims of policyholders who were insured through failed insurer AMI after it was acquired by IAG in 2012, had opposed the class action being made on an “opt out” basis.

Members of the class action are alleging Southern Response misled and deceived them when settling their claims for property damage caused by the Canterbury earthquakes.

They say they were sent abridged versions of the cost estimates to repair or rebuild their homes, with significant items left out of the quotes. As a result many settled their insurance claims for substantially less money than they were actually entitled to under the policy.

The High Court had granted leave for the representative claim to be brought in on an “opt in” basis” but the Court of Appeal later overturned the decision.

In its appeal to the Supreme Court, Southern Response argued the court should not seek to develop an opt out regime in the absence of a statutory framework, saying such an approach raised a number of problems.

It says these include the process for notice and settlement approval, problems arising from the involvement of litigation funding and problems in the supervision of class actions generally.

The Supreme Court says it is not persuaded by the submissions made by Southern Response, and it agrees with the reasons put forward by the Court of Appeal in allowing the claim to proceed on an “opt out” basis. The Court of Appeal has cited, among other things, a “compelling access to justice factors” when it made the decision.

“For the reasons given by the Court of Appeal, we agree that an opt out order is appropriate in this case,” the Supreme Court ruled. “Finally, given the nature of the claims and the fact that the class members will have been policyholders with Southern Response, it is difficult to see any force in Southern Response’s submission about a lack of awareness of the possible parameters of liability.”

Lawyer Grant Cameron, who is leading the class action, has called the ruling “hugely significant”.

“It confirms there is a legal pathway for ordinary people to access justice and hold powerful corporations to account,” Mr Cameron said. “It is likely to have a huge impact on consumer protection and environmental claims, and other claims dealing with various types of widespread harms.”

He says it also confirms that the New Zealand courts are willing and able to supervise class actions to ensure that the parties conduct the litigation fairly.

“In particular, any settlements need to be approved by the court to ensure they are fair to all the class members.”

Click here for the ruling.