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24 February 2012

Brisbane River Flood Class Action looms against Queensland Government


By David Stark
Secretary of FABAH
Flood Affected Businesses and Households Association


This week I discussed with solicitors for various insurance companies who would like to recover the substantial amounts paid to those insured, and to solicitors wanting to represent those not insured to recover their damages; all caused by the mismanagement of Wivenhoe Dam.

The Court will not want to hear numerous claims that deal with the same cause of action, and hence the likely need to form one class action, although in Queensland it will actually be a representative action, which is effectively the same as a class action.

Lawyers acting for the insurance companies will be paid by the insurance companies, who hope that if they win their legal action the Court would order the government to pay some or most of these costs.  The insurance companies run the risk that if they lose their legal action, they could have to pay the government's costs of defending the claims against it.

For those who were not insured, or were insufficiently insured, being part of a class action may lead to recovering some or most of your damages.  There are at present 2 bases of class action being contemplated that may suit you, and a third possibility now being considered - see below - of joining the insurance companies action. 

1. Lawyers acting for the uninsured will act on a 'no win no fee' basis, and for taking on that risk of no payment, the lawyers will charge an additional 25% fee if they win, paid from what the government is ordered to pay.  If the number of claimants is large these costs will be relatively small for each claimant, resulting in them recovering nearly all of their loss.  If the legal action is lost the claimants will not have to pay the government's costs of defending the claims against it, as this risk will be that of the lawyers.

2. Alternatively, the lawyers acting for the uninsured will have someone else funding their costs, such as IMF, which is a public company whose business is funding legal actions.  IMF will pay the lawyers, who will not be entitled to a 25% surcharge.  IMF take on the risk of the Court not ordering the government to pay all the costs if the legal action is successful, and the risk of paying the government's costs if the case is lost.  For taking on these risks IMF will be entitled to recover: the costs of running the case (mainly lawyers and expert witnesses fees); a management fee of about 25% of the costs of running the case; and a commission of about 25% of each claim.  The larger the number of claimants, the larger the total claim, the larger the amount IMF will earn to pay the costs of running the case.

Thus whether the lawyers acting for the uninsured are self funded or funded by IMF, if the case is won, the claimants will not recover all their claims, and if the case is lost they will not have to pay anything.  If the solicitors are self-funded, the claimants will receive more than if the case is funded by the IMF, because IMF's contract  will entitle them to commission of about 25% of the amount claimed by each person in the class action. 

Four steps will be involved in preparing for an application to the Court for an order that the government pay those it damaged.
1. that the government owed those flooded a duty of care 
2. that duty was breached
3. the breach caused the flood 
4. the amount of flood damage to each business and householder.

The first two steps are under active consideration by the lawyers, because the law of tort (wrong doing) in Australia does not necessarily mean that someone who causes damage will be held responsible, for example if they made an honest mistake.  The lawyers have generally satisfied themselves regarding steps 1 and 2, and are working on step 3.

Step 3 - to what extent the breach of duty of care caused the flood, will be largely for independent expert hydrologists and independent expert dam engineers to determine.  The evidence of SEQWater's Flood Engineers, and the evidence of all the experts who said the engineers complied with the manual, and that they did a good job has been shown to be faulty.  Hence there will be a need to obtain, and pay for, reliable independent expert opinions to convince a Court.

Step 4 - the extent individuals were damaged will require individual assessment.  Those who have been paid by insurers have been through this assessment, whereas those who  were not insured have yet to be assessed, although some form of assessment was undertaken when individuals applied for the payment from the Premier's Flood Relief Appeal.

Steps 1 to 3 above will apply to all three bases of class actions.  

Step 4  Insurance companies seeking to be compensated for the claims they have paid will ask the Court to accept that they have already rigorously assessed these claims, and hence their composite claim should be accepted.  This leaves a large administrative job to be done to assess the claims of the uninsured or under-insured, and this will apply to all three bases of class action.

Insurance companies class action

Lawyers representing the insurance companies are exploring ways by which the large administrative burden can be reduced so that the insurance companies would be inclined to accept uninsured or under insured into their class action.  If this eventuates, the insurance companies will be incurring a significant share of the costs of running the case, as well as accepting a significant  share of the risks of paying the government's costs of defending, if the case is lost.

If the claim was successful the uninsured or under-insured would essentially be put in the same position as if they had been fully insured for flood damage.

I will keep you posted of developments, but in the meantime I recommend waiting until the alternatives are clear, before deciding.

A political solution

If the Inquiry shows that the government mismanaged Wivenhoe, the government should immediately compensate those who were not insured or under-insured, and later consider whether it should compensate the insurance companies for paying claims for which they have received premiums.  With both sides of politics wanting our votes, both should now commit to paying for government negligence.  With government in care-taker mode, it would be appropriate before the election for Anna Bligh and Campbell Newman to make this joint commitment.  If the government of WA, on receiving the report that the government was responsible for burning people's property, can immediately apologise to those damaged and compensate them, why can't our government?

Please ask others who wish to be kept informed of a possible class action to email me at dstark@bigpond.com