Leading insurers covering the majority of victims of two of the St Patrick’s Day bushfires have offered no legal cost settlements for the first time.
The offer has the potential to forever change the way victims of bushfires and other natural disasters pursue compensation and short circuits drawn-out, costly class action legal battles.
And a victim of The Sisters/Garvoc bushfire says she expects her family will receive between 25 and 35 cents in the dollar more in compensation as a result of the move.
A spokesman for global insurer IAG said on Tuesday it was the first time that IAG had offered such an approach in a large-scale bushfire compensation action.
Powercor has accepted its infrastructure led to the Terang and The Sisters/Garvoc fires. The Sisters/Garvoc fire started after a rotten power pole snapped in high winds while clashing high-voltage lines sparked the Terang blaze.
"IAG will be paying all legal costs incurred in pursuing recovery actions for the losses caused by the Garvoc and Terang bushfires, alongside other insurers including Allianz and QBE," the IAG spokesman said.
"That includes the fees rendered by our lawyers, Hall and Wilcox, and fees rendered by counsel. It will also include most disbursements, such as court fees and expert witness fees. We will also be liable for paying any cost orders made in favour of Powercor.
"Any legal costs we incur which we are unable to recover from Powercor will not be deducted from recovered uninsured losses. Legal costs will only be deducted from recovered insured losses. That means that recovered uninsured losses will not be diluted by legal costs."
The IAG spokesman said there was an exception to the no-costs offer.
"It may be necessary to obtain an expert report to quantify a complex uninsured loss," he said.
"For example, some of our customers lost dairy cows in the fire which were not insured. Those farmers have suffered a loss of value or profit which needs to be quantified and proven. For some of these customers our lawyers may recommend that a report be obtained from an independent forensic accountant or an ergonomist.
"We will pay the cost of any such reports up front and then attempt to recover that cost from Powercor. However, if we are unable to do so we will deduct the cost of the report from any compensation recovered for uninsured losses."
All customers of IAG (CGU, RACV, WFI, Lumley), Allianz and QBE (which includes Elders Insurance) who suffered losses in these bushfires have or will receive the offer. It’s understood other insurers are also considering their options.
The spokesman said IAG had been involved in numerous bushfire claims across Australia.
“Our experience from these recovery actions is that the legal costs generated by class actions can be very high and can therefore impact final outcomes,” he said.
Legal fees for class actions are usually taken out of settlements before group participants are paid out.
“Each person impacted by the fire will need to consider their own personal circumstances and consider obtaining legal advice as to their best way forward,” he said.
“In our experience, class actions tend to generate millions of dollars in legal costs and take at least several years to resolve. While class actions tend to be highly profitable for lawyers and funders, they can produce uncertain financial outcomes for our customers.”
The spokesman said class action costs agreements entitled class action lawyers to claim costs calculated according to the Supreme Court Scale of Costs, on top of which those firms applied uplifts and loadings totalling about 60 per cent.
“The end result is that plaintiff law firms recover millions of dollars in fees at very high hourly rates. That approach often results in settlement sums being heavily diluted by legal costs,” he said.
The spokesman said insurance company lawyers were not entitled under their engagement with IAG to claim any uplifts or loadings on their fees.
“That allows us to conduct recovery actions in a highly efficient and effective manner,” he said. “Our focus is on recovering compensation as quickly as possible and we find that is best achieved by avoiding class actions and court trials if possible,” he said.
“We have listened to our customers, many of whom have had their lives turned upside down by these fires. We want to do what we can to reduce the stress associated with recovery actions and by minimising financial risk associated with the recovery, for our customers and their community.”
Any settlement sum will be distributed on a pro rata basis of the proven loss against the amount recovered.
IAG also provided a simplified hypothetical example to help illustrate the approach:
A house is destroyed by a fire and causes $1 million in losses, $600,000 of which is insured and $400,000 of which is uninsured.
The insured victim receives $600,000 immediately. IAG recover $800,000 in the settlement (but recover nothing for the legal costs they incurred of $100,000).
The $800,000 is distributed on a 60/40 pro rata basis, meaning the customer receives $320,000 – 80 per cent of the $400,000 they were out of pocket for a total of $920,000. IAG receives the balance, being $480,000, less legal fees of $100,000. The net recovery for IAG after legal costs is $380,000.
“IAG’s purpose is – we make your world a safer place. Our focus following any natural disaster or event is helping our customers to recover as quickly as possible and this includes reducing the risk and worry during this recovery process,” the spokesman said.
Leading bushfire lawyers Maddens has a day to forget
While insurance companies were sending out first-ever no cost legal offers to St Patrick’s day fire victims, one of Australia’s leading bushfire class action legal firms was having a day it would rather forget.
Maddens Lawyers, of Warrnambool, has been at the forefront of bushfire class actions in recent years with principal Brendan Pendergast considered one of Australia’s leading bushfire lawyers, despite a Supreme Court recently labelling some of his comments “misleading”. The Standard is not suggesting Maddens has done anything illegal.
The firm has launched four new class actions after this year’s St Patrick’s Day bushfires, involving the Gazette, The Sisters/Garvoc, Terang/Cobden and Camperdown bushfires.
Last Friday, the New South Wales Supreme Court ordered a notice to be published involving settlement in a Mount Victoria bushfire class action. The Mount Victoria blaze occurred on October, 17, 2013.
According to Supreme Court settlement documents, the payout was $2.6 million. The document also states that Maddens Lawyers’ legal fees “substantially exceed” the payout.
Class action participants will therefore not receive a cent.
Maddens has also been involved in a number of other bushfire class actions, both in Victoria and interstate.
The Mickleham bushfire happened on February 9, 2014.
Maddens issued a class action and settled for $18 million, including costs.
In their original costs agreements Maddens estimated legal fees in the range of $800,000 to $1.6 million.
But Maddens eventually claimed costs of $7.3 million.
The firm calculated costs under the Supreme Court Scale of Costs on top of which they claimed loadings and uplifts.
The Victorian Supreme Court reduced Madden’s costs to $6.62 million.
Maddens also issued a class action over the October 17, 2013, Springwood bushfire.
The class action settled for $18 million, inclusive of costs. Those costs are not known.
In another Maddens class action over the Walla Walla bushfire from December 17, 2009, the action was unsuccessful at trial earlier this year with a judgement in favour of the defendant.
Group members have so far received no compensation.
Maddens has now launched an appeal, almost nine years after the fire.
Maddens has launched four St Patrick's Day bushfires class actions for the Gazette, The Sisters, Terang and Camperdown blazes.
Powercor applied to have the class action in relation to the Gazette fire dismissed in the Supreme Court mid last month and Justice John Dixon has at this stage reserved his decision.
The Gazette fire was caused by a eucalyptus tree falling onto a powerline that ran through a blue gum plantation, causing the ignition of nearby vegetation.
In addition Maddens is running class actions in relation to the Currandooley bushfire in NSW last year, Carwoola bushfire (2017), the Coolaroo Recycling Plant fire (2017), the Scotsburn bushfire (2015) and the Falls Festival stampede (2016).
The Currandooley bushfire class action is currently subject to a proposed undisclosed settlement.
On Wednesday evening, Mr Pendergast said: “Maddens Lawyers has been advocating for the rights of bushfire victims since the 1980s. That work has resulted in the recovery of close to $100million on behalf of victims.
“The proceedings referred to above are only a small number of the cases that Maddens has advanced and are some of the most difficult and complex.
“There are a number of other cases that Maddens has advanced in which victims received compensation for the vast majority of their loss including for example the victims of the Jack River and Blampied bushfires.
“In none of the cases which Maddens has been involved in, have insurers offered any financial assistance in advancing claims for compensation on behalf of bushfire victims.
“In this instance, some insurers have indicated a preparedness to assist victims of the Terang and Garvoc bushfires which is a development that I welcome. But I note that these are very strong cases and the victims of the Gazette and Camperdown (Gnotuk) bushfires have not been offered any assistance.
“The firm’s focus remains on advancing the claims against Powercor and maximising the recovery of fire victims’ uninsured losses in assisting with the difficult recovery process.”
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