How do you pivot from national emergency into focused recovery for your business?

Auckland Anniversary Weekend floods and Cyclone Gabrielle: National Emergency now turns to recovery

In late February [1] we published considerations following the flash flooding that occurred across Auckland and given the recent event of Cyclone Gabrielle, we provide further guidance below.

The damage caused initially by the torrential rain events across much of the north island of Aotearoa New Zealand, combined with the effects of Cyclone Gabrielle have been devastating, with it already labelled as one of, if not the, largest, climate events in New Zealand’s history. Our immediate thoughts go out to those affected.

Littered throughout media articles, as many will have seen, are details that reveal the staggering extent of damage.

We are seeing a number of businesses seek support following the damage caused by these recent events and one important consideration being looked into is the precise cause of damage, as this plays a pivotal role in understand the extent of any insurance cover available.

In relation to the Auckland Anniversary Weekend flood event, 48,000 claims had been received as of 6 March 2023, with around $111 million worth of insurance support paid to date as reported by the Insurance Council of New Zealand (“ICNZ”). Figures supported by both the Insurance Industry and echoed by finance minister, Grant Robertson, expect these figures to climb to over $1 billion.

Prior to Cyclone Gabrielle, Cyclone Hale battered the upper North Island at the start of the year and by the end of January 2023, Central Auckland had recorded its wettest month in history, receiving almost 539mm of rain. This surpassed the previous record from 1869 of 420mm, as reported by The National Institute of Water and Atmospheric Research.

As of 23 March 2023, over 40,000 claims had been recorded with an approximated value of $890 million arising from Cyclone Gabrielle, according to the ICNZ. A large proportion of all claims have been from the Hawke’s Bay region, accounting for more than half the total value of claims to date.

To provide perspective, these two events combined, the Auckland Anniversary Weekend flood event and Cyclone Gabrielle, are responsible for approximately twice as many claims as the 2016 Kaikoura earthquake.

For the purpose of insurance cover, there is an important distinction between flood and storm water, particularly if you do not have insurance cover for flood.

The high quantity of rainfall associated with both the Auckland Anniversary Weekend flood event and Cyclone Gabrielle is likely to have led to a combination of high volumes of rainwater run-off, water backflow from drainage and flooding from rivers and ground water. The identification of the exact cause of water damage is a relevant factor when establishing whether an insurance policy provides any form of indemnity.

There were a number of litigation cases following the 2011 Brisbane flood event, such as LMT Surgical P/L v Allianz Australia Insurance Ltd [2013] QSC 181, which focused on the exact cause of damage and how this affected insurance cover. Members of EY’s Claims and Disputes team were involved in providing quantum advice on such issues for commercial insurance claims and such case law may provide insight into how such issues will be dealt with by New Zealand courts should such issues be tested.

It is at this time that many businesses have or are in the process of placing their insurer and/or insurance broker on notice of a pending claim and considering their next steps. From our experience the initial period following an insured event is the critical time to discuss your recovery path and how your insurance coverage, if triggered, can support your business and its cashflows.

Given our independence from the insurers, the brokers and the underwriting process, we are uniquely positioned to assist our clients recover their full entitlement under their insurance policy.

An additional consideration following large scale natural catastrophes for business directors, is how to best navigate the path of recovery for a business which will typically include managing increased pressure on cashflows. In some circumstances this may include considering a business recovery strategy to prevent insolvency.

EY’s Safe Harbour team can provide protection for directors of businesses impacted by natural catastrophes whilst insurance claims are pursued and provide personal protection for directors from subsequent “insolvent trading” claims in circumstances where they are pursuing a better outcome than insolvency.

We continue to support weather afflicted businesses, providing targeted advice to support contingency planning and business-continuity, if you would like to know more on how EY can support you, please reach out to either Campbell Jackson or Stephen Bell of our Claims and Disputes team or David Kennedy from our Safe Harbour team.

Footnote 1:       Published on 7 February 2023 by Stephen Bell, NZ Country Lead Forensic & Integrity Services entitled, “Auckland Flooding… Insurance Recovery/ Important considerations”

This article was co-authored by Stephen Bell and Curtis Daniels.

The views expressed in this article are the views of the authors, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

Sources:

[1] https://www.icnz.org.nz/industry/media-releases/insurers-support-for-the-weather-bombs-111-million-to-date/

[2] https://www.icnz.org.nz/industry/media-releases/provisional-cyclone-gabrielle-claims-reach-890m/

[3] https://niwa.co.nz/news/auckland-suffers-wettest-month-in-history

[4] https://www.nzherald.co.nz/nz/nothing-came-close-auckland-records-wettest-month-smashes-previous-1869-record/MKVFLLUX55HCPICA2AQKJSCXWI/

[5] https://www.newshub.co.nz/home/new-zealand/2023/01/cyclone-hale-tropical-storm-batters-north-island-residents-urged-to-hunker-down.html

[6] https://www.theguardian.com/world/2023/feb/01/auckland-floods-biggest-climate-event-new-zealand-history-flooding

[7] https://www.nzherald.co.nz/business/auckland-floods-insurance-claims-could-hit-nearly-1-billion/WJYKBIYZJJEZDKGR3APFAYXQDE/

[8] https://www.rnz.co.nz/news/national/485394/auckland-floods-cyclone-gabrielle-to-cost-insurance-industry-more-than-1b