A lawsuit against government-owned Southern Response could cost millions in earthquake insurance claims settlements. (Video first published in September 2018)

Brendan and Colleen Ross believe they have been short-changed by $100,000 in their earthquake insurance settlement – and are keen to prove it in court.

The Christchurch homeowners have joined a group lawsuit called "opt-out", which could include more than 3700 claimants. It means all parties able to make the same claim against Southern Response – which was created by the Government to settle quake claims when insurer AMI failed in 2011 – come under the claim unless they actively withdraw.

The claimants, being represented by Grant Cameron, of GCA lawyers, allege Southern Response underpaid on settlements by providing them with a version of its detailed repair/rebuild analysis (DRA) for their home that missed out several costs. The abridged DRA was used as the basis for settlement.

The DRA Southern Response did not give customers listed extra costs for items including demolition, contingencies, and additional design costs – resulting in a higher overall rebuild cost.

READ MORE:

* Southern Response withheld insurance information to avoid 'confusion'

* Homeowners left out of pocket

* Southern Response quake claimants withdraw class action

* Nearly seven years on, thousands of Christchurch earthquake insurance claims remain

JOSEPH JOHNSON/STUFF Brendan and Colleen Ross are the representatives of a new class action against Southern Response claiming the Government insurance settlement company underpaid on Christchurch earthquake claims.

Colleen Ross said they were "gobsmacked" when they got their withheld DRA under the Privacy Act and saw the rebuild total was more than $100,000 higher than the abridged version they were shown.

Cameron said Southern Response clearly promoted the abridged DRA figure as the claim's value.

"Had people known there was another hundred thousand dollars or thereabouts which was on the insurer's file, which covered matters which had not been disclosed to the client, then we say its reasonable to suppose the settlements wouldn't have taken place."

The lawsuit seeks the difference between the abridged and full DRAs, plus $25,000 in general damages, interest and costs. It also seeks a declaration from Southern Response that it breached the misleading and deceptive conduct guidelines in the Fair Trading Act.

In a previously heard case, Southern Response unsuccessfully argued that because the property was red-zoned and the owners were buying a house elsewhere, some professional costs and contingencies were hypothetical and should not be paid out. A judgment was made on October 1, 2014.

At the time, then-Southern Response chief executive Peter Rose said insurance settlements made before the judgment were "settled in good faith on a full and final basis, and will not be reopened".

JOHN KIRK-ANDERSON/STUFF GCA lawyer Grant Cameron says Southern Response clearly promoted the abridged DRA figure as the claim's value.

Southern Response had settled 3738 claims at the end of September 2014, which is when judgment was passed for the previous case.

If the court allows the latest action to proceed as an opt-out, Cameron expected a high proportion of those earlier settlements would be embraced by the terms of the action.

Cameron said the average difference between the abridged and full DRAs was an estimated $100,000, based on about 100 examples his office had seen.

At those figures, a loss in court could see Southern Response liable for hundreds of millions of dollars including damages.

Stuff asked Southern Response if it had estimated how many clients would be eligible for the class action and the potential liability if it lost the case. It did not provide a reply.

STUFF Finance Minister Grant Robertson gave Southern Response an indemnity "in respect of certain litigation", which was tabled in Parliament on Thursday.

Stuff asked Treasury the same questions, and was provided a statement from Finance Minister Grant Robertson, who said he had given an indemnity to Southern Response "in respect of certain litigation". This was tabled in Parliament on Thursday.

"The indemnity enables Southern Response to continue to focus on its core purpose of settling the remaining outstanding claims of its policyholders," Robertson said.

He did not answer which litigation the indemnity was for or what protections it provided, or whether the Government had done work to ascertain the potential size of the class or scale of Southern Response's potential liability.

Whether the class action can go ahead an "opt out" action will be argued at a hearing in November, with a decision not expected until the new year.

Cameron said the class size would be determined by the court, but there was strong interest from 25 people contacted.

JOSEPH JOHNSON/STUFF Brendan Ross says he would not have settled on the figure Southern Response gave them to buy a new house if he had seen the other version of the DRA.

Brendan and Colleen Ross, whose Avondale home was badly damaged and red-zoned in the quakes, will be among those in the class action if it goes to court.

The Rosses bought a house using their red zone land payment and bridging finance, intending to stay there until they could build a new home when their Southern Response claim was settled.

JOSEPH JOHNSON/STUFF Colleen Ross says she was "gobsmacked" when she saw how much more the rebuild total was on the DRA withheld by Southern Response.

After a long wait, the offer was lower than they expected based on the abridged DRA and the rebuild cost significantly lower than calculated by their own quantity surveyor.

Brendan Ross said Southern Response gave them three options: to rebuild, buy another house, or cash settle. Southern Response indicated they would not negotiate on costs so they reluctantly exercised the option to buy the other house, rather than rebuild on Southern Response's terms, he said.

ANDY JACKSON/STUFF Greater Christchurch Regeneration Minister Minister Megan Woods says she has taken advice on the case but it is too early to comment as it was a "live legal issue".

"We weren't going to get the house we envisaged we might get with a rebuild, because of costs and conditions, so we thought, 'OK we might have to take this figure'.

"We wouldn't have made the decision that we made if we had all that information."

Helping others in the same situation was a big motivation to be representatives for the action, he said.

SUPPLIED Southern Response chief executive Anthony Honeybone says the case involved complex and novel legal arguments which are being worked through.

In a statement, Southern Response chief executive Anthony Honeybone said the case involved complex and novel legal arguments, which were being worked through. The company was asked whether it had considered re-opening past settlements where two DRA versions had been used, and why it had not done so, but did not respond.

Greater Christchurch Regeneration Minister Megan Woods said she had taken advice on the representative action but it was "too early to comment on the steps to be taken in relation to the litigation, as this is a live legal issue".

The action is expected to be backed by litigation funders, meaning claimants will not face legal fees. Cameron said they were close to finalising a contract.

Cameron previously represented another class action against Southern Response, which the 24 members discontinued after agreeing to a dispute resolution process overseen by a former High Court judge.

Southern Response is facing at least three other legal battles over its use of abridged DRAs.

EXPLAINER: CLASS ACTIONS

What is a class action?

It's a type of lawsuit in which an individual or group represents a larger group (or class) of people with the same interest in the subject matter of the proceeding and therefore allege the same wrong. Whatever conclusion the courts come to when testing the shared issue of the representative's case is then applied to everyone in the class. They are becoming increasingly popular in New Zealand.

Why have a class action at all? Why not test each case separately?

Auckland University lecturer Nikki Chamberlain, who is finalising a study of class actions in New Zealand, said class actions were more efficient by letting similar claims be heard together.

It also provides access to justice as some people simply could not afford to go to court otherwise.

This is especially relevant in small stakes claims, which would not be worth pursuing through the courts individually but can add up to large sums collectively. It also holds large companies accountable to small-scale wrongdoing across a large group of people.

Are there any issues with them?

Chamberlain believes the civil procedure rules used to allow class actions are "in dire need of reform" due to a lack of specific regulation around how they are run, including issues as simple as how the lawyers should provide notice of the proceeding to potential class members.

Because there are few rules in place, it meant simple procedural matters were often appealed through the various courts, slowing the process down. However, some lawyers believed rules would not fix this as they would be tested in the courts anyway.

Class action review is a topic on the New Zeland Law Commission's radar.

What's the difference between an opt-in and opt-out action?

Opt-in actions are where people have to sign up to be part of the action, the way class actions in New Zealand typically run. In an opt-out case, everyone who meets the criteria is automatically represented unless they choose to opt-out.

Opt-in's typically get a smaller class because it requires a positive step to be involved.

Why don't we have opt-out actions in New Zealand?

Basically because we don't have comprehensive statutory-based laws for class actions, so the judge has to decide whether to allow them to happen.

Chamberlain said most judges were allowing opt-in actions but there were reservations by some around opt-outs, because they considered it too far of a stretch from the existing rules.

They are allowed overseas such as in Australia and the USA, and New Zealand lawyers have called for them to be introduced here.

Why would anyone opt-out?

Chamberlain said there were a number of reasons people might want to opt-out of an action, but they came down to them not wanting to be bound by the judgment at the end.

This may be because the individual thinks their claim is different enough from the class that they may be better off pursuing it separately. Others just do not want to be involved in litigation, or feel uncomfortable about the unknown of what being bound by the final judgment will mean.

Others may not agree with how the representative wants to run the action, or may disagree with the fee arrangement with the litigation funders.

Litigation funder? What's that?

A third-party company that covers the costs of the lawsuit but takes a cut of any payout from the action. This is common in class actions overseas but less so here; Chamberlain said there were four class actions using litigation funders in New Zealand between 2008 and 2015. She said this showed there was an appetite for funders to fund this type of litigation.

Are there any issues with using a litigation funder?

Chamberlain said there were possible control issues – essentially a question over who's controlling the litigation. Because the litigation funder has different goals to the class members, they may have different views over what decisions should be made, such as whether a case should go to trial or be settled. She said a lack of regulation of litigation funders was also an issue in this area.