Christchurch can still remember: One of 2013's marches on Southern Response, led here by multisporter, Steve Gurney.

How will history judge Southern Response, the Crown rescuer of AMI? Its chief executive sits his exit interview. JOHN McCRONE reports.

Did you hear? Southern Response even hired a hostage negotiator – an ex-cop trained in counter-terrorism – to do its staff training.

Southern Response (SR), the government agency created to handle the earthquake claims of collapsed Christchurch insurer AMI, is finally being wound down at the end of the year.

And for many, the story that it hired a tough nut to teach its settlements team how to deal with the public is pretty easy to believe.

After all, this is the organisation pinged for hiring private detective firm Thompson and Clark to infiltrate claimant meetings and spy on its customers.

READ MORE:

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* Protesters 'swamp' Southern Response

* Gerry Brownlee knew Southern Response hired private spies

* Southern Response engaged in misleading and deceptive conduct, High Court finds

* Thousands stuck in post-quake insurance hell

This is the organisation still being pursued for some $300 million because it ran two books on its payouts – an in-house version with the full potential costs and a second redacted version on which it settled with policyholders.

Since furious protest scenes outside its offices in 2013 – about as close as Kiwis get to a riot – SR has been seen as the corporate heavy doing its best to save the Crown cash through a policy of "delay, deny, defend".

A QC even put this allegation bluntly in Christchurch High Court, stating SR had a strategy to minimise its liability and under-deliver on entitlements – an approach with "elements of blackmail", the QC said.

But now this scuttlebutt about a hostage negotiator?

Up in SR's offices, the third level of a block tucked behind Papanui railway station, Anthony Honeybone, the outgoing chief executive, is momentarily flummoxed.

Casey Hurren, SR's legal brains, who is taking over the reins of what will become a shell operation after December, is looking puzzled too.

We have been discussing how Southern Response will be remembered by history. And the pair know SR has a dreadful reputation. A lot of mud has stuck.

CHECKPOINT/RNZ Eight out of 10 for performance and deserving of bonuses - that's the state insurer's report card, according to board chairperson Alister James.

However, then the penny drops for Honeybone. "Aw, you mean Mike Kyne. That guy!," he exclaims with some relief.

Well there you go, he says. A perfect example of how everything becomes twisted because people want to assume the worst when it comes to SR.

Honeybone says Kyne was indeed a member of the Armed Offenders Squad and an expert on siege situations – he was one of the Aramoana heroes, the police team that cornered and shot killer David Gray in 1990.

But he was brought in to help staff be more sensitive and self-aware in their dealings with the public.

A problem with male workers is they can come at their job too outcomes-focused, Honeybone confides. "When dealing with customers, blokes can jump to solutions quite quickly."

Kyne's role was to tell them to slow down, see things from the other side.

"He went into detail. He said you've got to walk up to the house, you need to introduce yourself, you need to then sit down and listen – and demonstrate you're listening."

So SR employed Kyne with the best of intentions, not as a way to screw a cheaper settlement out of claimants.

And the fact this is now another mark against SR shows how black its name has become

HEADING FOR THE DOOR

There is always another side to every story. And Honeybone seems pleased someone from the media might finally be prepared to sit down – demonstrate they are listening – to hear of SR's own view from inside.

For those who might have forgotten, SR was formed in April 2012 after it became clear that Christchurch's home-grown insurer, AMI, was never going to trade out of its difficulties.

AMI had a concentrated risk in Greater Christchurch, covering one in three of the houses in any street. After February 2011, it no longer had the reinsurance to meet its liabilities.

The government was forced to step in, effectively buying AMI with an initial $500 million cash injection.

Another $380m was raised by selling the "good" part of AMI – its customer base and other insurance lines – to Australian rival, IAG.

Then 160 AMI staff were brought across to process the legacy earthquake claims as a new Crown-owned company.

And it has been a generous bail-out, says Honeybone. SR has now paid over a cool $3 billion – $515m from AMI's original capital, $1.28b from reinsurers, and $1.28b out of the national purse.

With SR having dealt with 99 per cent of its claims, Honeybone says there are only some 300 cases left on its books.

JOSEPH JOHNSON/STUFF All change: The new GM, Casey Hurren (l), alongside departing CEO, Anthony Honeybone (r).

About 230 of those have come in belatedly as Earthquake Commission (EQC) re-repairs – under-cap foundation fixes which failed and so have been passed on up the chain.

The last day for Honeybone and most of SR's remaining 62 staff is December 20. Time for one last Christmas party. After that, EQC will handle any outstanding claims as SR's agent.

However even that won't be a final exit. Honeybone says SR will have to exist a few years more as a legal entity.

There will be corporate functions, like Treasury reporting and Official Information Act (OIA) requests, still to deal with. Also, SR is entangled in the unfinished business of a couple of major court actions that will run on through 2020.

So Hurren – an ex-Wynn Williams lawyer recruited to be SR's legal and strategy manager – is taking over as company general manager with a skeleton staff. Hurren's background makes him the obvious person for that task.

Yet SR's time is largely done and so it does feel an appropriate moment to look back and consider all the pointed criticism it has had to face, Honeybone agrees.

NO BRAND TO PROTECT

The common perception is that – as with EQC – SR became a government agency with an agenda to save the taxpayer money.

Claimants complained its policy interpretations were often unreasonable. And when challenged, it wasn't shy of wielding its corporate might – as evidenced by the spying, the confidentiality clauses enforced on settlements, the willingness to pursue legal battles all the way to the Supreme Court.

Dean Lester, an independent insurance advocate who still has cases sitting with SR, says the big problem is that it lacked proper constraints on its behaviour.

The Government's supervision of SR was light-handed – just a board to keep an eye on how it handled its responsibilities.

And the fact it was a Crown company with a limited life – no ongoing commercial reputation to worry about – meant it could be as aggressive with customers as it liked, Lester says.

While other insurers in Christchurch had to have half a mind on what the rest of New Zealand was hearing about their treatment of people, SR certainly didn't need to be concerned with protecting a market brand.

Lester says it showed in that SR was difficult to deal with from the beginning. Home-owners felt bullied because SR wouldn't even listen to the reports they had commissioned from outside experts. "SR acted like it was always right."

So circumstances explain how SR could go rogue, he says – take it into its own mind to play hardball in liquidating AMI's earthquake responsibilities.

Lester says in every meeting, SR representatives would stress the cost of the bail-out to the country and the need to avoid anything that smacked of "betterment". From early on, its mentality seemed set.

Honeybone listens to this summary of the case against SR and then rejects it outright. Or most of it, anyway.

Again Honeybone reminds us of the nearly $1.3b of public money that has gone to home-owners.

"The Crown took over and gave us the support to pay customers out their entitlement. That's been the driver from the outset."

JOHN KIRK-ANDERSON/STUFF Angry scenes: Rev Mike Coleman (l) challenging SR managers in 2013.

Hurren chips in, saying the spending has been open-handed. There was never an instruction to do anything less.

"Every letter of expectation we've had from any shareholding minister has been pay people out in accordance with their policy."

And the comment about SR being lightly supervised almost brings a laugh from the two.

As a Crown company, SR was subject to the full rigmarole of public accountability, says Honeybone.

"You have restrictions like the OIA. That's significant transparency for an organisation – to the point we hand over information all the time that is detrimental to us."

Not something any of the commercial insurers had to contend with.

Then there was the oversight of both a board and shareholding ministers. Yet also all the extra apparatus of Treasury monitoring, select committee hearings, Auditor-Generals, State Services Commission investigations.

Honeybone says claimants could even exert direct political pressure. "There are certainly other avenues available to customers. We deal with MPs all the time."

What Honeybone is happy to admit is SR did make its mistakes. And also the complexities of the situation made life generally very difficult.

A major bugbear for customers was the double assessment process where EQC had to first determine whether a property was under-cap – the damage less than $100,000 – before a claim was handed on to the insurer. For some, this added to years of delay.

And also, what seemed a good thing at the time – the decision that insurers should align with a project manager to actually fix people's homes – became a source of frustration for many claimants.

The idea was to ensure there was the construction capacity to do so much work all at once.

"Our philosophy was our job was to repair and rebuild Canterbury, not pay out cash settlements," says Hurren.

Yet it meant that SR had to create a partnership with Arrow International. And inexperience with such a relationship made for more difficulties, Honeybone confesses.

He says the reason for SR getting the reputation of not being willing to listen – refusing even to consider a claimant's own professional reports – was that it felt it needed to show faith in the engineering opinions it was getting from its project manager.

"It had to believe Arrow's assessments were complete, covered everything, and were right."

Hurren says 2013, with its angry demos, was undoubtedly SR's low point. Following those, there was an official review by the Insurance Ombudsman and a QC. This asked SR to reconsider its organisational culture.

"They made some recommendations as to how we should be approaching certain claims and disputes," Hurren says.

To signal a change in attitude, SR switched its corporate motto from being "firm but fair" to being "fair and reasonable".

More practically, says Honeybone, it began to offer flexible cash options alongside its managed rebuilds, and also accepting it would not be correct on every assessment.

Where there was disagreement, both sides would have to get the experts around a table for a sensible commercial discussion.

DANIEL TOBIN/STUFF Out of patience: "Honour our policy" rally in 2014 hears accusation SR is stalling settlements deliberately.

But Honeybone says even after SR tried to mend its ways, its reputation was stuck. Trust was gone and people came into negotiations believing they were going to be short-changed.

POLICY WORD GAMES

Much can be made of SR being simply large, clumsy and insular. However those close to the tale, such as Dean Lester, say SR had also inherited a misleadingly worded Premier House policy from AMI.

This was another huge source of customer friction.

Lester says the Premier tag suggested a superior level of coverage. Yet a check of the fine print said otherwise.

Genuine top of the market policies included cover for extras, like $10,000 for garden landscaping, or $2000 for stress. "AMI had none of those," Lester says.

Other parts of the policy were undercooked, like the insurance for retaining walls – something that became an expensive problem for those with hillside sections.

"The AMI cover was worse than any other on the market. Which was the reason it was also 20 per cent cheaper than anyone else's."

However Lester says where the Premier policy really came unstuck was that – incomprehensibly – it came with the headline promise of offering "as new" insurance coverage, not the more common "as when new".

It may sound a small difference, he says. But it has vast implications.

As new means any insurance response has to bring a home to the same level as if it were being constructed today.

And given the way building codes have been tightened since the earthquakes, this could trigger the need for brand new foundations for just about every house with even a small crack.

By contrast, as when new would be understood as being about returning a house to its state as originally built. If it had rubbish foundations that no longer meet code, that is still good enough.

So judged on its pricing and fine print, AMI looked to have been selling a fairly basic policy, says Lester. Yet over the top of it, it had slapped this Rolls Royce full replacement clause.

And the gap between the two was a reason SR came to have special difficulties settling easily with claimants.

DEFENDING THE LINE

Honeybone and Hurren nod agreement. "Two words have caused a lot of argument," Hurren says.

He says the story he heard was that the "as new" got slipped in when AMI's marketing department decided to write a plain English introduction to the Premier policy. It seems a simple mistake.

"But 'as new' itself is not actually defined in our policy. And that is the difficulty in all this," says Hurren.

JOHN KIRK-ANDERSON/STUFF Peter and Anne Glasson have been battling Southern Response over earthquake damage. Now they have started a hunger strike.

Honeybone says the turn of phrase of course raises customer expectations through the roof. However what it means when read in the context of the policy as a whole is what counts.

Faced with thousands of homes to either patch up or write off, Honeybone says SR had to arrive at a systematic interpretation it could defend.

Taken to an extreme, "as new" might well be understood as ruling out any option of repair at all, he says. "You'd end up with: 'I've got an insurance policy where if I get any damage, I get it fully replaced as a new item.' "

But plainly, any insurance policy does envisage the possibility of a repair, Honeybone says.

If a car runs off the road into the corner of your house, you only expect the insurer to return that damaged corner to its pre-accident level of structural integrity and cosmetic look.

And so this is the interpretation SR has stood by, says Honeybone – how it has fought off the demands to turn every foundation crack into a new-built new home.

As SR has put on its website, where the purpose of an item is purely functional – as with a foundation – "as new" means restoring it to "the same level of functionality as that item held originally."

Or as when new, if using a more accurate plain English translation.

Hurren is keen to end this uncomfortable discussion. "The debates around 'as new', 'when new', 'as if it were new' – the practical outcome is they're all synonyms of each other, if you ask me," he concludes a little glibly.

Plenty of claimants and their advocates still say SR stretched its understanding of "as new" too much in its own favour.

But Hurren's reply is that if that were so, someone would have surely tested SR on the matter.

"We've had people say to us, shouldn't you clear up this 'as new' issue? And we've said, yeah, we're happy for a case to go to court. But one hasn't gone," he says.

THE COURT BATTLES

While SR has avoided a direct challenge on its policy understanding, it has been kept busy enough in the courts in other ways.

A big set piece battle looked to be a class action that would directly accuse SR of following a conscious "delay, deny, defend" strategy to minimise its customer payouts. But that largely fizzled away after the initial courtroom theatrics.

In 2014, there was an "Honour Our Policy" public meeting where it was said SR was deliberately making its insurance negotiations difficult in a bid to exhaust policyholders and make them grateful for any deal at all.

Grant Cameron of GCA Lawyers found 47 property owners willing to move ahead with the backing of a litigation funder who would take a percentage of any win. But first the group had to win the right even to launch a joint case by showing there was sufficient common cause.

STACY SQUIRES/STUFF Class actions: Grant Cameron of GCA Lawyers has led several cases against Southern Response.

In 2016, Francis Cooke QC foreshadowed the claims the group would be making – speaking of the "elements of blackmail" in using delays to "induce settlements with increasingly desperate customers".

However the class action itself was dragged out until eventually in 2018 it faded away without the supporting evidence being heard.

Greater Christchurch Regeneration Minister Megan Woods stepped in to suggest both sides might be better served by dealing with their grievances individually through a series of private mediations.

"By the time we entered this alternative dispute resolution process, we had already settled with 22 of the 47 people anyway. And as of today, we have just three left," says Hurren.

All around, a good outcome from SR's point of view.

But ironically, SR has found itself on the losing side of a second court battle where some might feel natural justice was largely in its own favour.

This is the issue of the concealed DRAs – the two versions of the Detailed Repair/Rebuild Analysis that SR used to settle its claims.

WHEN COSTS ARE HYPOTHETICAL

Hurren says the story is that in the early days, Arrow produced comprehensive builders' estimates for scopes of work.

These DRAs included all probable costs, including project management and other professional fees, demolition expenses, and even an allowance for contingencies or cost over-runs.

But then customers started wanting cash settlements so they could buy a new home elsewhere, rather than have Arrow manage a rebuild.

In these cases, SR took the DRA and deleted the costs that didn't appear to apply, like the project management fees or the contingency.

However – helped by the OIA transparency – claimants discovered there was this original internal document and then the trimmed version they saw in negotiations. This resulted in a number of court actions where people went after the full named amounts.

SR's defence was these costs were hypothetical unless they were actually incurred. Yet eventually, it lost a case – Avonside Holdings vs SR – even after fighting it all the way to the Supreme Court.

The judge's reasoning was the practice was ultimately deceptive – a breach of the Fair Trading Act – and so awarded damages to the full amount of the difference.

Showing it plays by the rules and is not a corporate bully, Honeybone says SR swallowed the decision and has since paid out the full DRA going forward as well as backdating every other settlement from when the first ruling went against it on Avonside Holdings in 2014.

That has resulted in bonus payments of $100,000 or $200,000 for many policyholders already into their new homes.

Yet then people who had been cash settled before 2014 – and there were a lot who had been red-zoned – came forward asking for their extra chunk of change too.

Hurren says this seems even more unfair. SR had to be acting in good faith – hypothetical costs were hypothetical – until the surprise court ruling went against it.

But it has again lost the first round of that argument – the Dodds case. SR is taking this individual claim to appeal next year.

It also faces another class action attempt by GCA that could unite a further 3000 identical claims under an "opt out" litigation funded case.

That too will be fought all the way, Honeybone says. But it could end up costing SR another $300m on top of its $3b.

So justice? Being paid out architect fees and demolition costs when you might have gone off and bought a new house, sold off your earthquake-damaged one for a tidy sum in a quick "as is/where is" deal, seems an odd way of looking at it, maybe.

Thus when it comes to how local history remembers SR, AMI policyholders will certainly be grateful it was created.

It did become a bit of a machine in having to deal with so many claims and defend a line on its policy interpretations.

And it survived a frontal legal attack on its integrity only to be tripped up by what it considers a rather bizarre technical ruling.

But that fuss about a hostage negotiator? The still fresh memories of the 2013 protests?

It doesn't look like SR will ever shake the negative impressions that surround its eight-year presence in Canterbury, Honeybone has to concede.