‘Black Saturday bushfire survivors secure $500 million in Australia’s largest class action payout’

These comments were posted via facebook so I’ve copied them here as part of the general discussion:

“Hi Michael, I have never understood why the responders have to pay out. Their actions didn’t start the fire or any emergency? They are responding to make safe something that has gone wrong? Doesn’t paying out all the time create precedence to which could be used against you in the longer run? This process goes against building strong resilient communities and creates a resilient and blameful society that is always looking to blame and sue someone. This to me flies in the face of good practice, or is this the only way to get the decision makers to listen?”

There are several issue to mention here. First in this case the State of Victoria was representing the police, CFA, DSE, perhaps others involved supervising the electricity authorities. We don’t know exactly what the allegations were (though some can be inferred and are discussed in earlier posts) but it’s not just ‘the responders’. Second if a case settles the defendants aren’t paying because they have to but because they chose to (albeit perhaps not a fully free choice). I think ‘paying out’ all the time suggests a precedent, and what we can observe is that where fires have started by natural causes (Sydney 2001, Canberra 2003) the states (or at least NSW) have fought the cases to the end. Where fires have started by electrical fault they generally settle (the action against the ACT arising out of the Canberra fires being a notable exception as that case settled, but with a verdict in favour of the ACT).

So why do the defendants’ pay? First it’s not the defendants, its their insurers. A private insurance company is a profit making enterprise and it is the manager’s obligations to maximise return to the shareholders. They are not concerned with issues of building resilient communities, or even fine legal principle, their concern is with getting out of the case on the best possible terms. States self-insure but they do that by maintained managed funds to meet government liability. The managers of the states’ funds behave generally like private insurers, that is the issue is still how to get out of the case on the best terms. Courts, in particular trial courts, are also not concerned with overriding issues of government policy or even the law, but the facts. One side may take the view that they ‘didn’t start the fire or any emergency… They are responding to make safe something that has gone wrong…’ but the other sides clearly have a different view and its an arguable view or it wouldn’t have got as far as it did. A defendant may feel very confident (as SP AusNet say they are) that the facts and law are on their side, but it’s a gamble. Both sides can’t be right and usually both sides are wrong, the ultimate verdict is usually a compromise between claims (but not always, ultimately litigation is ‘win/lose’ not ‘win/win’).
So if I’m managing the funds (either as a private insurer or the treasury managed fund) that will be used to pay out any claim I have to consider my options. I can fight but if we lose we’ll have to pay out a lot of money as assessed by the judge, I’ll have to pay my own costs and the costs of the winning party. If I win I still have to pay my own costs and although the losing party will be ordered to pay my costs it never covers 100% and the probably can’t pay anyway. So win, lose or draw this is going to cost.

If I settle I know how much the settlement will be (I’m not leaving it to a judge) and it’s over sooner so all the costs that would be incurred from that point on are saved. As a litigant I realise I might not win and the court may not see it all my own way so I have to give some credit to the merits of the other side’s case. This is particularly true when I’m the government and behaving like a model litigant so I can’t just use my superior economic power to outlast the private litigants. The government may see that there is actually a public interest in bringing the case and so agree to meet some of the plaintiff’s costs even if the government thinks it should win (and that was how the judge saw when awarding costs in the 2003 litigation, see ‘Final chapter of the Supreme Court proceedings from the 2003 fires’ (https://emergencylaw.wordpress.com/2013/08/08/final-chapter-of-the-supreme-court-proceedings-from-the-2003-fires/), 8 August 2013, and presumably how the ACT saw it when they paid some money to the plaintiff’s when they settled their case even though it was settled in favour of the ACT).

Does this create a precedent? The answer, legally speaking, is no. A precedent is set when a higher court (Court of Appeal or High Court) makes a binding ruling on what the law is. A decision at trial is not a precedent and a settlement is even less of a precedent. That may be another reason to settle; the parties don’t want a legal precedent that confirms they are liable as that leaves them open to negotiate that issue in the next case; the next plaintiff can’t point to a binding ruling so the next defendant can still argue that the next plaintiff’s case is weaker than it might otherwise appear.

As for building resilient communities you could argue that this is contrary to that ideal, or that it supports it. A community is more resilient if someone that caused their losses helps makes them good. We could describe someone as resilient if, in the face of tragedy, they don’t just ‘take it’ but stand up and demand that the wrongs are righted (and you may think there is no ‘wrong’ here but that just takes us back to the point that different people have different view of the facts and of right and wrong, which is why we have courts, to determine those issues). And it may increase resilience if the costs are sheeted home to tortfeasors to stop them doing it again but as I’ve noted, neither the electricity companies, nor their insurers are losing money out of this litigation.

That brings me to my final point. The insurers (private and the managed fund) have money set aside to meet these liabilities. Not only do they manage the income they receive as premiums and invest that for suitable returns, they have reinsurance on the global market. They know they have to meet large claims because that’s the business they are in. For the state defendants these payments do not come out of consolidated revenue or their operating budget they come out of money that has been set aside and invested for this very purpose. No-one is making a loss here; it’s just business.

The story as reported in The Age -see http://www.theage.com.au/victoria/black-saturday-victims-win-500m-settlement-20140715-zt7jh.html