Masterton District Council's confidential settlement over defects at Wairarapa Hospital is one reason for its higher liability insurance premiums. Photo: Emily Ireland / LDR
Masterton ratepayers will be paying half a million dollars this year to protect the council against being sued.
Last year's confidential settlement with Health New Zealand over defects at Wairarapa Hospital was "one of the factors" the insurance market was responding to, a council spokesperson said.
But the issue was wider than this, with all of local government impacted by rising premiums.
For Masterton District Council, the cost of professional indemnity and public liability insurance has risen to $516,731, a jump from $179,250 last year.
It is $205,000 more than the council budgeted for.
Despite the rise, the council will only be covered for up to $15 million; last year, it was covered for up to $300m.
A report to the council's Audit and Risk Committee, which meets Wednesday, said all local government clients were facing the same challenges.
In May, the London-based re-insurance market withdrew their support for offering this insurance cover to the New Zealand local government market.
This was a result of a nervousness about the exposure to liability claims in an environment where insurers have lost court cases, incurred increasing legal fees, and paid out on claim settlements.
The report, written by the council's finance manager David Paris, said councils had a large risk exposure in an increasingly litigious environment where they were being challenged and are "expected to have the deepest pockets".
"The reduction in cover from $300m to $15m significantly increases the council's financial exposure - potentially having to meet costs of claims where those costs exceed $15m in any one year.
"The council has little choice but to accept the terms that have been secured, as the alternative of full self-insurance is high risk and not recommended."
He said the council was offered an opportunity to extend the professional indemnity limit by another $5m but this would have cost between $150,000-$170,000, which was "too high to justify".
"The view of staff is that council are better to focus efforts on reducing litigation risk by striving for exemplary standards in functional areas that are more exposed to risk, such as engineering and regulatory services.
"The council will never be free from challenge.
"There will always be people who believe a loss they have suffered can be blamed on the council."
Last year, Health New Zealand claimed damages against Masterton District Council for negligence of just under $90 million, with GST, interest and costs on top.
This amount would have covered the cost of a new stand-alone hospital building adjacent to the current hospital structure and this was the solution proposed by Health NZ.
In contrast, MDC's remediation proposal involved fixing the defective parts of the current hospital building at an estimated cost of $4m.
The council denied liability and defended the claims.
The settlement amount and terms were kept secret by both the council and Te Whatu Ora.
"In this case, if the information is released it is likely to prejudice our ability to negotiate future insurance arrangements which would not be in the public interest," the council said at the time.
Masterton District Council's material damage insurance premiums are $1,099,000 for 2024/25.
Local Government New Zealand vice-president Campbell Barry said just like households, councils were experiencing huge increases in insurance premiums.
"In fact, rising insurance costs are one of key drivers of the record rate rises across the country. Some councils are facing over 70 percent increases in their premiums compared to three years ago," he said.
By the numbers
This year's rise in indemnity premiums for professional indemnity and public liability insurance for Masterton District Council was $337,481. For context, here are some council projects with a similar price tag:
- Youth Hub and Skatepark Toilets: $200,000
- Solid Waste Transfer Station concrete pad renewal: $250,000
- Henley Lake Playground: $250,000
- Queen Elizabeth Park swing bridge upgrade: $299,750
- Recreation trails network expansion: $389,536
- LDR is local body journalism co-funded by RNZ and NZ On Air.