‘A gross failure in risk assessment’

A judge made full use of defendants’ insurance when awarding reparations for the White Island volcano disaster

By Andy Swales

In December 2019, the world watched in horror as news broke of an eruption that had engulfed 47 tourists and tour guides on the volcanic island of Whakaari in New Zealand.

Reports of what happened to those caught in the blast of ash, rock, steam and volcanic gas almost defied comprehension. Twenty-two people were killed, and many others suffered terrible injuries.

More than four years later, after a long-running trial, the organisations in charge of tourism operations on Whakaari, also known as White Island, have been hit with huge fines and ordered to make reparations to the survivors and families of the dead.

A group of tourists off Whakaari witness the volcano’s deadly eruption. Credit: Michael Schade/X

“Those who survived suffered excruciating and traumatic injuries, usually burns,” Judge Evangelos Thomas said in his Auckland District Court ruling.

“It is not simply the physical injury that has caused so much harm. It is the terrible nature of those injuries and their significant emotional consequences that deepens the suffering. That deepens the grief felt by those who lost loved ones.”

Whakaari Management, which leased the Bay of Plenty island from owners the Buttle family and sold licences to helicopter and boat tour operators, was fined more than $NZ1 million and ordered to pay reparation of $NZ4.88 million; White Island Tours was fined $NZ517,000 and ordered to pay reparation of $NZ5 million; and Volcanic Air Safaris was fined $NZ468,750 and ordered to pay reparation of $NZ330,000.

Other tour operators Aerius and Kahu were fined $NZ290,000 and $NZ196,000 respectively, but had no staff or tourists on the volcano when it erupted.

The judge outlined a series of risk management failings by the defendants, including threat assessments that were “fundamentally inadequate”, given they were conducted without formal input from volcano experts and did not consider how well an eruption could be predicted or the type of eruption that could happen at Whakaari.

He also said it was “astonishing” that WorkSafe-contracted audits of White Island Tours did not cover assessment of volcanic risk.

Judge Thomas noted that Whakaari had previously erupted – producing a similar-sized blast – in April 2016.

“Thankfully, it happened at night when there were no tourists on the island. Had there been, tragic consequences would have been likely,” he said.

The fact there were no casualties was “luck of timing and nothing more”, and the incident should have been a “valuable warning”.

“Instead, tours simply continued as scheduled. If a defendant did not fully appreciate – or take steps to fully appreciate – the significance of that eruption, that represents a gross failure in risk assessment.”

The defendants’ failure to properly heed the warning “directly and significantly contributed to the tragedy that occurred on December 9 2019”.

Dr Simon Connell, a contract, accident and insurance law expert from the University of Otago, says the judge’s March ruling on reparations “stands out in terms of the awards for emotional harm”.

“It is not simply the physical injury that has caused so much harm. It is the terrible nature of those injuries and their significant emotional consequences that deepens the suffering.”
Judge Evangelos Thomas

While New Zealand’s no-fault Accident Compensation Corporation covers requirements such as medical treatment and impacts such as loss of earnings, it cannot respond on matters such as emotional harm. That is where the courts, and in this case the prosecutions brought by WorkSafe, have a role.

The judge noted there was “no way to measure the emotional harm survivors and affected families have endured and will continue to endure”, meaning reparations could “be no more than token recognition”.

“No review of prevailing reparation levels conducted by any other court contemplates emotional harm of the scale and nature that is present in this case,” he said. “Greater awards are appropriate.”

In reaching his reparation figures, the judge looked to “maximise” the defendants’ liability insurance limits, saying these were “the most reliable source of funds” for compensation.

Noting that White Island Tours had $NZ5 million of cover, and that its share of total reparations initially sat $NZ225,000 below that figure, the judge decided to lift its share to the full $NZ5 million and make a corresponding reduction to its fine and to the reparations owed by Whakaari Management, which told the court it has no assets and no bank account – meaning it is questionable whether it will pay anything. Volcanic Air Safaris’ share of reparations, too, is in line with its total insurance coverage.

“I imagine insurers will be paying close attention to that,” Dr Connell says.

Paul Munton, executive general manager at Rothbury Insurance Brokers in New Zealand, tells Insurance News there has been a growing trend for
New Zealand courts awarding greater reparations for health and safety breaches, so “the reparations awarded in this case, while large, aren’t particularly noteworthy”.

However, he says the court’s decision to raise White Island Tours’ reparation sum and make a corresponding decrease in Whakaari Management’s reparations is interesting.

“No review of prevailing reparation levels conducted by any other court contemplates emotional harm of the scale and nature that is present in this case. Greater awards are appropriate.”
Judge Evangelos Thomas

“While this is something we haven’t seen before, in my view, the $NZ225,000 quantum at issue here isn’t material enough to trigger immediate changes in the industry or to open the floodgates to a wave of claims akin to this one. That said, if a judicial pattern emerges, with insurers facing increased reparations due to co-defendants’ inabilities to pay fines or reparations themselves, insurers may then look to reset the terms for statutory liability policies, with a specific review of pricing, indemnity limits and deductibles.”

Mr Munton says another point of interest in the judgment is the “emphasis on the fact that adequate risk assessments by the defendants would have likely constituted reasonable steps to reduce liability. It follows that adventure tour operators may now face closer scrutiny around their risk assessment practices, but I doubt the insurance coverage available to these operators will change.

“At the end of the day, the risk remains the same, regardless of a risk assessment, and unfortunately accidents do happen. This is the very purpose of why we have statutory liability insurance available for breaches of the Health and Safety at Work Act 2015.”

Accidents do indeed happen, but the good news is disasters of this scale are blessedly rare.

Dr Connell says: “The approach the courts have taken to emotional harm is to say, due to various factors, the level of emotional harm here is significantly more than any kind of comparable cases … and that leads to these really significant emotional harm awards.

“On the one hand, you could look at it and say it is really a unique situation and we wouldn’t necessarily expect the level of reparations for emotional harm [would] come up other than in another unique and extremely distressing disaster.

“On the other hand, it really does highlight how courts do use the level of insurance for reparation as an important reference point when deciding on the award.

“Insurers can expect that there are circumstances where the entirety of the insurance will be paid out in relation to one incident.”

A tour operator’s helicopter lies wrecked in the blast zone. Credit: Michael Schade/X

Neither White Island Tours nor Volcanic Air Safaris is in a financial position to pay reparations, highlighting the importance of insurance such as statutory liability cover – and not just for the insureds.

“As well as insuring the policyholder against liability, [the covers] provide a social utility that means some of these victims are able to receive more than they otherwise would have,” Dr Connell says.

On April 1, following a review prompted by the Whakaari disaster, the New Zealand government introduced reforms to its health and safety regulatory regime for adventure activities. Changes were made across four key areas, including new requirements for how activity operators must assess and manage natural hazard risks. There are also stronger requirements for operators to communicate risks to activity participants; stronger operator registration and notification requirements; and updated adventure activity safety guidance.

The Insurance Council of New Zealand says tourism operators, and particularly adventure tour operators, have “a lot more to do” to ensure statutory liability and directors’ and officers’ coverage following introduction of the Health and Safety at Work Act 2015, under which the Whakaari defendants were prosecuted.

“Each insurance company will look at cover on a case-by-case basis and their own appetite for risk,” a spokesperson tells Insurance News.

“Decisions on premiums are also continuously reviewed as new information comes to hand. For example, with the new regulations for adventure activities coming into effect on April 1, an insurer will want to know from the operator whether they are in compliance with the new requirements.

“Depending on the activities being undertaken by the customer, the compliance costs may rise, which in turn may have an impact on the cost and/or availability of cover.”