The Child, Youth and Family payment to a Porirua woman harshly treated while a state ward decades ago was prompted by "moral responsibility," chief social worker Mike Doolan said yesterday.
Frances Ruwhiu, aged 47, was reportedly placed in foster care in 1953, but removed five years later amid concerns of abuse.
She was placed in a series of foster homes before being sent to a Nelson psychiatric hospital as a 10-year-old.
She remained in various hospitals until she was 28.
The Sunday Star-Times has reported that Ms Ruwhiu was offered $10,000 compensation by the department.
Mr Doolan said the department generally made payments only to people who could show that they were harmed because the state breached its legal responsibilities to them while they were children in social welfare care.
"In our opinion, Frances would have difficulty in establishing that such a breach of legal duty has occurred in her case, which obviously happened well before the department or its more immediate predecessors came into existence," he said.
"However, this woman went through such a terrible time while in foster care that we felt we had a moral responsibility to offer her at least some financial compensation from the state."
The department had asked Ms Ruwhiu to keep the compensation amount confidential, and yesterday refused to confirm she had been offered $10,000.
Mr Doolan said that in the seven years he had been involved in such issues, he had not approved any other compensation payment for moral reasons.
"This gives some indication as to the extraordinary circumstances Frances faced," he said.
"I have also extended an apology on behalf of the state for the treatment she received while in care."
Ms Ruwhiu, the daughter of two escaped psychiatric hospital patients, was made a ward of the state at the age of one month.
She did not meet her mother again until she was aged 18.
She was then released from Ngawhatu Hospital in Nelson into her mother's care.
But she lived with her mother for only two months before being admitted to Porirua Hospital, where she lived until she was 28.
Shortly after Ms Ruwhiu was admitted to hospital her mother was struck by a car on a pedestrian crossing and died.
Mr Doolan said yesterday that Child, Youth and Family made about five secret settlements last year with people claiming to have been hurt in social welfare care.
Last year, the crown's social welfare agency confirmed that just under $5 million in claims from 36 cases had been lodged in the previous three years.
- NZPA
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