AIG
Insurance argued policy exclusions meant it had no liability for allegedly
negligent management reports regarding investments by failed Canterbury
Mortgage Trust. At best, investors are
left with a potential one million dollars payout from AIG.
Canterbury Mortgage Trust suspended
trading in June 2008, hobbled by bad debts and crippled following a run by
unitholders trying to extract their money.
Remaining unitholders have received to date 83 cents in the dollar as
the Trust is wound down. Manager of the
Trust’s mortgage portfolio, Fund Managers Canterbury Ltd, is in the gun with
allegations it did not comply with lending guidelines. Nearly forty different loans were found to be
in breach of Trust guidelines. The
Trust’s most recent annual report states $21.7 million was written off as
uncollectable.
Fund Managers’ directors Alexander Donald
McBeath, Paul Ernest McEwan, Alan William Prescott, Geoffrey Read Thomas, Andrew
Hendra Young and Oliver Roderick Matson together with senior manager Graeme
Main are being sued for alleged negligence.
In a preliminary hearing, The High Court was asked to rule on the status
of AIG insurance policies covering Fund Managers and its management.
AIG underwrote two policies: a professional
indemnity policy and separate directors’ and officers’ cover. AIG denies liability. It says an exclusion in the directors’ and
officers’ insurance excluded cover for negligence when providing “professional
services for others for a fee”. Fund
Managers received an annual fee of 1.5 per cent of the Trust assets. Management’s provision of quarterly
certificates and confirmations amounted to performance of professional services
to a third party [the trustee of Canterbury Mortgage Trust] for a fee, Justice Ellis
said. AIG is not liable to indemnify
Fund Managers or its management for any proved negligence under the directors’
and officers’ policy in respect of Fund Managers’ quarterly reports.
This ruling left open the possibility
there would be no cover for directors under the AIG professional indemnity
policy as well. Justice Ellis said this
outcome could not be countenanced. The
parties must have intended directors would have effective insurance cover
through a combination of the two policies.
AIG’s liability under the professional indemnity policy is limited to
one million dollars in respect of loans made after quarter ending December
2006.
Trustees
Executors v. Fund Managers Canterbury – High Court (16.09.16)
16.139