Investors
out of pocket following the collapse of Canterbury Mortgage Trust can potentially
benefit from two million dollars insurance cover underwritten by AIG Insurance
following a Court of Appeal ruling.
AIG provided directors’
and officers’ insurance together with professional indemnity insurance for
senior management of Fund Managers Canterbury Ltd, manager of Canterbury
Mortgage Trust’s mortgage portfolio.
Canterbury Mortgage shut up shop in June 2008 after a run on funds. Subsequent investigations found multiple
loans in breach of lending guidelines.
Legal action is underway. It is
alleged Fund Management directors were negligent in signing quarterly compliance
certificates stating all loans fell within required lending criteria. Fund Managers’ directors have been in court
arguing the extent of their insurance cover.
The Court of Appeal
ruled directors could claim the benefit of AIG’s directors’ and officers’
insurance. AIG’s liability is limited to
a maximum of two million dollars. AIG
argued unsuccessfully it was not liable at all because of an exclusion clause
excluding liability for “professional services [provided] for others for a
fee.” Fund Managers received an annual
management fee from Canterbury Mortgage of 1.5 per cent of Mortgage assets. The Court said the fee paid was independent
of Fund Managers’ directors’ obligations to provide certificates. The obligation to provide certificates fell
on directors personally. They were not
signing on behalf of their company.
The directors’ alleged
negligence is not covered by the separate AIG professional indemnity insurance,
the Court ruled. This insurance cover is
limited to one million dollars. The policy
covers circumstances where directors in a private professional capacity (such
as lawyer, accountant, valuer or engineer) provide separate personal services to
a company for a fee.
Fund
Managers Canterbury Ltd v. AIG Insurance – Court of Appeal (28.07.17)
17.089