Insurance: Fund Managers Canterbury v. AIG Insurance

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)

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Yarrow: Yarrow v. Finnigan

The courts are becoming impatient with delays by Paul Yarrow in his attempts to lay the ghosts of Yarrow group’s 2011 receivership.  His $90 million claim against business adviser Michael Finnigan was struck out because of inexcusable delays.  A related claim against his parents’ estates and their charitable trust was put on hold, likely to be struck out if court papers are not filed promptly.

Yarrow Bakeries had been an iconic Taranaki business for several generations until dismembered after receivership in May 2011.  Receivership followed an acrimonious split between director Paul Yarrow and his fellow board members and the subsequent collapse of a partial sale to Japanese company Sumitomo.

There has been a history of family infighting following a 2003 deed of family arrangement.  Father Noel decided to cede control of the Yarrow group to one son, John, subject to his other son Paul receiving an equalising payment.  The two brothers then fell out.  They patched up their differences with a 2005 agreement; Paul bought out John for $45 million.  Three years later, Paul was in court suing John for $10 million alleging his brother had misrepresented the value of the business sold.  This claim was settled out of court in 2009; all parties agreeing to enter into good faith negotiations to restructure Yarrow’s finances.

Subsequent to the Yarrow receivership, Paul sued business adviser Mr Finnigan for $90 million alleging Mr Finnigan was to blame for the failure of the Yarrow group.  Paul also alleged Mr Finnigan was party to misrepresentations about Yarrow’s value at the time of his 2005 purchase.  This claim was struck out by Justice Williams as being an abuse of the court process.  Over a period of six years there had been continual and persistent delays in both filing court papers and complying with procedural court orders.   

The court was told Paul Yarrow currently also has underway testamentary promises and family protection claims against both estates of his parents and a claim against their Queensland-based charitable trust.  These are actions against Mr Finnigan in his roles as either executor or trustee.  Paul claims $A22 million together with $NZ20 million.  In part, this mirrors the related claim struck out against Mr Finnigan, said Justice Williams.  Paul Yarrow alleges Mr Finnigan as trustee of the Yarrow charitable trust wrested control of the Yarrow group from him by not approving the Sumitomo deal.  Paul says the deal would have retired group debt and kept Yarrow alive as a business.

Justice Williams gave Paul Yarrow one last chance to sort out his claim against his parent’s estates and their charitable trust.  Specific details of his claim must be filed by early September.  Paul Yarrow does not have a lawyer acting on his behalf.  He told the court he is penniless.

Yarrow v. Finnigan – High Court (27.07.17) and Yarrow v. Yarrow Charitable Trust - High Court (28.07.17)

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Insurance: AMI Insurance v. Legg

AMI Insurance does not have to contribute to the $217,000 cost of fighting a January 2013 rural fire in Canterbury because the seat of the fire was a controlled burn-off including waste from a landscaping business.  Liability for fire losses arising from this business activity was excluded.

The Fire Service is suing to recover firefighting costs following rural fires.  Both AMI Insurance and Lumley Insurance were ordered by the High Court to cover the cost of a January 2013 fire in Selwyn County which started on a lifestyle block owned by the Legg family.  The Leggs held two insurance policies: AMI in respect of their lifestyle block; Lumley for their separate landscaping business.  The fire spread when strong winds ignited embers from a heap of ash, the remains of a burn-off several weeks previously.  This burn-off was predominately plant waste from the Legg’s landscaping business, but included waste from their lifestyle block.

The spread of fire arose from two interdependent causes: burning lifestyle waste (which was covered by the AMI policy) and landscaping waste (which was covered by the Lumley policy but excluded in the AMI policy).  AMI said it did not have to pay.  The exclusion applied.    

The Court of Appeal said where there are two effective and interdependent causes, one within the policy and one excluded, the exclusion prevails.  AMI did not have to pay.

AMI Insurance Ltd v. Legg – Court of Appeal (26.07.17)

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