Fiery insurance issues - split tier and composite policies levy calculations

Transcription

1 Fiery insurance issues - split tier and composite policies levy calculations New Zealand Fire Service Commission v Insurance Brokers Association of New Zealand [2014] NZCA 179 NZILA Conference Wellington 2014 Mark Anderson DAC Beachcroft NZ The legislative framework Fire Services Act 1975 section 48 Establishes basis on which levy is to be calculated. Levy payable to Commission is calculated in accordance with the following rules: Indemnity value of the property will be used where: 1. Policy provides cover on a more favorable basis than indemnity value (i.e. replacement value cover); or 2 The policy does not contain a sum insured. Where levies are ascertained on this basis it must be done so in the form of a owners declaration or by way of valuation certificate. 1

2 The legislative framework If indemnity value cannot be calculated then: If there is a sum insured, this will be used (section 48(6)(d)(i)); or The Commission is to determine the levy (section 48(6)(d)(ii). Section 48(7) exempts from the calculation any portion which is over the indemnity value. The issues for the Court IBANZ sought High Court declaratory judgment. Purpose: to determine the correct method of calculation of fire levies for a commercial property where they are insured under: Split tier insurance policies; or Composite policies. A test case with considerable importance for insured. 2

3 Split tier policies Split tier policies provide different layers of insurance in one policy programme. This enables insureds to manage risk for the property being destroyed while making sure they only pay the minimum levy to the Commission. Split tier policies High Court and Court of Appeal Considered how section 48 of the Act would apply where: There was an indemnity sum of $300 million (including fire); An excess of indemnity sum insured of $400 million. 3

4 Split tier policies - High Court Heath J ruled that section 48(7) excluded from the calculation the sum insured in the excess policy. On appeal Commission challenged on the grounds: The policies fell within section 48(6)(c) in that they provided the insured with a settlement more favourable than the indemnity value and, therefore, the levy should be computed on the basis of the indemnity value; and Section 48(7) did not apply as the sum insured is not limited to an excess over the indemnity value and the section only applies where the property is insured on a replacement value basis. 4

5 Split tier policies - Court of Appeal conclusions Court of Appeal dismissed the appeal. If the policy provides settlement on a basis more favourable than its indemnity value then: Then levy to be computed on the sum insured. No levy on excess of indemnity value contract (applying s48(7) exemption). Prerequisite for s48(7) exemption: not necessary to have a policy that insures all or any part of the indemnity value of the property. Will be sufficient if the excess of indemnity policy only insures part of the difference between the as new replacement value and the indemnity value. Composite policies The Court of Appeal considered the composite policy scenario and whether for the purposes of calculating the levy, this was one policy or eight (i.e. one for each member of the collective). The High Court had concluded that the composite policy should be viewed as a single policy with an aggregate sum insured of $250 million. 5

6 Composite policies - The Commission challenge Argued that the policy imposed an obligation on each member of the collective separately to pay the premium. Separate obligations on different parties to the policy run contrary to there being one contract. Court of Appeal - What is a composite policy? Composite policies are contracts under which an insurer has separate obligations to various, different insureds; Payment of an indivisible premium by the collective insured will lend towards a composite policy; and A composite policy can include a mixture of joint and several obligations without it becoming a collection of separate policies. 6

7 Composite policies - Court of Appeal - conclusions Court of Appeal relied on Federation Insurance Limited v Wasson: The existence of a joint obligation is antithetical to the existence of separate contracts of insurance Although each member has a several obligation to pay, there is a joint obligation on the insured to pay the total sum. Supreme Court awaiting the final word Leave granted on 18 August Hearing date expected 15 December Issue: Whether the declarations should have been given at all based on alleged factual deficiencies in the hypothetical foundations to the High Court. Legislative reform 2015? 7

8 Bad business judgement or intent to cause loss impact on crime/fidelity insurance policies Marac Finance Limited v Vero Liability Insurance Limited (2013) NZHC The dishonest employee A senior manager makes unauthorised loans to Rapson Holdings Limited 2003 onwards. Marac claimed the advances were concealed from the Board. Marac finally investigated and by January 2010 $4.432m of lending owed, which could not be repaid. 8

9 The Policy Marac held a crime insurance policy with an indemnity limit of $1m. The Policy covered direct financial loss consequent on dishonest acts of employees: Dishonesty which is: (i) Committed with the clear intent to cause the Insured Loss Insurer claimed employee was not dishonest just showed poor judgment in lending arrangements and did not intend to cause loss to Marac. High Court decision Marac did not know about the employee s lending. Marac was entitled to lead in senior management with minimal oversight. Employee had acted dishonestly. Dishonesty meant deliberate conduct. Employee had lacked the skills to manage the lending account and lacked specific authority to do so. He had kept the conduct from the Marac Board and had deliberately concealed the advance arrears. 9

10 What is clear intent preliminary observations Clear intent should have meaning of manifest general intent, involving an objective enquiry conducted against factual matrix. Clear intent and manifest intent interchangeable. In US, various interpretations: manifest intent requires employee to have had loss as his or her specific purpose or desire; or elsewhere Manifest intent is general and requiring no subjective consideration of state of mind; In UK: Bourgoin SA v Ministry of Agriculture [1986] QB: if an act is done deliberately and with the knowledge of its consequences, I do not think the actor can sensibly say that he did not intend consequences. High Court - clear intent in New Zealand Courtney J: Looked at the criminal considerations for intent. Regal Casting Limited v Lightbody intent a question of fact on the evidence. Intent to cause consequence not necessarily wish/desire to cause loss. Concluded proof of intent to cause loss does not require proof that the employee also desired that outcome. The fact you don t desire the employer to suffer loss does may be relevant, but not precluded a finding of intent to cause loss. 10

11 High Court conclusions Knowledge that an act will result in loss is strong circumstantial evidence of intent. Employee was unable to provide cogent explanation for his motivations, but accepted he did not have authority for lending. As such overwhelming evidence that there was intent. Marac was entitled under the operative policy clause. For copy of today s slides and more detailed speaker notes see our Twitter Mark Anderson DAC Beachcroft New Zealand Auckland msanderson@dacbeachcroft.com 11