Supreme Court turns down Heartland's bid to appeal insurance policy covering staff misdeeds

Tuesday 3rd November 2015

The Supreme Court won't let Heartland New Zealand appeal a ruling that excused Vero Insurance New Zealand from covering losses caused by what the lender claims was dishonest acts by a former staffer.

Justices Susan Glazebrook, Terence Arnold and Mark O'Regan turned down Heartland's application for leave to appeal in a ruling that found the Vero crime insurance policy didn't extend to a former employee, who it wasn't convinced acted dishonestly.

Marac Finance, one of the lenders merged to form Heartland, sued Vero for $1 million, the maximum under the policy, after the insurer refused to pay out for losses caused by unauthorised lending by one of its senior managers, and won its case in the High Court. That was overturned in the Appeal Court, which wasn't persuaded the staffer recognised the inevitably of loss being caused by his actions.

The Supreme Court accepted Vero's submission that the Appeal Court didn't need the staffer to desire loss to be incurred by the lender, and that the different conclusions in the lower courts was a factual one in how the specific clause in the policy related to the particular circumstances of the case.

"As such, it cannot be a matter of general or public importance or of general commercial significance," the judges said. "Nor is there a risk of a miscarriage of justice."

Marac was owned by Pyne Gould Corp between 2003 and 2008 when a senior manager, Grant Atkinson, lent substantial sums to Rapson Holdings, a motor vehicle dealer put into liquidation in 2010 owing the finance company about $4.4 million.

After an internal investigation, Marac made a claim under its crime insurance policy with Vero Liability Insurance which covered direct financial loss stemming from dishonest acts of employees “committed with the clear intent of causing loss” to the company. Vero refused to indemnify Marac, arguing it was bad judgement by Atkinson, not dishonesty, that he didn’t mean to cause a loss and that Marac couldn’t prove losses were caused within the time-frame of the policy.

Rapson had been the New Zealand distributor of Daewoo and Ssangyong cars and was funded via what is known as a dealer floor-plan facility of $7.5 million set up by Pyne Gould’s Allied Finance unit in 2000. Pyne Gould acquired Marac that year and merged it with Allied.

Also that year, Daewoo failed, leaving Marac significantly exposed to the unpaid balance of Rapson’s facility and eventually wrote off more than $5.5 million. Ultimately though, Marac chose to accept a plan where Rapson could work off its debt.

The Supreme Court ordered Heartland pay costs of $2,500 to Vero.

BusinessDesk.co.nz

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