A major court has backed an insurer’s decision to not indemnify a broker for civil liability because of dishonest conduct.
Last month, the NZ Court of Appeal found IAG was correct in excluding John Jackson from his professional indemnity cover. The matter referred to a case in which a Christchurch couple engaged Jackson in 2009 to place cover for their home and contents, motor vehicles and medical practice.
Although Jackson placed business interruption cover for the medical practice, he neglected to arrange any of the other requested policies, initially as an oversight.
However, when questioned by the couple several times about whether the other covers had been placed, Jackson assured them they had been.
When the Christchurch earthquake hit in September 2010, the couple learned the truth and sued for their uninsured loss.
His PI policy with IAG contained an exclusion for “for civil liability in connection with any dishonest, fraudulent, criminal or malicious acts or omissions”, which the insurer invoked in an application for a summary judgment.
DLA Phillips Fox Partner Grant Macdonald says the key aspect of the case was the court’s finding that the dishonest conduct did not have to directly cause the civil liability.
“The phrase ‘in connection with’ only contemplates some causal or consequential relationship,” he says.
“The necessary nexus existed in this case because had Mr Jackson not concealed from the couple his original negligent oversight, the couple would have secured cover before the earthquake.
“The outcome will be welcomed by insurers. It is consistent with public policy principles that an insured cannot insure against the adverse consequences of the insured’s own dishonesty.”