The scope of an insurance policy is usually not tested until a significant claim is made.
In a series of recent New Zealand cases Vero resisted a claim by Marac Finance on its commercial crime policy with Vero.
The dispute culminated in Marac Finance Ltd v Vero Liability [2014] NZHC 1974.
Facts
A senior manager at Marac Finance Ltd made a number of unauthorised loans to Rapson Holdings Ltd, a motor vehicle dealership between 2003 and 2008. He did not report the loans to the Board, and concealed his activities. In 2010 the borrower was placed in liquidation. It could not repay the $4.432 million which it owed to Marac.
The policy
Marac held a crime insurance policy with an indemnity limit of $1m and claimed the maximum amount. The policy covered direct financial loss consequent on dishonest acts of employees committed with the clear intent of causing loss to Marac.
Vero argued that the loans were the result of bad judgment rather than dishonesty.
The decision
The New Zealand High Court decided that the employee had acted dishonestly and deliberately.
The Judge decided that there was a loss to Marac each time the employee made an unauthorised advance and that he had the requisite dishonest intent from mid-2005 onwards.
Justice Courtney was satisfied that Marac did not know, or ought to have known, about the nature and level of the lending under the employee’s unauthorised account.
The Judge concluded that Marac Finance Ltd had suffered losses from unauthorised lending by one of its senior managers for which it was entitled to be indemnified under the Commercial Crime policy it held with Vero Liability Insurance Ltd.
Vero was only liable to indemnify for losses sustained after 8 February 2006. However, as most of the money was advanced before that date the borrower repaid more after 8 February 2006 than Marac advanced. Marac maintained that the repayments made after that date should be treated as repaying the advances outstanding at the start of that period. If that was right the indemnifiable loss exceeded the sum insured of $1m. But Vero contended that the repayments were to be treated as only reducing advances made after 8 February 2006. The Judge accepted Marac’s position.
The Judge concluded that, in calculating Marac’s loss under the policy, repayments made after 8 February 2006 are to be treated as reducing the balance that existed at that date. As a result Marac’s loss exceeded the sum insured of $1m and it was entitled to indemnity for that amount and interest.
The exact policy wording is always critical in respect of coverage. In this case the decision was based on the employee’s “clear intent”.
