Broker accused of neglecting to explain risk

Emma McCashin didn't know her company's insurer had a B credit rating. Photo / Paul Estcourt

A Christchurch furniture business left with a damaged building and no insurance cover after the failure of local insurer Western Pacific claims its broker did not explain the risks.

The liquidator of Western Pacific, a lowly rated insurer based in Queenstown, said this week it had been unable to sell the business and all its policies would be cancelled.

Designer furniture-maker Ashton Grove was insured with Western Pacific through its broker, ODL Group. ODL denies it did not explain policies.

Ashton Grove co-owner Emma McCashin said the company's building sustained $100,000 worth of damage in the last Christchurch earthquake and now that would not be covered.

The company also had to demolish a front part of the property and it couldn't get any other building insurance.

It was never explained that its Western Pacific policy was cheap because the insurer only had a B credit rating, McCashin said. "You rely on your insurance brokers to do the groundwork for you.

"There was no mention of, 'You should consider this, here's another option'."

She concedes the company may still have gone with Western Pacific because of its policy prices. "[But] it would have been nice to have been able to make that decision ourselves."

However, ODL regional manager Wayne Gardner said all documents that went out to clients stated the insurer's credit ratings, plus an explanation. "Our brokers go to particular care to explain the situation with B-grade insurers," he said.

But Richard Lummis, owner of bar The Christchurch Temperance Society, which was demolished after the second earthquake, said he had received invoices for his Western Pacific policy that didn't show a rating.

He said his broker had never discussed the risks.

Gardner said it must be remembered that Western Pacific took on risks that other insurers wouldn't. But ODL was "as annoyed as anybody" about what had happened.

In February, Western Pacific chief executive Jeff McNally was assuring the industry that all was well, he said. It had since emerged that nine years ago a company associated with McNally was banned in Australia for hiking premiums to clients and pocketing the difference.

Had Gardner known this, he would have thought twice about dealing with Western Pacific. He would now review use of B-rated insurers.