Hanover Group Holdings has lost its High Court fight with insurance giant AIG over a policy worth up to $20 million.
The insurance wrangle centred on a directors and officers liability (D&O) policy Hanover took out in November 2007 with AIG and whether cover is provided for claims associated with certain Hanover prospectuses.
The cover would be used for legal costs associated with the upcoming civil stoush between former Hanover directors and the Financial Markets Authority (FMA) or any damages that may be payable in that case.
AIG (at time of the case legally known as Chartis Insurance New Zealand) did not accept that two prospectuses released by Hanover Finance Limited and United Finance Limited were covered by the policy.
The actual policy issued by the insurance giant fell far short of complete prospectus cover but Hanover's lawyer, Nathan Gedye, argued that its broker and AIG had agreed in 2007 there would be D&O cover for all prospectuses issued by the finance firm during the policy period.
During civil proceedings in the High Court at Auckland in October, Gedye pushed for the policy to be rectified to reflect what he said was an "oral agreement" between Hanover's broker, Grant Dawson, and AIG.
However, Justice Christopher Allan declined Hanover's bid in his judgement released this morning.
Gedye also submitted that if the court decided there was no agreement to provide the prospectus cover his client believed it had obtained, then AIG underwriter Vince Barker had mislead Dawson as to the insurer's position.
However, Justice Allan did not agree.
"In my view, Hanover has not established that the terms of any promise or representation by Mr Barker were as Hanover now asserts...Mr Dawson had an opportunity to raise his on-going concerns with Mr Barker, but he did not do so. In those circumstances, I do not see how AIG can be rendered legally responsible for what occurred," the judge said.
The FMA is suing six former Hanover directors and promoters over allegedly misleading or untrue statements made in company prospectuses.
The market watchdog is seeking compensation for investors who put $35m into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.
It is also seeking penalty orders against the defendants, and if the claim is successful, the former directors and promoters could each face fines of up to $5m.