Hanover Group Holdings is expected to file an appeal this afternoon after it lost a 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, the new All Blacks sponsors, and whether cover was 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 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 during the policy period.
During the High Court civil proceeding at Auckland last October, Gedye pushed for the policy to be rectified to reflect what he said was this "oral agreement" between Hanover's broker Grant Dawson and AIG.
However, Justice Christopher Allan declined Hanover's bid in his judgment, released in December.
After some weeks of consideration, Gedye told the Herald today that an appeal in the case was expected to be filed this afternoon.
During the proceedings 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 misled Dawson as to the insurer's position. Justice Allan did not agree in his December decision.
"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 ongoing 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," said the judge, who ruled AIG would be entitled to claim for the cost of the proceedings.
"An insurer does not have a duty outside the contract to ensure that an insured realises and understands the terms and conditions already settled between them. "The insurer is entitled to stay silent and leave the insured to its own devices in knowing and understanding the contract; in other words, it is not for an insurer to ensure the insured understands the language used in the contract," the judgment said.
Justice Allan said it was remarkable that policy discrepancies were not picked up until after Hanover stopped accepting money from the public in July 2008.
The FMA is suing six former Hanover directors and promoters over allegedly misleading or untrue statements made in company prospectuses, and is seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.
It is also seeking penalty orders against the defendants, who could face fines of up to $5 million.By Hamish Fletcher @hamishfletcher Email Hamish