Hanover Group is fighting to get $2 million from one of its insurers, which says it is not liable to pay out the claim.

Hanover, which failed in 2008, causing substantial losses to depositors, had a policy with QBE Insurance International.

This insurance cover was for some legal costs, including those incurred while Hanover was being investigated by regulators such as the Financial Markets Authority (formerly known as the Securities Commission).

After an investigation the FMA filed civil actions against six former Hanover directors and promoters in March.


While Hanover is making a claim against QBE for the $2 million, the insurer says it is not liable.

This is because the company did not disclose to QBE that two Hanover directors - Mark Hotchin and former chief executive Kerry Finnigan - were personally duped by a Ponzi scheme in 2002.

Hotchin invested $560,000 in the scheme that promised a 160 per cent return over just two months.

His ill-fated foray into what his lawyer described as "Looney Tunes Investments" is thought to have lost him about $225,000.

Finnigan was also a victim, investing $120,000 but ending up out of pocket by just a small amount.

Hanover, in turn, is arguing it was not required to disclose this because it was not "material".

Following an oral judgment by Justice Forrest Miller yesterday in the High Court at Auckland, the parties are due to argue the matter in September.

QBE argues it is not liable for Hanover's claim because the company did not disclose "that it was in financial difficulties" when it renewed the insurance policy in 2007, Justice Miller said.

QBE says this amounts to a material non-disclosure and the parties are due to argue this second matter some time next year.

QBE argues that the second set of allegations mirrors those made by the FMA in its proceedings against Hanover for allegedly misleading statements made in the company's offer documents, Justice Miller said.

The FMA is seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.

The market watchdog 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 $5 million.

Hanover argues these allegations have no merit. No date has been set for these proceedings, but it was suggested in court yesterday they might not go ahead until 2014.

The second prong of QBE's argument against Hanover's claim was made in an amended statement of defence, which the insurer was given leave to file with the court by Justice Miller yesterday.

Although QBE wanted to adjourn the September trial and deal with both sets of arguments at the same time, Justice Miller said it was important that Hanover know as soon as possible what its position is with respect to insurance cover.

While the September trial would not finally dispose of the proceedings, it would advance the position of both parties, the judge said.

"If QBE succeeds Hanover will know that it must engage the FMA without the benefit of $2 million ... if on the other hand Hanover wins, one substantial source of uncertainty over its cover under the QBE policy will be removed," Justice Miller said.

As well as its policy with QBE, Hanover Group had a directors and officers insurance policy for legal costs with Chartis and is also seeking money from this insurer.