Marchand, Marchand and Costelloe v Jackson and Another

• Jurisdiction: New Zealand
• Judge: Kós
• Judgment Date: 02 November 2012
• Neutral Citation: [2012] NZHC 2893
• Docket Number: CIV 2011-409-810
• Court: High Court
• Date: 02 November 2012

Between

Nicola Jayne Marchand, Jacques Renard Marchand and Patrick Gregory Costelloe

First Plaintiffs

and

Nicola Jayne Marchand and Jacques Renard Marchand

Second Plaintiffs

and

John F Jackson

Defendant

and

Iag New Zealand Limited

Third Party

[2012] NZHC 2893

CIV 2011-409-810

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

Claim in contract against insurance broker retained to arrange house and contents insurance — had informed plaintiffs had done so when actually had not — plaintiffs retained broker after plaintiffs' insurer had cancelled their insurance following conviction of one of plaintiffs on charges including using a document to obtain a pecuniary advantage — insurance broker assured plaintiffs they were covered and paid out small claim himself — plaintiffs found out were not covered when property was seriously damaged in Christchurch earthquake — broker said that plaintiffs had not disclosed conviction — whether insurance broker contractually liable — whether damages should be reduced on basis of contributory negligence by plaintiffs.

Counsel:

G A Hair for Plaintiffs

B R D Burke for Defendant

Appearance excused for Third Party

JUDGMENT OF THE HON JUSTICE Kós

1 An insurance broker is retained to arrange house and contents insurance. For one reason or another he fails to do so. Yet he tells his clients he has placed the insurance. They make a small claim on the policy. Unknown to them, the broker pays the claim himself. Then disaster strikes. The clients' house is severely damaged in the September 2010 Canterbury earthquake. The broker says he is not liable for failing to place the insurance. He says the house was not insurable in the first place. That is because one of the clients has convictions for fraud, which led to his previous insurance being cancelled. The broker says these facts had not been disclosed. Had they been, insurance could not have been obtained.

2 Were the convictions and cancellation disclosed? Was the house insurable? Is the broker liable?

Background

3 The first plaintiffs, Mrs Marchand, her husband Dr Marchand and their solicitor Mr Costelloe, are trustees of the Nicola Marchand Family Trust. Thereby they are also the owners of a five hectare farmlet at 21 River Road, Tai Tapu, south west of Christchurch. On the farmlet is a large modern house. Its replacement value is not entirely clear. Probably it exceeds $1.5 million.

4 In June 2009 the first plaintiffs (whom I will describe collectively as “the Marchands”) retained the defendant insurance broker, Mr John Jackson, to arrange house, contents and other insurance. They also retained him to arrange business insurance for their medical practice, Doctors on Cashel Limited.

The narrative suspended

5 I pause at this point to explain two things. First, why the Marchands went to Mr Jackson to obtain insurance. And second, why Mr Jackson faces personal liability in this case.

Why new insurance was needed

6 In 2008 Dr Marchand was convicted on three representative counts of using a document to obtain a pecuniary advantage, and one representative count of dishonestly using a document for the same purpose. The charges related to fictitious general medical services claims. Some 57 transactions in all, amounting to $30,500 in fraudulent claims over a three and a half year period. Dr Marchand pleaded guilty part way through a defended trial. Convictions were entered in September 2008. Sentencing occurred that December. Dr Marchand was sentenced to eight months' home detention. 1 The sentencing judge, Judge Doherty, noted full repayment had been made, a full apology given to Pegasus Health, and that Dr Marchand had no prior convictions. The Judge also noted medical evidence that head injuries caused, first, by a motoring accident and later a soccer-related injury, had contributed to the offending. It was obvious at the hearing before me that these convictions have caused great shame and distress, to Mrs Marchand in particular.

7 The plaintiffs had held insurance with the Medical Assurance Society (MAS) since 1982. It is a specialist insurer, focused on the medical profession. But on 12 June 2009 MAS wrote to the plaintiffs. The letter told them that all their insurances would be cancelled with effect 14 days hence. No reason was given, but an earlier telephone call suggested that MAS was taking that step because what it perceived to be non-disclosure of the criminal proceedings. Dr Marchand disputed that. He said that he had told the former South Island Manager of MAS. Be all that as it may, there was no doubt MAS was entitled to cancel the insurances. So new insurance needed to be obtained, and quickly.

Mr Jackson's obligations personal, not corporate

8 The Marchands went to Mr Jackson on referral from another broker. It does not appear they had dealt with him before. They had had no need to do so. Their insurances had always been dealt with by MAS. But effective 26 June 2009, they would no longer be insured.

9 Mr Jackson is an insurance broker specialising in fire and general insurance. He trades as “Town and Country Brokers”. That is a mere trading name. In none of the documents presented in evidence — letters written by Mr Jackson, emails and other communications from him to the Marchands and NZI Insurance — does the name of any incorporated entity appear. It turns out that there is a company called

“John F Jackson Insurance Broker Limited”. The plaintiffs had never heard of it. It did not feature in their dealings with Mr Jackson

10 Mr Jackson attempted initially to defend these proceedings on the basis that any liability here was that of his corporate entity, rather than him personally. That defence, sensibly, was abandoned in closing.

The narrative resumed

11 At [4] I left off the narrative with Mr Jackson having been retained to arrange house, contents and other insurance for the Marchands. The details of what transpired will be analysed shortly.

12 Suffice to say for present purposes that Mr Jackson failed to arrange any insurance other than business insurance for Doctors on Cashel Limited. As at July 2009 – 14 months before the first serious Christchurch earthquake in September 2010 – this would have been a serious, but (with hindsight) merely inconvenient, interim exposure. But Mr Jackson told the Marchands that cover was in fact in place. I will analyse the representations he made in due course. I am satisfied that as from August 2009 the Marchands were under the clear belief, induced directly by Mr Jackson's assurances, that they had house and contents cover for their property in River Road.

13 It is common ground that Mr Jackson submitted a questionnaire, completed by the Marchands, to NZI on 1 July 2009. NZI emailed Mr Jackson back with a quote and offer of cover. The offer of cover on the house was restricted to $1.5 million until a valuation was obtained. The premium was $2,215, and the excess $500. Mr Jackson negotiated the premium down to $2,104.

14 Again it is common ground that at that point Mr Jackson should have requested that NZI hold the Marchands covered while a proposal form was completed and a valuation obtained. Such cover would have held good for 30 days under Mr Jackson's standard arrangement with NZI. Mr Jackson did not do that. In truth, he did nothing much at all – except to tell the Marchands on a number of occasions that they were covered. Quite why he did so remains a mystery. It seems that the pressures of his business, in combination with some reversals in his health, overwhelmed him.

Disaster

15 On 4 September 2010 the Marchands' house was seriously damaged by the first Christchurch earthquake. Shortly afterwards, on 11 September 2010, Mr Jackson submitted an application for cover to NZI. He backdated the application 30 August 2010 – i.e. before the earthquake – although it is clear on the evidence it was prepared after it. He completed the form himself and signed it on behalf of the Marchands. In answer to the question:

Have you or any member of your family living with you … had a conviction for a criminal offence within the last 7 years?

Mr Jackson wrote “No”. As we will see, by September 2010 he knew that was not correct. In a later statement (and again in evidence before me) Mr Jackson acknowledged:

At the beginning of August 2009 (i.e. a year earlier) I heard concerning reports about Jacques Marchand. I heard that he had been convicted of making false medical claims.

He attempted to explain that he thought it was a merely civil issue. That is, a dispute between MAS and the Marchands over insurance claims. I do not accept that qualification.

16 Later in September 2010 NZI declined to accept the application – either backdated or at all.

The claim

17 The claim brought against Mr Jackson by the Marchands was advanced originally on four bases: contract, Consumer Guarantees Act 1993 (s 28), Fair Trading Act 1986 (s 9) and negligence. During the course of trial Mr Jackson's counsel, Mr Brian Burke, abandoned his client's corporate personal defence, and acknowledged that Mr Jackson had entered into “an ordinary contract of engagement” with the Marchands as insurance broker. On that acknowledgment, Mr Greg Hair, counsel for the Marchands, abandoned his clients' other causes of action and was content to rely on contract alone. The content of Mr Jackson's contractual duties will be considered anon. It is axiomatic, however, that an insurance broker must complete his engagement with reasonable care and proper skill. 2 Mr Jackson acknowledges that burden.

18 The defence advanced by Mr Burke for Mr Jackson was as follows. First, that the Marchands had not disclosed to him Dr Marchand's convictions or that they had had their prior insurance cancelled. Had that disclosure been made they would have been unable to obtain insurance cover. Secondly, and alternatively, had they not disclosed that information,...