Marchand, Marchand and Costelloe v Jackson and Another

JurisdictionNew Zealand
CourtHigh Court
JudgeKós
Judgment Date02 Nov 2012
Neutral Citation[2012] NZHC 2893
Docket NumberCIV 2011-409-810

[2012] NZHC 2893

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

CIV 2011-409-810

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
Counsel:

G A Hair for Plaintiffs

B R D Burke for Defendant

Appearance excused for Third Party

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.

Held: It was axiomatic that an insurance broker was required to complete his engagement with reasonable care and proper skill ( Cee Bee Marine Ltd v Lombard Insurance Co Ltd), and J acknowledged that burden. An insurance broker was normally the agent of the insured ( Helicopter Equipment Ltd v Marine Insurance Co Ltd). Usual legal principles of agency governed that relationship. It all depended on the instructions.

Normally a broker's instructions were to complete a proposal for clients, negotiate the appropriate contract of insurance on behalf of its client, and advise on the meaning of policy terms and the extent of cover. Part of that was to advise on the importance of proper disclosure. If they were unable to effect cover, then they had to promptly report that fact to the client. There was no doubt that J was comprehensively in breach of his duties as broker to the Ms. He did not act with reasonable care and skill, or take all necessary steps to effect cover and to protect the Ms. J exacerbated the problem by telling the Ms, wrongly, that they were covered.

It followed from the fact that it was likely the Ms would have obtained insurance cover as sought, that the Ms loss in this case would be the amount necessary to put them in the same position as if the insurance cover sought by them had been obtained. There remained at large the question of whether a total value cap on that insurance would have applied. That was for determination at another time.

There was no contributory negligence on the part of the Ms due to an initial failure to disclose Dr M's convictions and the prior insurance policy cancellation or the failure to require production of a formal policy advice statement and policy for their home from either J or NZI. This was because the operative cause of the initial non-disclosure was J's failure to perform his duty to effect cover by presenting the proposal application form to the Ms.

It was particularly noteworthy that notwithstanding the fact that J became aware of both events (the conviction and the cancellation of the previous policy) he did nothing about it (such as counselling the Ms on the consequences of that information or putting it into the policy application forms he completed in 2009).

In terms of requiring a formal policy advice statement, the Ms were not required to look past the assurances of their professional advisor that the insurance cover was in place. There was no proper basis for the reduction of damages on the basis of any contributory negligence by the Ms.

Judgment for the Ms.

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...

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