FUND MANAGERS CANTERBURY LTD V AIG INSURANCE NEW ZEALAND LTD

[2017] NZCA 325, New Zealand Court of Appeal, Justices Harrison, Gilbert and French, 28 July 2017

Insurance (professional indemnity) - Insurance (directors and officers) - Claim brought against directors for issue of certificate in respect of trust fund - Whether liability excluded by PI and D&O policies

The Canterbury Mortgage Trust Group Investment Fund was established in July 1999. The Fund was to be invested in mortgage investments, and was designed to produce a secure and stable income stream more favourable than available from bank deposits. It was managed by Fund Managers Canterbury Ltd (FMC): the general manager of FMC was Mr Main, and FMC also had six directors. In June 2001 Trustees Executors Ltd (TEL), trustee for the investors, executed a Trust Deed which set out the rights and obligations of the trustee, the manager and the investors. Under the Deed, FMC covenanted with TEL for the benefit of unitholders that it would use its best endeavours to conduct the business in a proper and efficient manner and to provide all necessary information to TEL. Under clause 214, FMC was required to give TEL quarterly certificates signed by two directors on behalf of all of the directors, setting out "any matters which since the date of the last certificate ... have in their opinion occurred to affect materially and adversely the interests of the unitholders". The directors were required to certify "to the best of their knowledge and belief" and having made "due inquiries" 20 listed matters relating to the performance of the Fund and its adherence to mortgage investment guidelines. Clause 13 of the guidelines stated that Mr Main was to confirm that each mortgage met the trust's lending criteria and had been approved by at least two directors of FMC. The Fund was suspended on 4 June 2008 following TEL being informed by the Fund's auditors of their concerns. It was wound up in February 2009. In the present proceedings TEL alleged that FMC, its directors and Mr Main were in breach of their obligations under clause 214 of the Trust Deed and under clause 13 of the Investment Guidelines. Mr Main and the directors joined their insurers, AIG. There were two policies: a directors' and officers' (D&O) policy covering liability for wrongful acts, but excluding liability for any claim against an insured person: "Alleging, arising out of, or based upon or attributable to the Company's, or an Insured's performance of professional services for others for a fee, or any alleged act, error or omission relating thereto". There was also a professional indemnity policy, excluding liability for "any Claim ... brought against an Insured as a director, officer or equivalent executive".