(1).jpg)
Zurich has succeeded in its bid to turn down a liability policy claim made by Auckland chartered accountant Mark Withers following a decision released by the Court of Appeal yesterday.
The insurer’s argument hinged on whether Withers, of Auckland firm Withers Tsang & Co, had acted dishonestly in his handling of paperwork for loans between parties with interests in a wine company by the name of Vintage.
In the initial High Court case, Zurich’s lawyer, Andrea Challis, pointed to two clauses from the policy in her argument, firstly a dishonesty proviso and secondly a dishonesty exclusion clause.
The proviso clause stated that: “Zurich will indemnify the Insured against any civil liability arising out of a breach of Sections 9 to 14 of the Fair Trading Act 1986 (or any similar fair trading legislation in the States or Territories of the Commonwealth of Australia), in respect of any conduct alleged to have been misleading or deceptive or likely to mislead or deceive, provided that Zurich will not indemnify the Insured where such liability arises from conduct which has dishonest, fraudulent, criminal, malicious or intended by the Insured.”
The exclusion clause referred to: “Dishonesty (a) arising out of or connected with any actual or alleged dishonest, fraudulent, criminal, or malicious act or omission of any Insured or their consultants, contractors, sub-contractors or agents; or (b) arising out of or connected with a willful breach of any statute, contract or duty, or any act or omission committed or omitted or alleged to have been committed or omitted with a reckless disregard for the consequences by the Insured or their consultants, contractors, sub-contractors or agents…”
Justice Peters dismissed Zurich’s dishonesty defence in the High Court however, referring to Withers’ misunderstanding of the contents of letters exchanged between him and the respondents, Burvle and Carolie Swindle, where he said he believed he was required to be a signatory on the costs account but not that he was required to sign every cheque.
This was then turned around in the Appeal Court with Justice Harrison describing the judge’s approach as ‘unsustainable’.
Want the latest insurance industry news first? Sign up for our completely free newsletter service now.
The Appeal Court went on to list five instances which indicated Withers’ state of knowledge, i.e. what he actually knew at the time, saying he ‘fell into a pattern of making successively false statements, the truth of which he never verified for himself.’
“He cannot now advance a rationalisation which is at direct odds with his actual conduct year after year,” Justice Harrison said, adding that Withers acted in ‘reckless disregard’ of the Swindles’ interest throughout.
“In our judgment, the only inference available from the fundamental and repetitive pattern of Mr Withers’ false statements, when coupled with his knowledge of Vintage’s financial accounts, is that he must have known or appreciated they were false.”
The judge went on to cite “an accountant’s obligation to be ‘fair, impartial and intellectually honest’ and to remain objective in the performance of all professional work; there was also an additional factor outlined as ‘the degree of trust which the public reposes in the conduct of a professional person.’
To that end, the Court of Appeal found Withers’ conduct confirmed his dishonesty.
“We refer in particular to his decision to sign and backdate two summary sheets for production costs schedules to 11 March 2009 to enable drawdown. We reject Mr Withers’ rationalisation that it was a ‘minor formality to be corrected’.
“It follows that Mr Withers’ conduct on or before 27 March 2008 and 11 March 2009 when he gave his seventh and eighth letters of undertaking to the Swindles was dishonest within the exclusion to clause 2.2 of his policy with Zurich, and that his liability arose from or was connected with those dishonest acts or omissions.
“Accordingly, he is not entitled to indemnity.”
Withers was ordered to pay the investors $1.3 million plus costs.
Zurich would not be drawn on its response to the decision, saying: “We generally do not comment in relation to claims.”
Related stories:
The Year Ahead with Rajbir Nanra of Zurich
Zurich announces AU$741 million acquisition
