In May 2009 a Christchurch couple, Mr and Mrs Marchand, engaged Mr Jackson (a broker) to arrange insurance, which he failed to do. This was discovered after the September 2010 earthquake, when the Marchands attempted to make a claim for damage to their home. Mr Jackson’s failure to place cover was initially a negligent oversight. However, evidence emerged that he later became aware of this and deliberately failed to remedy the mistake:
- Mr Jackson received the premium from the Marchands but did not pass this on to the insurer or lodge the insurance application.
- Mr Jackson gave assurances to the Marchands that cover was in place when he knew this was not correct.
- When the Marchands made a claim for a pair of spectacles, Mr Jackson had them complete a claim form (which was never lodged) and paid the claim himself.
The Marchands sued Mr Jackson for their uninsured losses. Mr Jackson sought to join his professional indemnity insurer, IAG NZ as a third party. IAG NZ applied for summary judgment on the basis that liability for dishonest conduct was excluded.
The Court of Appeal overturned the High Court’s decision by granting IAG NZ summary judgment.
Mr Jackson’s PI policy contained an exclusion “… for civil liability in connection with any dishonest, fraudulent, criminal or malicious acts or omissions by [Mr Jackson]…”. Mr Jackson argued that his apparent dishonesty was not “in connection with” his civil liability to the Marchands since the dishonesty came after he incurred a liability to them by negligently failing to place cover in the first place.
The Court of Appeal was having none of it. It accepted that “in connection with” requires some causal or consequential relationship. However, the dishonest act did not need to be the direct or proximate cause of the civil liability, nor did it need to precede the liability in time. The Marchands would have secured cover before the earthquake if Mr Jackson had not hidden the truth from them. This was enough to establish the necessary nexus so that the exclusion clause applied.
This interpretation should have a wider application – beyond insurance – since “in connection with” appears in many other forms of contracts. We respectfully agree with the Court of Appeal’s analysis, which reflects the commonly understood meaning of this phrase. A narrower interpretation (for example, that there must be a direct causal relationship or that the connection must be “material”) might potentially have had widespread and unintended consequences for other contracts.