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Professional Indemnity - Claim Examples

Accountants Error - Depreciation

The insured accountant realised that he may have misinterpreted the IRD rules on the treatment of depreciation on buildings damaged in the Canterbury earthquakes. At a later stage he realised the possible errors (after an IRD seminar on earthquake related topics) he reported the circumstances as a possible claim under his Professional Indemnity Insurance.

With potential losses close to $100,000 to the insured’s three clients, VL adopted a pre-emptive stance and sought assistance from a specialist taxation barrister. The lawyer was aware of some “grey areas” in the emergency tax rules and on his recommendation the three matters were reported to the IRD with his submissions on the questionable rules. The IRD conceded the benefit of the doubt and the insured’s treatment of tax was allowed to stand. VL’s Legal fees were just short of $20,000. The insured was relieved and grateful.    

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Breach of Confidentiality

A married couple used the same law firm (the insured) to make their wills. The wife had a specific provision in her will for a bequest to go to her birth child which she had when she was a single teenager and adopted out some 45 years earlier and of which her husband had no knowledge. She made a strict instruction to the firm’s partner that her will had to remain strictly confidential until her death.

The couple decided to sell their joint family home and Mr A asked the lawyers to send them copies of any files they held on the purchase of the house some 20 or so years back. Unfortunately the partner who looked after the couple’s affairs had recently died and the matter was left to a junior staff lawyer who seemingly misunderstood the reason for the request. It transpired that there were no records for the house purchase and Mr A was sent copies of both wills, which were the only files retained by the Insured. The wife’s secret was out, creating an unwanted dynamic in the marriage and causing her considerable distress. 

She has lodged a complaint with the Law Society’s Lawyers’ Complaints Service as well as intimating a claim for compensation for emotional harm. The insured’s Professional Indemnity policy is assisting in responding to the complaint and ultimately will defend and indemnify any claim that may eventuate. 

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Breach of Copyright and/or Design Registration

The Insured is an importer and distributor of stationery products and supplies. It held a standard Public Liability insurance. At the request of one of its customers, the insured arranged for the manufacture and supply of filing racks similar to another product supplied to the customer by another manufacturer. The price of the insured’s product was more competitive.

The insured failed to make reasonable efforts to determine if any Patent, Copyright or Design Registration existed on the specific rack design in question.

The other manufacturer issued proceedings against the insured for significant damages arising from infringement of Copyright and/or Design Registration and the insured submitted a claim under its Public Liability insurance. The claim was defended by VL and an agreed out of court settlement was negotiated.

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Breach of Security Interests

The insured is an auctioneer. The claimant is a Japanese used vehicle importer. It supplies vehicles to several NZ vehicle dealers. 

A multi-million dollar claim arose when one of the dealers was in financial difficulty and eventually went into liquidation. It had failed to pay monies owing to the plaintiff which had extended credit for many months. The failed dealer had been selling the majority of the vehicles (supplied by the importer) through the insured’s auctions. The particulars of the claim were that the insured had converted the plaintiff’s security interest in the vehicles by selling them at less than market value and in many cases less than NZ landed cost. 

The importer issued proceedings against the insured. The insured's defence was that by its very nature an auction determines “market value” and that the insured had no means of knowing landed cost nor did it need to. 

The matter proceeded to trial and was successfully argued by VL's defence lawyer. The plaintiff’s case was roundly dismissed with $51,000 scale costs awarded. The defence costs to VL were more than $120,000.

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Mortgagee Sales

A sole practice rural real estate agency advertised mortgagee sales for four properties in a small community.  The properties were, in fact, not for sale. 

The agency had just recently acquired a “book” of clients from another agency whose principal had retired. The agency’s office administrator had inadvertently used old listings from the other agency where the same lender had commissioned mortgagee sales some years prior.

The mistake caused some consternation particularly in such a small-town location and the circumstances were reported to VL as a potential complaint to the Real Estate Agents Authority. VL assisted the agent in “damage control” with the lender and in mollifying the aggrieved property owners. No formal complaint or claim has eventuated.

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Project Management - Inadequate Supervision

The insured company was a project manager and held appropriate Professional Indemnity insurance. It was contracted by the owner developer to provide project management services for the construction of a retail complex which had some unusual design features in its roof. 

The owner engaged a specialist contractor to affix the roof sheathing. It very quickly became apparent that the fixing method was deficient in hot sunny conditions.

The owner issued proceedings against the contractor for damages. The contractor, strangely, joined the insured as a Third Party to the proceedings alleging that the insured had failed to take reasonable care to ensure that the materials and work methods were tested prior to fixing and that the supervision of the work was inadequate.

The claim for circa $100k was settled at a Judicial Settlement Conference with the insured’s contribution of $30k being indemnified by VL. Defence costs were close to 50% of the settlement. 

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