NZ Insurance Update - New Acts and their impact on the insurance industry

Insurers need to consider how the Securities Markets Amendment Act 2006 and the introduction of the Property Law Act 2007 affect their policies.

Securities Markets Amendment Act 2006

The Securities Markets Amendment Act 2006 (Amendment Act) came into force on 29 February 2008. The Amendment Act broadens New Zealand's insider trading laws and creates criminal penalties.

Liability for insider trading under the previous Act relied on a connection between the listed company and the party who traded in that listed company's shares. The Amendment Act removes the need for this.  It is aimed at maintaining the general integrity of the market place for securities.  It potentially creates liability by virtue of the possession of material information not generally available to the market, regardless of any connection with the listed company to which the information relates.

The Amendment Act also introduces, for the first time, criminal penalties for insider trading.  It applies a maximum penalty of five years imprisonment, and a $300,000 fine for an individual or a $1 million fine for a body corporate.

The following civil remedies are also available under the Amendment Act:

• Pecuniary penalties.
• Compensatory damages.

The Amendment Act makes it clear that pecuniary penalties are separate from a fine for committing an offence.  They are part of the civil remedies and are provable on the balance of probabilities.

The maximum amount of the pecuniary penalty is the greater of:

• The consideration involved in the contravening transaction.
• Three times the amount of the gain made or loss avoided.
• $1 million.

Underwriters should consider the impact of the new exposure created by the Amendment Act under their liability policies.  The policies most likely to be affected are Statutory Liability policies, and Directors and Officers Liability policies.

The Securities Commission has a guideline to the Amendment Act at: newsecuritieslaw.govt.nz

Property Law Act 2007

The Property Law Act 2007 (Act) removes an insurer's subrogation rights for leased commercial premises.

Ordinarily, once an underwriter meets a claim, it is subrogated to the legal position of the insured, and it can pursue any legal remedies the insured has against liable parties.  The Act, which came into force on 1 January of this year, takes away this right in the landlord and tenant situation.  The landlord's insurer cannot subrogate and sue a liable tenant for damage to the leased commercial premises. The law views the landlord's insurance as being on behalf of both the landlord and the tenant, even if the tenant is not named as an insured under the policy.

While this law is new, this state of affairs has existed under many commercial leases for some years now.  Many commercial leases excuse the tenant from any liability for damage to the premises to the extent the landlord is insured against that damage.  This has the same effect.

However, it is important to note, the Act does not affect residential leases under the Residential Tenancies Act 1986.  Landlords' insurers are still free to subrogate and sue liable tenants for damage done to residential premises (subject to the restrictions in the Standstill Agreement entered into by some Insurance Council members).  However, this position may change due to foreshadowed changes to the Residential Tenancies Act 1986 planned for the near future.

For more information, please contact:

Crossley Gates, Special Counsel
+64 9 300 3823
crossley.gates@dlaphillipsfox.com

Peter Leman, Partner
+64 4 474 3240
peter.leman@dlaphillipsfox.com