Here’s what an external disputes resolution scheme can tell you about licensing

FSCL’s Susan Taylor offers insights into what lies ahead for brokers.

Transitional licensing for financial advisers and brokers opened on November 25. The FMA has indicated that there will be two standard conditions on financial advice provider transitional licences: • You must maintain adequate written records in relation to your financial advice service • You must have an internal process for resolving client complaints in relation to your financial advice service. GOOD RECORD-KEEPING

Brokers are going to have to maintain adequate written records showing how they, and any persons engaged by them to give regulated financial advice to retail clients, have complied with the Financial Markets Conduct Act, Regulations and the new code. Brokers are going to have to ensure the records are kept for at least seven years. Adequate written records include information about any financial advice given to clients, copies of written information and documents, and all file notes and diary entries.

At a recent roadshow, the FMA observed that it has seen: • Incomplete record-keeping • Files not easily accessible • Handwritten notes not legible • Files that are not safely stored • Reliance on free cloud-based storage which is not fit for purpose. Good record-keeping is often found lacking in cases that come to FSCL for investigation and resolution. We not infrequently receive a broker’s file which has no file notes or diary entries to record important meetings or calls with a client. In a "he said/she said" situation, we may be more likely to prefer the evidence of the client, where the broker has no file notes as evidence of a meeting or call with a client. As the professional in the relationship, brokers and advisers will be expected to keep good

December 2019 records and, if their records are lacking, this will reflect on the broker or adviser’s credibility.

Fortunately for the broker, in some cases the lack of records has not been the cause of the loss the client is claiming. However, had proper records been kept, it is more probable than not that the complaint would never have ended up at FSCL. The case below is an example of this.

CASE STUDY

WHERE DID MY INSURANCE GO?

In December Sanjay arranged insurance for his taxi through an insurance broker. He intended paying for the insurance through an instalment service offered by the broker, but the payments were dishonoured with the notation "account closed". The broker wrote to Sanjay twice, and sent a new direct debit form, but the form was not completed and returned, so the policy was cancelled.

The following May, Sanjay purchased another taxi, and went through the same process again. While Sanjay thought he was arranging insurance for his new taxi, all the broker’s records referred to insurance for the first taxi that was intended to be effective from 1 August. Again, the broker arranged payment for the insurance through its instalment service.

On 10 July the taxi was involved in an accident. The first payment for the insurance was due on 10 August. The payment was dishonoured, again with the notation "account closed". The broker wrote to Sanjay twice, and then the policy was cancelled.

Two years later Sanjay contacted the broker because the insurer of the other car involved in the accident was pursuing him for the cost to repair the damage. Sanjay considered the broker should be responsible for the loss because he had asked it to arrange cover and it had not done so.

The broker responded by saying that it had no record of ever arranging

insurance for the car involved in the accident and, in any event, Sanjay had not paid for any insurance.

Sanjay disagreed and referred his complaint to FSCL. DISPUTE

Sanjay said the broker had made a mistake by arranging insurance for the first taxi again in May. Sanjay said he told the broker he had purchased a new taxi and needed insurance cover for the new taxi immediately. Sanjay agreed that he had received the letters from the broker about the cancelled insurance, but said he thought they related to the first taxi, which he was no longer driving.

The broker could not understand why Sanjay had referred his complaint to us. From the broker’s perspective there was no case to answer: • it had no record of ever arranging insurance for the car involved in the accident • Sanjay had never paid for any insurance • it knew nothing about the accident for two years. REVIEW

We had very little information about the circumstances giving rise to the complaint. There were no telephone recordings or notes of any of Sanjay’s conversations with his broker. As a result, it was impossible to work out where the misunderstanding arose. Inadequate record-keeping impacted on the broker’s credibility. However, the little information that was available indicated that the broker was not responsible for Sanjay’s lack of insurance cover at the time of the accident.

Although Sanjay said the broker made a mistake by reactivating the cover that had previously lapsed, there was no evidence to support his belief that he had insured the second car. All documentation from the broker referred to the first car. We did not consider it reasonable for Sanjay to ignore the letters advising the insurance had been cancelled because they referred to the first car. These letters should have prompted Sanjay to contact the insurer to resolve the misunderstanding.

We also would have expected Sanjay to notify his insurer immediately after the accident, even if he believed he was not at fault. RESOLUTION

We explained to Sanjay that we could see no evidence to find that the broker was responsible for his loss. Sanjay did not respond to us, so we closed our file. OUR INSIGHT

This complaint appeared to have little merit from the outset, but the lack of record-keeping meant that it required an investigation and decision from us. INTERNAL COMPLAINTS PROCESS

Brokers will have to have an internal complaints process for resolving client complaints. It is important to bear in mind that a complaint means a “an expression of dissatisfaction made to an organisation, related to its product or service, or the complaints/handling process itself, where a response or resolution is explicitly or implicitly expected.” An internal complaints process should provide for: • acknowledging complaints as soon as practicable • giving information to the client about the process and how it works • resolving a complaint and providing a response to the client as soon as practicable • keeping a written record of all complaints and the action taken to resolve them • telling the client the name and contact details of your external dispute resolution scheme Once again, we often find that a complaint needlessly escalates to FSCL because the broker has failed to recognise a complaint from a client and has then failed to deal with the complaint promptly, leaving the client with no option but to go straight to FSCL.

AFTER THE EVENT INSURANCE - A NEW OPTION TO REDUCE LITIGATION RISK?

By Andrew Horne, partner, and Cora Choi, solicitor at Minter Ellison Rudd Watts

The Court of Appeal’s recent decision in Houghton v Saunders [2019] NZCA 285 indicates that litigants in New Zealand may be able to benefit from an After the Event costs insurance policy (ATE policy). This may increase litigation before the courts, as litigants can issue proceedings with insurance against the risk of large adverse costs awards.

After the Event policies have long been available in England, but they are not part of the New Zealand litigation landscape. The Court’s decision highlights that they are available and acceptable, although they do not provide all of the benefits provided when first offered in England (discussed below). If the policies become widely accepted in New Zealand, this may change the way people approach litigation and assess litigation risk – and a rise in litigation is likely.

An ATE policy is insurance that protects a litigant (normally a plaintiff) against the risk of an adverse costs award if the litigant loses the case. In return for a premium, the insurer assumes the risk of a costs award against the litigant. This allows plaintiffs to bring proceedings without the risk of incurring a costs liability if they lose, in addition to their own legal costs. When ATE policies first became available in England, the courts allowed successful plaintiffs to include the cost of the ATE premium as a disbursement, so that the policy was effectively free to the plaintiff if they won the case and it protected them if they did not. Now, however, the rule has changed and a plaintiff must bear the cost of the ATE premium itself. BACKGROUND TO ATE POLICIES

ATE policies, unlike most forms of insurance, are purchased once a dispute has arisen or proceedings are contemplated. If the insured party is successful in the action and does not have to pay costs, the policy is not triggered. However, if the insured party loses and an adverse costs order is made against it, the policy will cover the insured party’s exposure to the adverse costs order.

Subject to variations and exceptions on a case by case basis, the following is an outline of the basic principles upon which an ATE policy works:

(1) Cover is triggered when an insured party loses litigation. (2) It usually covers:

December 2019 (i) adverse costs orders requiring the insured party to pay the winning party’s costs; (ii) the insured party’s own disbursements; and (iii) a portion of the insured party’s lawyer fees. (3) The insured party could be bringing or defending the claim, but is normally bringing it. (4) An ATE policy is available in theory regardless of the subject matter of the civil dispute and regardless of the type of relief or remedy being sought (monetary or otherwise). (5) The main requirement for obtaining an ATE policy is to satisfy the insurers that the insured party’s chance of success on the merits of the case is at least 60% (this minimum threshold can be higher) and that the insured party will be able to pay the ATE premium if required to do so. (6) The ATE policy premium, often between 20% and 50% of the amount of costs being insured, may be “deferred and contingent upon success”. This means that the insured party need not pay the premium up front and is only liable to pay it if it wins the case. If the insured party loses the case, there is no premium to pay and the insurer pays out any court costs and disbursements under the policy. (7) The level of premium can also be staged, increasing in amount the further the litigation/arbitration progresses, so that if the case settles early, a lower premium is payable. ENGLAND’S APPROACH TO RECOVERING

In England, a winning insured party was initially entitled to recover ATE policy premiums from the losing party as a part of the costs award under the Access to Justice Act 1999 (UK) (AJ Act), meaning that insured parties were able to litigate essentially risk free in terms of costs awards.

This principle originated from the argument that the ATE premium cost was incurred as a result of the losing party causing the winning insured party to incur the cost of the proceedings. Where they had lawyers willing to act on a ‘no win no fee’ basis, or a litigation funder, they had no risk at all.

This changed when the Legal Aid Sentencing and Punishment of

Offenders Act 2012 (UK) (LASPO) came into force on 1 April 2013. The LASPO repealed the AJ Act which allowed a winning insured party to recover ATE premiums from the losing party. Prior to this, there were growing concerns that ATE insurance was partly responsible for inflating legal costs, and contributing to rising ATE premiums, there being no incentive for insured parties to reduce their premium costs. There was also concern that this could breach consumer protection laws.

The LASPO now provides that premiums for ATE policies entered into on or after 1 April 2013 must be paid by the winning insured party, and will not be recoverable from the losing party. There are a few limited exceptions to this – ATE premiums can be recovered by the winning insured party in certain clinical negligence proceedings, and only to the extent that they relate to the costs of an expert report or reports. However, if the Court finds that the ATE premium is unreasonable to any extent, the winning insured party is liable for the shortfall. THE COURT OF APPEAL’S DECISION IN HOUGHTON V SAUNDERS

The case involved an application for costs by Mr Houghton in the Court of Appeal, following a partially successful application for leave to appeal a Court of Appeal judgment to the Supreme Court. Based on his partial success in the Supreme Court, Mr Houghton sought recovery of his ATE premium of $47,000 from the respondents as a part of his costs award. Mr Houghton categorised his ATE premium as a disbursement.

Recovery of disbursements in the Court of Appeal is governed by rule 53 of the Court of Appeal (Civil) Rules 2005, which provides that “the Court may in its discretion make any orders that seem just concerning the whole or any part of the … disbursements of an appeal”. “Disbursement”, has the same meaning as defined by rule 14.12(1) (a) of the High Court Rules, being “an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”.

The Court of Appeal accepted Mr Houghton’s argument that the ATE premium was capable of being categorised as an expense reasonably paid or incurred by him for the purpose of the appeal.

However, despite that finding in principle, the Court of Appeal declined to allow Mr Houghton to recover the ATE premium as a disbursement. The Court held that recovery would not be in the interests of justice, because it seemed to be “patently unfair that unsuccessful defendants should have to meet significant additional costs to cover a [litigant’s] insurance against the prospect of their losing” (at [26]).

In reaching that decision, the Court of Appeal was influenced by the approach now taken in England, where ATE premiums are no longer recoverable from a losing party. In particular, the Court referred to one of the reasons behind the LASPO, being that recoverability of ATE insurance premiums imposed disproportionate cost burdens on defendants, while plaintiffs were able to litigate risk-free. WHAT DOES THIS MEAN IN PRACTICE?

New Zealand litigants are unlikely to be able to claim their ATE policy premiums as a disbursement in the event of a successful claim or defence. Despite this, the fact that ATE insurance appears to be available in New Zealand and the courts have not indicated that it is not effective is likely to encourage litigants who have a valid claim but cannot afford a costs liability in event of a loss, to press a case on to trial that they might otherwise not have started or may have settled.

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Each year Rothbury Insurance Brokers recognises and celebrates the achievements of individuals and teams across the business. This year the 2019 Rothbury Annual Awards took place at a black tie event at the RACV Royal Pines Resort on the Gold Coast, as part of Rothbury’s biennial Commercial Conference. Best Commercial Broker was awarded to Steve Pyke from Wellington Capital City Branch. The other winners were: Best Domestic Broker, Donna Hyslop from Tauranga Branch; Commercial Broker Support Service Excellence Award, Fiona Jamieson from Auckland; Claims Adviser Service Excellence Award, Fiona Craig from Canterbury branch; and the Best Broking Branch winner overall went to the Hawke’s Bay Branch. When asked what it felt like to be awarded the title of Best Commercial Broker, Pyke said: “I was ecstatic, this was my first nomination and I haven’t actually won an individual award before – it’s always been team stuff before. I think the tools I have to work with at Rothbury and the way our business is structured makes it easier for me to do my

Steve Pyke & Kelly Sturmey

job. Ultimately attitude is everything though. If you think you can do it, you can. I concentrated on my service levels, set achievable goals and followed up on all the leads I got from my clients. I couldn’t have done it without Kelly Sturmey, my broker support. She’s pretty damn good. Kelly was a big part of my win.”

Rothbury expands in Northland

Ascot Insurance Brokers has become part of Rothbury Insurance Brokers. The Ascot partnership will double the size of Rothbury’s existing Northland branch, adding to the team four senior brokers and seven support staff. Managing director Roger Abel said: “Growing the business and expanding our presence around the country is part of our growth strategy, and building more capability within the Northland team is exciting.

Alliance to boost growth

Rothbury Insurance Brokers has entered a strategic alliance with Kiwi business advisory group Grow NZ Business to promote growth for its business clients. Grow NZ Business links Kiwi SMEs to trusted local and global business partners, offering them access to world-class solutions across all facets of business. As part of the alliance, Rothbury business clients will be offered free Grow NZ Business membership for one year, and Grow NZ Business members will have access to Rothbury’s award-winning insurance broking expertise and claims advocacy services. Members will also benefit from receiving localised service from its 20 branches throughout the country. “Our business has never been just about insurance,” said Rothbury strategic partner manager Richard Davis. “We are a people company and we think of ourselves as a strategic business partner to our clients. We’re constantly on the

“Ascot is a great fit for us, they have operated in Northland for the last 20 years and have very strong connections to the local community.” Rothbury and Ascot are working to align the two businesses to ensure minimal disruption to clients. The business will continue to provide a range of insurance services including commercial, domestic and rural. Rothbury is now the third-largest broking company in New Zealand. It remains a majority-owned and controlled New Zealand company with more than 45,000 clients and almost 320 staff, operating in 20 locations around the country.

hunt for new ways we can add value for our clients and their businesses. Forming an alliance with Grow NZ Business gives our clients access to trusted business advice and hands-on support to help them grow their businesses sustainably.” Davis said working alongside Grow NZ Business was a natural fit as the two companies shared similar values and the same ultimate end goal: to support New Zealand businesses. Grow NZ Business founder Jamie Farmer said he was delighted to work with Rothbury to help add value for its clients. “We are really looking forward to welcoming Rothbury clients to our growing group of more than 8000 Grow NZ Business members. We’re confident our new members will gain instant value by being part of our network and will benefit from the tried and tested hands-on support and strategic business advice our partners offer to help Kiwi businesses grow sustainably.”

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