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Missing premium payment lost in translation?

Daniel cannot afford his insurance premiums

Daniel owned a number of commercial properties in Levin. At the start of 2011 Daniel entered into a period of financial hardship. In April 2011 Daniel contacted his insurance broker, Direct-Insure Limited (“Direct-Insure”), to say that he was experiencing financial hardship and he anticipated that he would be unable to pay the premiums for his commercial properties when they fell due. Daniel’s properties were insured with VVV Insurance (“VVV”).

The premiums were due on 31 May 2011. Direct-Insure paid the insurance premiums of around $30,000 on Daniel’s behalf. Direct-Insure paid the premiums because, due to the age and condition of the buildings, if the policies were to lapse it would be difficult to find new insurance cover. Direct-Insure paid the premiums for the insurance period 1 June 2011 – 30 May 2012, effectively lending the premiums amount to Daniel.

There was no written record of the terms of the loan for the insurance premiums or how repayments were to be made. It appeared the entire arrangement was discussed in person.

When the premiums for the next insurance period (1 June 2012 – 30 May 2013) fell due, David was still in financial hardship and had not made any repayments to Direct-Insure. Direct-Insure was not in the position to continue to pay Daniel’s premiums. The VVV policies lapsed on 26 June 2012.

On 25 July 2013 Daniel visited Direct-Insure’s offices and passed over a cheque for $4,245.08. Direct-Insure applied the $4,245.08 to the $30,000 debt Daniel owed for the 2011-12 premiums.

On 20 January 2014, an earthquake caused damage to several buildings in Levin, including one of Daniel’s properties on King Street. On 23 January 2014, Daniel contacted Direct-Insure to discuss insurance cover for the King Street property. Daniel was told that there was no insurance cover in place. Because the King Street property was uninsured this also meant that Daniel could not make a claim to the Earthquake Commission (EQC). The King Street building needed to be demolished by Daniel at a cost of $150,000.


Daniel’s view

Daniel said that on 25 July 2013 Direct-Insure did not tell him that his payment of $4,245.08 was to be applied to the debt. Daniel said that he intended the payment to be paid by Direct-Insure to VVV for a year’s insurance cover beginning 25 July 2013.

Daniel argued that Direct-Insure acted negligently when managing the insurance cover for his King Street property and if Direct-Insure had paid the $4,245.08 to VVV then he would have had insurance cover for the King Street property demolition costs. Daniel wanted Direct-Insure to pay him $150,000 for the demolition costs.  


Direct-Insure’s view

Direct-Insure said there was no way Daniel could have thought that the $4,245.08 payment was to be paid to VVV to reinstate the King Street property’s policy from 25 July 2013. Direct-Insure said it had warned Daniel that it would be difficult to find an insurance company to provide cover once the VVV policies lapsed. In Direct-Insure’s view it was clear that Daniel could not expect that a policy which had lapsed over a year before would be automatically reinstated.

Direct-Insure also said that it had contacted Daniel multiple times reminding him of his outstanding debt and believed Daniel understood that the $4,245.08 payment on 25 July 2015 was being applied to his debt.

Further, Direct-Insure said that under Daniel’s VVV insurance policy for the King Street property, there was no cover for damage caused by earthquakes so even if the policy was reinstated, VVV would not have provided any cover for the demolition costs.


FSCL’s view

We were satisfied that Daniel was aware that his VVV policy did not cover losses resulting from earthquakes. However, if the VVV policy had been in place at the time of the earthquake, then the EQC may have considered a claim.

From file notes and emails between Direct-Insure and Daniel, we found that Daniel had been warned that given the age and condition of the King Street property it would be difficult to find insurance cover in the event that the VVV policy lapsed. We also found that Daniel was aware that the VVV policy lapsed on 26 June 2012.

Direct-Insure’s file note dated 25 July 2013 clearly showed that when Daniel paid Direct-Insure the $4,245.08 amount, Direct-Insured advised Daniel that VVV’s policy could not be reinstated.

We accepted Direct-Insure’s argument that Daniel could not reasonably expect that when he made the payment of $4,245.08, the lapsed policy would be reinstated from 25 July 2013 onwards.

In our view, Direct-Insure adequately advised Daniel that there was no insurance cover in place and that the $4,245.08 payment was to repay his debt to Direct-Insure. We recommended that Daniel’s complaint was not upheld.



This case highlights the importance of keeping good file notes and email records.

The clear evidence we had from the broker’s file was of considerable assistance in determining that the broker had no liability to Daniel.