Five trends to follow in insurance-related liability claims disputes

A combination of economic pressures, legislative changes and emerging risks are shaping how insurers, brokers, and businesses navigate liability claims. It’s an issue gaining a brighter spotlight – and it’s the topic of a panel discussion at this year’s New Zealand Liability Conference.

Michael McKenzie, Underwriting Manager – Financial Institutions, Berkshire Hathaway Specialty Insurance, recently joined the New Zealand Liability Conference Committee and helped shape the panel of experts discussing insurance-related claims, disputes, and litigation.

McKenzie has worked in insurance for 15 years across both broking and underwriting roles and returned to New Zealand less than three years ago after beginning his insurance career in the UK.

“There are fascinating businesses out there, and being able to discuss ambitions, challenges, risks, operations, and processes with business representatives across the globe who are passionate about what they do has always been a highlight of the role,” says McKenzie, who joined the Liability Conference Committee as an opportunity to collaborate with other industry professionals.

“More recently, the move back to New Zealand and Berkshire Hathaway Specialty Insurance has brought me to an entirely new marketplace from what I had experienced in the UK. This has been both challenging and hugely rewarding. Developing relationships and being responsible for a portfolio on home soil is a standout for me.”

Tracking liability trends

As the legislative landscape continues to evolve and regulatory bodies become increasingly active, McKenzie notes that insurers need to be on top of the changes.

“Understanding those changes and implementing necessary processes to ensure compliance with legislation is important,” he says.

What are the key trends shaping the insurance-related claims, disputes and litigation landscape this year? The following topics will be up for discussion.

1. Increase in financial distress

New Zealand is currently facing significant economic challenges that are impacting both financial distress levels and the insurance sector. The Reserve Bank of New Zealand (RBNZ) has highlighted a severe recession as a key risk to the country's financial system, noting that economic strains are affecting both households and businesses.

David Friar, specialist litigation barrister at Mills Lane Chamber is a panel member on the Claims disputes and litigation trends panel at the conference, to be held 29 May. He says the increase in financial distress is often seen as leading to more claims against professionals as companies or projects in financial trouble seek to recoup losses.

“Although it remains to be seen whether this plays out in the current cycle, increasing financial distress raises potential issues for professionals and their insurers,” he says.

“For example, a property developer in financial distress may seek to make claims against the lawyers or other professionals involved in the development, particularly in a case where the developer may be facing the threat of litigation themselves.”

The devastation of the Christchurch earthquake is another example.

“We see a number of claims against professionals advising in relation to the extent of insurance cover as well as claims against professionals involved in the rebuild following natural disasters like the earthquakes in Christchurch,” Friar says.

McKenzie says industries such as retail, construction, hospitality and manufacturing sectors are particularly affected by the economic downturn due to a combination of factors like inflation, changing consumer behaviour, rising costs and disruptions in supply chains.

“As a result, insolvencies are anticipated to increase through 2025, which will only result in an increased level of claims or litigation,“ he says.

2. Increase in the D&O space

A recent court ruling in New Zealand that expanded the potential liability of directors may lead to an increase in D&O liability claims as more companies enter formal insolvency processes.

In Yan v Mainzeal Property and Construction Ltd (in liq), the Supreme Court considered the scope and extent of director liability when trading insolvent, including the extent to which a director might be liable for new debts incurred while a company trades insolvent. 

The Court found three directors were liable for breaches of their legal obligations, including the company’s failure to act in good faith, despite knowing that the company was at risk of insolvency, and should personally pay NZ$36 million in damages for their role in the collapse.

“The Mainzeal decision confirmed that New Zealand’s law on directors’ duties is more onerous than it is in Australia and England,” says Friar. “It allowed more damages to be claimed from directors than was originally thought to be permitted under New Zealand law.

“As a result, we may see more D&O claims due to companies getting into financial distress,” he says.

3. Third-party funding market a boost for litigations

A growing third-party litigation funding market in New Zealand is also driving an increase in liability claims, as funders seek to pursue successful cases, including securities class actions, says Friar.

“The Mainzeal case, for example, was supported by a litigation funder, and its success may well encourage funders to pursue further claims,” he says. 

“Additionally, there have been securities class actions, such as the Intueri class action, which settled for an undisclosed amount last year,” adds Friar. “While there have been some failures, like the James Hardie case, the successes may prompt funders to become active in this space.”

Another key development is the New Zealand Court of Appeal’s decision to allow common fund orders to be made at the start of a case in favour of litigation funders. 

While the Australian High Court ruled against the use of common fund orders in 2019, and early stage common fund orders in 2024, the situation was different in New Zealand.

“The Court of Appeal took the opposite view to the High Court of Australia, and the New Zealand Supreme Court refused to allow an appeal,” says Friar. “This is likely to encourage more funders to enter the market, knowing they can launch claims with the benefit of a common fund order.”

4. Complexity of class action suits 

As litigation funding becomes more common, it is likely to enable more complex claims, including securities class actions that would require substantial capital to pursue, says McKenzie.

“For public companies, the likelihood of complex Entity Securities Class Action suits is far more prevalent, particularly those with dual listings across NZX and ASX,” he says.

Additionally, a change in the legal landscape suggests that New Zealand companies might be more vulnerable to being sued in Australian courts, especially in matters involving securities or other significant claims.
 
“Australian courts have ruled that they have jurisdiction to hear and determine claims under New Zealand legislation,” says McKenzie. “In the past, New Zealand companies were deemed more protected from this type of litigation with foreign exempt status.”.

5. Legislative change and regulatory bodies

Significant legislative developments aimed at enhancing consumer protection and clarifying the relationships between insurers and policyholders are also bringing new requirements for insurers, says McKenzie.

“The ever-changing state of legislation, and the need for both insurers and their customers to keep up with it, is a challenge,” he says. “For example, changes to the Conduct of Financial Institutions regime and the Contract of Insurance Act 2024 both require implementing necessary processes to ensure compliance.

“With regard to regulatory scrutiny, the Commerce Commission is also increasingly active,” adds McKenzie.

“We’re also seeing the Financial Markets Authority (FMA) more engaged with enforcement action more likely. WorkSafe, is equally active in addressing health and safety issues across all sectors.”

McKenzie warns that underinsurance, or customers with insufficient insurance programs in place, is another issue to be aware of. 

“There is still some aversion to buying D&O insurance for some companies, where the value is just not seen by buyers,” he says.

“D&O claims can arise from unexpected origins, and with rising legal costs, robust protection for individual directors has become essential.

Mackenzie also points out that if interests are not aligned in the event of a claim, t is crucial to have sufficient limits in place to ensure access to independent legal representation for all parties involved.

"Additionally, directors need to consider a D&O program that clearly separates liability limits and defence cost limits.," he advises."

"Following the Steigrad v Bridgecorp decision, New Zealand’s current law effectively denies insured individuals access to defence costs when liability and defence costs limits are combined and potentially impacted by a third-party claim.

"Without a well-structured D&O program in place there’ll always be a greater risk for disputes over claims decisions.”

Find out more about this year's NZ Liability conference