How Christchurch City Council made decisions about insurance

Who is responsible for decisions about CCC’s insurance?

13. Within a local authority, the council itself (the formal body made up of all the elected members) is responsible for making decisions, unless it delegates authority to the local authority’s staff. Decisions must be made by staff members who have the delegated authority to make them. If that is not possible or there is no relevant delegation, then the council must make the decision.
14. CCC has a delegations register, which sets out all the delegations to staff. The register states that:
    Once delegations have been made by the Council, then the person to whom the power is delegated is legally able to make a decision within that delegation as if they were the Council itself so that decisions made by committees, community boards, subcommittees and officers within this Delegations Register legally bind the full Council.
15. In August 2003, the Council resolved to delegate its power to purchase insurance cover to the Chief Executive and the Director Strategic Investment. The delegations register states:
    CHIEF EXECUTIVE
    COUNCIL DELEGATIONS
    …
    6. That the Chief Executive and the Director Strategic Investment jointly be granted delegated authority to enter into arrangements for the placement of all the Council’s insurance policies, subject to the exercise of such delegated power being reported back to the Council in each case.
16. Mr Marryatt told us that the position of Director Strategic Investment was disestablished in 2007, and the role was replaced by the General Manager Corporate Services. The delegations register was not updated to reflect the changes in positions.
17. In practice, sometimes decisions about insurance cover need to be made quickly. Brokers provide advice on options and prices for cover but sometimes this advice may only be available shortly before the existing cover is due to expire. In such a case there would not usually be time to put a decision to the Council or a committee. Delegating the decision to senior staff, along with an obligation to report back to the Council, is a practical response to this situation.

The decisions to place insurance in 2007/08 and 2008/09

18. Mr Marryatt took up the role of chief executive of CCC in May 2007. He and the General Manager Corporate Services made decisions about insurance cover, in keeping with the delegation (allowing for the change in position title). At that time, Mr Marryatt was not a director of Civic Assurance.
19. In June 2007, CCC changed its insurance cover from Civic Assurance to NZI/QBE for a period of two years. CCC staff prepared a report to the Audit and Risk Management Subcommittee on the intended approach to that year’s reinsurance programme before the insurance renewal in June 2007. There is no record to show that the decision to insure with NZI/QBE was reported to the Audit and Risk Management Subcommittee after it was made.
20. In March 2008, Mr Marryatt became a director of Civic Assurance. In June 2008, CCC staff briefly considered whether to continue with the second year of the insurance cover with NZI/QBE or switch to another provider, but concluded that no action was necessary. CCC decided to continue with NZI/QBE for 2008/09.

Insurance decisions for 2009/10

21. In June 2009, CCC’s cover with NZI/QBE expired. CCC told us that Mr Marryatt and the General Manager Corporate Services discussed the insurance renewal process some time in the second week of June 2009. Mr Marryatt told us that he made it clear in that discussion that he should play no part in CCC’s insurance renewal process, because of his role as a director of Civic Assurance. Mr Marryatt also told us that he made it clear that Civic Assurance should only be considered if it “stacked up on the merits”.
22. Aon New Zealand Limited, CCC’s insurance broker, gave CCC a report on 25 June 2009 about the options for insurance cover for material damage (that is, cover for damage to property such as buildings and contents) and business interruption. The report presented three options – continuing with the existing insurer, or moving to either Civic Assurance or LAPP. The report noted that the premium offered by Civic Assurance provided a significant cost saving.
23. There were only three working days between the time CCC received this report and the expiry of the policy.
24. Based on the report from Aon New Zealand Limited, the General Manager Corporate Services authorised an email to be sent by the Corporate Finance Manager to Aon New Zealand Limited. The email instructed Aon New Zealand Limited to place the insurance cover for material damage with Civic Assurance on 30 June 2009.
25. CCC told us that the General Manager Corporate Services had monthly meetings with the Chairperson of the Audit and Risk Management Subcommittee to provide updates on financial and risk management issues. He also attended quarterly meetings to brief the Chairperson on upcoming agendas for the Subcommittee. The General Manager Corporate Services discussed the renewal of the insurance for material damage with the Chairperson of the Audit and Risk Management Subcommittee on 23 July 2009.
26. CCC staff prepared a report for the meeting of the Subcommittee on 14 August 2009. The report noted that CCC’s insurance was renewed as expected. The report set out the credit ratings of CCC’s insurers, but did not state which insurer was providing cover for which aspect of CCC’s operations.
27. However, the delegated authority to arrange insurance was jointly delegated to the Chief Executive and the Director Strategic Investment. Excluding Mr Marryatt from the decision meant that the decision was not properly authorised. No-one appears to have recognised this consequence or considered whether corrective action was needed (for example full Council confirming the decision).

Insurance decisions for 2010/11

28. In June 2010, CCC staff again obtained an insurance renewal report from Aon New Zealand Limited. The renewal report assessed options for insurance cover provided by Civic Assurance and LAPP for material damage and business interruptions. Previously, LAPP had provided insurance cover only for infrastructural and below-ground assets. It was now offering cover for other assets, such as buildings and contents, and also offering cover for business interruptions.
29. The General Manager Corporate Services and the Corporate Finance Manager decided to place the insurance cover for material damage and business interruptions for 2010/11 with LAPP. They determined that it was inappropriate to involve Mr Marryatt in this decision, and the General Manager Corporate Services told us that he never discussed this matter with Mr Marryatt. He also told us that he briefed the Chairperson of the Audit and Risk Management Subcommittee on the insurance renewal at a regular meeting on 23 July 2010. There is no record of this renewal being reported to the Subcommittee.
30. Again, no-one appears to have recognised that excluding Mr Marryatt meant that the decision was not properly authorised.

Our conclusion on the annual insurance contracts

31. Mr Marryatt was right to identify, in June 2009, that he would have a conflict of interest because of his role as a director of Civic Assurance and should not be involved in decisions about insurance cover.
32. The risk of a conflict of interest was managed by ensuring that he was not personally involved with insurance decisions. In 2009 and 2010, the General Manager Corporate Services and Corporate Finance Manager made these decisions, and the Chairperson of the Audit and Risk Management Subcommittee was told about decisions after they were made.
33. However, this response to the conflict of interest meant that decisions were not made by staff with the delegated authority. The delegation to obtain insurance cover for CCC was to the Chief Executive and the Director Strategic Investment jointly. This meant that the people in these two roles had to jointly make this decision, or the decision had to be made by the Council. Instead, the decision was made by only one of those people. Nobody identified that the consequence was a failure to comply with the delegation, or that this created a risk.
34. In our view, Mr Marryatt and CCC should have identified the risk of a conflict of interest arising when he was appointed as a director of Civic Assurance in March 2008. CCC’s delegations should have been changed before the next insurance decision was due in June 2008. At the latest, changing the delegations should have been the response when the conflict of interest was first clearly identified by Mr Marryatt and CCC staff in June 2009.
35. Having missed the opportunity to fix the delegation problem in advance, CCC staff should have identified the problem and managed the risk of decisions being made without proper authority when insurance cover was next arranged. They should also have arranged for the Council to change the delegations. Instead, the same problem arose a year later. The response again was to make insurance decisions without proper delegated authority.
36. We note that the delegation also requires decisions about insurance cover to be reported back to the Council. In 2009, a report was provided to the Audit and Risk Management Subcommittee but it did not meet the requirements of the delegation. CCC staff did not provide a report to the Council or the Subcommittee in 2010.
37. In our view, CCC needs to ensure that staff understand that delegations are important and that decisions made without delegated authority expose the organisation to legal risk. It needs to ensure that it maintains a delegations system that is up to date and meets the current needs of the organisation, and that it complies with it.