How Christchurch City Council managed conflicts of interest when it made decisions about insurance cover.

19 April 2012

What is Civic Assurance?

  1. Mr Tony Marryatt was appointed as the chief executive of Christchurch City Council (CCC) in 2007 and reappointed in September 2011. In March 2008, he was appointed as a director of New Zealand Local Government Insurance Corporation Limited.
  2. New Zealand Local Government Insurance Corporation Limited is a company created and owned by local authorities to provide them with insurance cover. The company uses “Civic Assurance” as its trading name.
  3. Most local authorities, including CCC, are shareholders of Civic Assurance. Directors of Civic Assurance need a strong understanding of local authority matters – all of the current directors either are in senior management roles in a local authority or have previously been in such roles.
  4. Civic Assurance also administers several funds operated by other entities, including:
    • the New Zealand Local Authority Protection Programme Disaster Fund (LAPP), which is a charitable trust set up by Local Government New Zealand and Civic Assurance in 1993 to provide insurance for local authority infrastructural assets that are difficult to insure (for example, underground pipes and stopbanks);
    • a KiwiSaver scheme for staff working in the local government sector; and
    • Riskpool, which is a mutual liability fund that provides professional indemnity and public liability insurance for local authorities and council-controlled organisations.
  5. The Appendix sets out more information on the relationship between LAPP and Civic Assurance.

Christchurch City Council’s insurance arrangements

  1. From June 2007 until June 2009, CCC had insurance cover for material damage to above-ground assets with New Zealand Insurance (NZI) and QBE Insurance (International) Limited (QBE). In June 2009, CCC decided to change its insurer for this cover to Civic Assurance. In June 2010, CCC changed again and insured its above-ground assets with LAPP.
  2. CCC has had insurance cover with LAPP for its infrastructural assets since 1 July 1993, including during the recent earthquakes. In 2010, when CCC decided to insure its above-ground assets with LAPP, it kept its “forest and rural fire”, “machinery breakdown”, and “marine hull” insurance cover with Civic Assurance.
Year (starting 1 July) Cover for damage to above-ground assets Cover for damage to below-ground assets and some infrastructural assets
2009 Civic Assurance LAPP

What we have looked at in this inquiry

  1. The changes in insurance cover have prompted some questions about whether Mr Marryatt has had a conflict of interest arising from his roles as director of Civic Assurance and chief executive of CCC:
    • When CCC was considering who to appoint as chief executive in June 2011, a question arose about the compatibility of Mr Marryatt’s two roles. The recruitment consultant assisting CCC wrote to the Auditor-General for advice. Our reply encouraged CCC to get direct legal advice on the issue.
    • Councillor Tim Carter wrote to us in November 2011, asking us to investigate CCC’s decisions on insurance and any potential conflicts of interests for Mr Marryatt.
    • Later in November 2011, we received a letter from the General Manager Regulation and Democracy Services at CCC. The Council’s CEO Performance Review and Remuneration Sub-committee wanted advice about whether Mr Marryatt had a conflict of interest such that he should not be a director of Civic Assurance.
  2. We have inquired into:
    • whether Mr Marryatt was involved in any decisions about CCC’s insurance after he became a director of Civic Assurance; and
    • whether Mr Marryatt’s roles as a director of Civic Assurance and as chief executive of CCC are compatible.
  3. On the first question, we have concluded that:
    • Mr Marryatt appropriately excluded himself from decisions about the placement of CCC’s insurance cover after he became a director of Civic Assurance in March 2008.
    • However, nobody identified that the consequence of this exclusion was that the delegation was not being complied with and so the decisions were not properly authorised.
    • Mr Marryatt and CCC should have identified the risk of a conflict of interest arising when he was first appointed as a director of Civic Assurance and at that time changed the delegations to exclude him from decisions about insurance cover.
    • Having missed that opportunity, the delegation problem should have been identified and addressed to ensure that decisions were properly authorised when insurance cover was next arranged.
  4. In our view, CCC needs to take better care to ensure that staff understand that delegations are important and that decisions made without delegated authority expose the organisation to legal risk.
  5. On the second question – whether Mr Marryatt’s two roles are compatible – we have concluded that there are few areas of overlap between his roles as chief executive of CCC and director of Civic Assurance. The potential conflict of duties is not so pervasive that the two roles are incompatible. In our view, there is no reason for him not to continue in both roles, if CCC puts in place better arrangements to manage his involvement in decisions about insurance.
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