AMP has lost the third round of a battle with CGU Insurance over who should foot a $3.24 million payout to investors who were given bad financial advice.
The High Court ruled yesterday that AMP Financial Planning was not entitled to receive professional indemnity (PI) cover from its former insurer CGU for compensating 47 retail investors six years ago for suffering financial loss.
A panel of five judges agreed by a four-to-one majority with a 2004 ruling by Federal Court Judge Peter Heerey that AMP had not established that the payments were reasonable.
“AMP had no belief that CGU accepted liability, instead making payments for its own commercial reasons to ensure legal proceedings for determining investors’ claims did not occur and to preserve relations with ASIC,” the court said.
In a statement to InvestorDaily, AMP said it was disappointed with the High Court decision but said the company’s first priority was to its customers.
“AMP will always stand behind the advice its planners give as demonstrated by the company’s original decision to fully compensate customers impacted by the actions of the former planners,” an AMP spokeswoman said.
The clients lost their money in 1999 when advised to invest in Hibiscus Spas, of which former AMP adviser Ashtok Pal was a director.
Pal and fellow former AMP adviser Anthony Howarth had recommended their clients invest in the company, which by that stage was in deep financial trouble.
The advisers went bankrupt and ASIC banned them from managing companies until 2010. Their former advice practice, Macquarie Advisory Group was shut down.
AMP also notified CGU of more than $3 million in further unpaid claims.
Under pressure from ASIC to pay out the investors promptly or face the loss of its securities dealer license, AMP went ahead and paid some of the claims while making repeated demands to CGU to determine liability, which was eventually denied.
The case was taken to the High Court last year after CGU disputed AMP’s successful appeal to the Full Court of the Federal Court’s decision.
The High Court ordered that CGU’s second appeal against Justice Heerey’s decision relating to costs should be sent back to the Federal Court.
