Theft proof ends legal battle

Kerrin Harrison is due to receive $2.3 million from insurance companies to cover stolen stock. Photo / DOUG Sherring

A North Shore sporting-goods importer has won a six-year battle against its insurers to get compensation for stolen stock.

Pegasus Group went to the High Court after its insurance company, QBE, and the insurer of its warehousing firm, American Home Assurance (AHA), refused to pay out for $354,000 worth of stock that disappeared during 2004-05.

The insurers claimed the stock hadn't been stolen from the warehouse but that the discrepancies were because of stocktaking errors.

In December 2009, Justice Helen Winkelmann ruled there was "relatively unrestrained and widespread theft" from the Mt Wellington warehouse.

She ordered the insurers to pay Pegasus $1.5 million to cover the claim, loss of profit, legal expenses and interest.

But QBE and AHA appealed, arguing that clauses in their policies excluded Pegasus from using its stocktaking records as proof of the missing stock.

The insurers also claimed there was no evidence that dishonesty at the warehouse was widespread.

They said a short period during which covert surveillance cameras were used in early 2005 was the only direct evidence, and that showed about half the employees taking things more than once.

They also said the evidence of a supervisor who saw staff taking things on two out of five days a week over an eight-month period did not indicate that the thieving happened all the time.

But last week the Court of Appeal threw out QBE and AHA's challenges, saying it was clear the goods were taken.

"There is simply no other plausible explanation for Pegasus' losses."

Pegasus owner and director Kerrin Harrison said the battle to get the insurers to pay out had been a nightmare and had ruined his company.

The appeal had been on "ridiculous grounds".

The insurance companies had been obstructive at every turn and had disputed events because they thought they could outlast him. "They had no intention of paying and didn't want to pay. It was nothing to do with the facts of the case.

"We were kind of lucky in a sense, because we had such a lot of paperwork going back a long time.

"Realistically, there would be a lot of companies out there that wouldn't be able to [provide] that."

Harrison is still in business but his operation has been cut in half and the bank will take the $2.3 million the insurers now owe him, including interest.

Pegasus imports items such as drink bottles, bikes, golf clubs and branded rugby balls.

At the time of the thefts, its stock was delivered directly to warehouses operated by New Zealand Express (NZE). An NZE supervisor told the High Court it was a "free for all". He saw employees walking out with cartons full of stock and even saw a staff member back up his car to the warehouse and spend 20 minutes filling it.

Justice Winkelmann said there was also evidence there was a practice of throwing stock over the back fence of the property to be collected later in the day.

Stocktakes in June and August 2004, and again in February 2005, showed large discrepancies.

At the February stocktake, $305,000 worth of goods was missing. NZE said it would compensate Pegasus but went into liquidation in May 2005.

The insurers challenged NZE's stocktaking system, saying the High Court did not give enough weight to the evidence of an employee who said it was a mess. But the first 2004 stocktake was done before the employee started working there.

In addition, stocktakes done by another company following the collapse of NZE found more discrepancies and the insurers were not challenging those, the Appeal Court said. The court said the supervisor's accounts of theft added significantly to the evidence provided by the surveillance-camera footage.

There was also uncontested evidence that an unrelated company lost $120,000 worth of stock from the warehouse about the same time.

Some of the missing items were large and would have taken some effort to remove.

The evidence confirmed the High Court's finding of "an environment where employee dishonesty was the acceptable norm", the court said.

An AHA spokeswoman said the company had no further comment. QBE did not return calls.