The HIH provisional liquidator has politely pointed out to brokers that they must comply with their statutory obligations under the Insurance (Agents & Brokers) Act and hand over money held in broking accounts for HIH premiums. The politeness isn’t likely to last if intermediaries and their clients refuse on the grounds that there are unlikely to be sufficient funds to cover claims.

Brokers’ accounts are informally estimated to hold as much as $50 million slated for HIH. But if the insurer can’t fulfill its side of the contract, is there a contract and can payment be enforced?

Brokers group NIBA has wisely steered clear of offering advice, beyond reminding members of the wording of the relevant legislation and suggesting members seek their own legal advice. It is also preparing a list of recommended lawyers for members.

Under section 37 of the I (A&B) Act – shortly to be repealed under the financial services reforms, brokers are liable to lose their licence and face criminal penalties for any breach.

“If policyholders object to money being paid to HIH, then members should advise the policyholders to seek their own [legal] advice on what should be done,” NIBA said in a note to members.

Because the provisional liquidator has stated that HIH will not be able to fully meet its claims, some brokers believe the contract has been nullified.

ASIC has advised brokers to pay the money over if there is a contract in place, although the regulator also made the point that obtaining individual legal advice is prudent.