Insurers’ relief as D&O reform mooted

The NSW Attorney-General is primed to consider redrafting a law that had thrown doubt on the ability of director’s and officer’s (D&O) cover to pay defence costs of insured parties in some scenarios.

Earlier this month, the NSW Court of Appeal ruled that the controversial Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 did not preclude insurers from meeting the defence costs of insureds protected by D&O policies.

The legislation closely mirrors that behind the notorious Bridgecorp decision in the High Court of New Zealand in 2011, where QBE was prevented from releasing funds from a D&O policy to pay directors’ legal defence costs because liability claims were likely to exceed the policy’s $20 million limit.

Describing Section 6 as “somewhat enigmatic” and unclear, the NSW judgment on Chubb Insurance Company of Australia Limited v Moore 2013 calls for it to be “completely redrafted in an intelligible form, so as to achieve the objects for which it was enacted”.

Insurance Council of Australia General Manager of Communications Campbell Fuller says the ICA has made two submissions to the NSW Attorney-General’s department arguing for the reform.

“The Department was receptive to the ICA’s arguments but wanted to consider the case for reform after the NSW Court of Appeal brought down its decision in the Chubb v Moore case,” he says.

AIG Financial Lines Commercial Institutions Manager Jeremy Scott-Mackenzie says even though the claimants could still appeal, businesses with D&O policies should take heart from the decision.

“It’s a very sensible decision and a pragmatic solution,” he says, adding that D&O was not a consideration in Australia when the law was drafted 67 years ago.