NZ decision reignites Bridgecorp issues

New Zealand’s highest court has thrust the controversial Bridgecorp case back into the spotlight, creating major ramifications for a broad range of liability cover.

In a split three-to-two judgement, the Supreme Court of New Zealand overturned a Court of Appeal decision, hindering insurers from paying out D&O cover for defence costs in some scenarios.

The judgement centred around section 9 of the New Zealand Law Reform Act 1936, which is mirrored in NSW, the ACT and NT.

In 2011, New Zealand’s High Court controversially prevented QBE from releasing funds from a D&O policy to pay directors’ legal defence costs because liability claims were likely to exceed the combined policy’s $20 million limit.

That was reversed by the Court of Appeal before being returned by the Supreme Court.

Insurance brokers need to be mindful of these issues when advising insureds about their cover.

NIBA Legal Adviser and Radford Lawyers Principal Mark Radford says this now settles the question in New Zealand but is contrary to the NSW Court of Appeal decision in Chubb v Moore last year, also known as Great Southern Chubb.

The special leave appeal to the High Court in that case is still pending, with a decision as to whether the appeal will proceed to be given in the first quarter of this year.

Radford says the case affects insurers, insureds and brokers and developments will be very closely watched.

“Obviously it impacts on brokers because they have to give very careful consideration as to the advice they give their clients,” he says.

“New Zealand and Australia now differ in the application of the relevant statutory charge provisions and the ability for insurers to advance defence costs where these are provided under a combined limit of liability under a liability policy.

“Insurers writing business in either or both of Australia and New Zealand need to be mindful of the effect of a statutory charge, and the differences that apply in the relevant jurisdictions to the advance of defence costs accordingly.

“Remember, the charge and the above decision affects a very broad range of liability insurance beyond directors and officers insurance and can catch professional indemnity, public liability and domestic policies such as comprehensive motor and home policies providing liability cover (excluding those excluded by legislation, workers compensation and compulsory third party insurance).”

The above does not constitute legal advice. For specific advice about how the decision may affect your clients, talk to your legal adviser.