Statutory charge on insurance moniesAuthors: Simon Lusk
In Steigrad & Ors v BFSL 2007 Limited & Ors the High Court of New Zealand ruled that third party claimants have a statutory charge over the whole of the moneys payable under a directors and officers liability insurance policy, and that that charge took priority over any claim by the directors to defence costs. The decision has been regarded with alarm by many in Australia, not least because one of the main reasons why a company might purchase D&O insurance is to provide protection for its directors, including in relation to often substantial legal defence costs. Various responses have been suggested including increasing the total sum insured so that it is more than any likely claim plus defence costs, providing separate limits of indemnity for liability and defence costs or amending cover so that defence costs are payable in addition to the limit of indemnity. Some insurers have responded by restructuring their D&O offering to provide stand alone defence costs insurance policies.
In this article we consider the Bridgecorp decision and its implications in Australia and also look at a limitation on the application of the charge where the insurance policy is written on a claims made basis, as most D&O policies are.
Significant cases, legislation or articles referred to
- Steigrad & Ors v BFSL 2007 Limited & Ors  NZHC 1037 (15 September 2011)
- Section 9 Law Reform Act 1936 (New Zealand)
- Section 6 Law Reform (Miscellaneous Provisions) Act 1946
- Section 206 Civil Law (Wrongs) Act 2002
- Section 26 Law Reform (Miscellaneous Provisions) Act
- Owners – Strata Plan No. 50530 v Walter Construction Group Limited (in liquidation) & Ors  NSWCA124
- FAI General Insurance Co Ltd v McSweeney  73 FCR 377
- Macquarie Underwriting Pty Ltd v Permanent Custodians Ltd  FAFC60
- Genworth Financial Mortgage Insurance Pty Ltd v KCRAM Pty Ltd (in liquidation) (No 2)  FCA1124