King & Wood Mallesons

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Directors win insurance tug of war with class action claimants

The NSW Court of Appeal has considered whether NSW legislation that creates a statutory charge over insurance moneys in favour of third-party claimants applies to advancement of defence costs under a D&O policy. This was a significant issue for directors and officers. If the charge applied, it would mean that insurers could not safely advance defence costs if the potential claim liability was greater than the insurance cover, thereby effectively depriving directors and officers of one of the principal benefits of their insurance cover.

This issue came up for consideration in the Great Southern class action. The insurers of directors and officers joined as defendants in those proceedings sought a ruling on whether the statutory charge applied.

The court held unanimously that the NSW legislation only applies to proceedings brought in NSW courts, which means that directors currently defending proceedings in the Great Southern class action and other litigation before the Victorian and WA Supreme Courts will not be prevented from accessing their D&O defence costs, despite the existence of potential third-party claims on the same policy: see Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212…

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