King & Wood Mallesons

Asia-Pacific 100 position: 2

Ghost of Christmas Past — directors’ defence costs and the Bridgecorp litigation

Last Christmas, the New Zealand Court of Appeal handed down its decision about the effect of statutory charges on the payment of defence costs by D&O insurers.

On 23 December, the Supreme Court of New Zealand set aside the Court of Appeal’s decision, concluding that where there was insufficient insurance cover to meet both third-party claims and a director’s or officer’s defence costs, an insurer could only meet the latter at the ‘peril’ of falling foul of the statutory charge created pursuant to the Law Reform Act 1936 (NZ) s.9. Defence costs did not fall within the scope of the charge, and the existence of the charge could significantly affect the contractual right of a director or officer to be advanced or reimbursed for those costs. While the Supreme Court did not decide whether an insurer could refuse to pay defence costs (as that question was not directly before it), it suggested that an insurer was entitled to be ‘cautious’ about payment of defence costs when faced with a claim subject to the charge…

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