Contingent Defence Costs Insurance
A bespoke insurance solution for Directors & Officers that responds if other forms of indemnification are not available.
A Directors & Officers (D&O) liability policy is designed to provide defence costs cover for directors and officers. However, a recent High Court Decision has put this cover at risk where a company becomes insolvent and a third party claimant seeks to enforce a statutory charge over the insurance proceeds of the D&O policy.
Background
The New Zealand High Court (the equivalent of our State Supreme Courts) handed down a decision on 15 September 2011 in the case of Steigrad v BFSL 2007 Ltd & Others (the “Bridgecorp” case) that prevented a D&O insurer from advancing defence costs to insured directors to fund their defence of criminal and civil proceedings.
The decisions was based on the operation of section 9 of the Law Reform Act 1936 in New Zealand which was held to impose a charge in favour of the third party claimants over all insurance monies. There are equivalent legislative provisions in Australia in NSW, the ACT and the Northern Territory.
Directors Exposure
Whilst there is an appeal pending in this matter, the Bridgecorp decision does cast considerable doubt on the ability of directors and officers to access indemnity afforded by their D&O policy.
The legislation applies to all liability policies and all third party claims which might be covered under them. The Bridgecorp decision has implications for a wide range of litigation exposures, from class actions, often funded by litigation funders, to regulators, who are increasingly visible and exercising their enforcement powers, be it through criminal prosecutions or civil action for pecuniary penalties and banning orders against directors and officers.
As a result of the Bridgecorp decision, Directors have been left increasingly vulnerable to the prospect of having to fund their own defence costs despite having traditional D&O policies in place. For this reason, dedicated defence and investigation / inquiry costs are now an essential part of any comprehensive D&O insurance program.
InterRISK Solution
InterRISK has worked with the insurance industry to establish a new product to respond to this specific emerging risk.
The Contingent Defence Costs policy offers dedicated defence costs coverage for directors and officers and will respond when the primary and excess D&O insurers are precluded from paying costs and expenses under their policies by reason of a statutory charge under the Australian or New Zealand legislation or its equivalents provided the directors and officers have no other form of indemnification available to them.
The Contingent Defence Costs policy is placed directly with a Lloyd’s of London syndicate with extremely competitive pricing.
If you would like to obtain a quote, or discuss the policy in more detail please feel free to contact your InterRISK Account Manager.
Contact details:
Sydney 02 9346 8050
Brisbane 07 3833 8600
Melbourne 03 8610 8100
DISCLAIMER – This information is not legal or financial product advice and must not be relied upon as such. Whilst InterRISK will do all that we can to assist clients with their regulatory and compliance obligations, as regulatory matters are highly complex and their application to a given situation is open to interpretation, it would be prudent to seek your own legal advice as appropriate.