News@agcs - Allianz Global Corporate & Specialty

Regional Manager Financial
Lines, AGCS, Bill Hassos.
* This option runs a
risk of uncertainty if
something is missed
in the endorsement
drafting. Other issues
may include the
availability of additional
insurer capacity and
that the additional
cover would result in
premium increases.
4
NZ High Court
Adversely affecting D&O policies
A recent ruling by the Auckland Court has caused
uncertainty for directors of companies with regard
to the extent to which they can fund defence costs
through their Directors’ and Officers’ (D&O) liability
insurance cover.
This is concerning not only for New Zealand directors
but also for Australian directors given there is similar
legislation in three states:- s6 LRA 1946 (NSW),s26-28
LRA1956 (NT); and s206-209 CLA 2002 (ACT) .
Regional Manager Financial Lines, AGCS, Bill Hassos said
that “there are a number of ways in which insurers and
insureds can safeguard against any potentially adverse
consequences of the Bridgecorp decision.”
One method is to consider purchasing a separate policy
designed specifically for defence costs. If the traditional
D&O policy is to be maintained directors and their
brokers should consider the following options:
1. Amend the coverage to create separate limits for
damages or compensation claims and another limit for
defence costs.
2. In the event that the D&O policy is purchased with
Entity/Company Securities (‘Side C’) cover, directors
and companies need to decide whether the ‘separate’
defence costs are for the benefit of the directors and
officers only, or in the event of a securities claim against
the company, the company will also have access to such
costs.
3. Include an endorsement, which provides additional
defence costs only, in the event that the blended defence
costs cover is prevented by a statutory charge.*
“Whatever the outcome of the appeal, it is prudent
for Australian and New Zealand directors to review
their policies and talk to their brokers. Changes may be
required to ensure that they are appropriately covered,”
Bill said.
AGCS have two options available for their clients.
A traditional D&O policy with separate limits for
damages or compensation and a separate limit for
Defence costs; and A separate ‘Defence Costs‘ only
Excess Policy.
Clients will also benefit from the expansion of the
Financial Lines Team, with the the appointment of two
new senior positions in Perth.
Neil Bowdrey, Manager, Financial Lines, Western
Australia and Jack Chia, Senior Underwriter, Financial
Lines, Western Australia have joined the AGCS Team
to manage and underwite for Financial Lines clients
in Western Australia. Both roles will report to Regional
Manager, Financial Lines, Bill Hassos.
Case in brief
The case relates to the collapse of the Bridgecorp
companies in 2007, which left some 14,300
investors out of pocket by more than $450 million.
The former company directors were faced with
criminal and civil proceedings and by 2009
directors, having exhausted statuary liability policy
with a limit of NZ$2 million for their defence costs,
sought to access Bridgecorp’s $20 million D&O
policy, with QBE, to fund their defence costs.
The Bridgecorp receivers opposed any attempt
to access any defence funds, claiming that they
intend to bring civil proceedings against the
directors, and that they have first claim over the
insurance monies because of s9 of the Law Reform
Act 1936 (New Zealand). The Auckland High Court
agreed, and ruled that the directors were denied
access.
This means that if a civil claim that exceeds
the policy limit has been, or will be made, then
directors cannot rely on the policy to pay defence
costs even if the civil claim has not yet been filed,
quantified or the chances of success are not clear.
Therefore a charge has effect over ‘all insurance
money’ that is, or may become, payable in respect
of that liability.
While the judgment is under appeal, if upheld, the
decision could potentially affect many Australian
and New Zealand company directors.