Most Read Contributor in New Zealand, September 2016
Directors can take comfort from the Court of Appeal decision
today overturning the High Court's controversial interpretation
of section 9 of the Law Reform Act 1936 in Steigrad & Ors v
BFSL 2007 Limited & Ors.1
The effect of the High Court decision was to cast doubt on the
extent to which directors and officers could rely on their
insurance cover to help pay for defence costs on criminal and civil
proceedings. See Chapman Tripp's commentary
Steigrad concerned a directors' and officers'
liability policy to the former directors of Bridgecorp, who were
facing criminal charges brought by the Financial Markets
The High Court held that, where policies which have an aggregate
limit of indemnity for both liability and defence costs and third
party claims either equal or exceed that limit, section 9 of the
Law Reform Act 1936 operates to prevent the defence costs being
advanced to the insured.
This judgment effectively prevented insurers from paying defence
costs if they formed part of the overall limit of the insurer's
indemnity obligation. The Court of Appeal's judgment returns
the position to where it was in September 2011.2
The Court of Appeal held that a section 9 charge does not apply
to a contractual obligation to pay defence costs. There is no
entitlement to a statutory charge over insurance money lawfully
payable in respect of defence costs, as opposed to a
contingent liability for damages or compensation. The two distinct
liabilities can be met from a single, aggregated fund.
A more detailed analysis of the judgment and its effect will
follow in the New Year.
2 Chapman Tripp represented AIG Insurance New
Zealand Limited (previously Chartis Insurance New Zealand Limited)
in the Court of Appeal, in a proceeding involving the same issue
heard together with the Steigrad appeal.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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