Australia: Defence costs of insurers under threat

Insurance update
Last Updated: 25 October 2011
Article by Peter Rashleigh, Jacques Jacobs and Nitesh Patel

The recent New Zealand High Court decision ofSteigrad & Ors v BFSL 2007 Limited & Ors, High Court of New Zealand CIV-2011-404-611 ("Steigrad Decision") is causing headaches for Australian and New Zealand directors, their insurers and brokers. The decision may have far-reaching implications on the ability of insurers to advance defence costs in certain circumstances.

The Steigrad Decision involves the New Zealand equivalent of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("Section 6"). The Australian Capital Territory and Northern Territory have similar sections - section 206 Civil Wrongs Act 2002 (ACT) and section 26 Law Reform (Miscellaneous Provisions) Act (NT).

Section 6 provides that a statutory charge attaches to insurance monies payable in respect of a claim, in practice allowing the third-party claimant to sue the insurer directly in the event the claimant is unable to pursue the insured (eg if the insured is in liquidation).

If the claimant's potential liability significantly exceeds the available limit under the relevant directors and officers insurance policy ("D&O Policy"), the New Zealand High Court, at first instance, has found that a statutory charge exists in favour of potential claimants over monies payable under the D&O Policy. As a result, there were no available moneys under that policy from which to advance defence costs to the directors.


The directors of Bridgecorp, a group of companies in either receivership or liquidation that borrowed public monies to fund property developments, face numerous claims in New Zealand exceeding $450 million.

Bridgecorp held a D&O Policy with QBE that provided cover, including for defence costs, up to a limit of $20 million. The directors also held a statutory liability policy with QBE ("SL Policy"), which provided cover for defence costs up to $2 million.

The directors exhausted the SL Policy while defending criminal proceedings and sought to use funds under the D&O Policy for further legal costs. Under the NZ equivalent of Section 6, Bridgecorp asserted a charge over any monies payable under the D&O Policy in respect of an intended civil claim against directors for more than $450 million that had not yet been commenced.

At issue was whether a charge existed pursuant to the New Zealand equivalent of Section 6 and if it prevented the directors from accessing defence costs under their D&O Policy with QBE.


Lang J found that a charge existed in favour of the potential claimants over monies payable under the D&O Policy. QBE was prevented from advancing defence costs to the director under the D&O Policy because the potential liability exceeded the available limit under that policy.

His Honour looked at Australian and New Zealand cases to determine the purpose of the relevant section and held it was a mechanism designed to give claimants direct access to insurance monies in appropriate circumstances by preventing an insured from:

  • receiving and disbursing the proceeds of an insurance claim for purposes other than satisfying the claim that proceeds were paid out for; and
  • "entering into a corrupt bargain with the insurer" that would frustrate a claimant's ability to gain access to monies payable under a policy.

In finding the existence of a charge, his Honour held that under the relevant section, the charge descended upon "the date of the event giving rise to the claim".

His Honour relied upon three key factors in finding that the charge prevented payment of defence costs:

  • The charge is over "all insurance money" and no mechanism is provided for the release of funds to meet the insurer's other obligations under the policy where the claim exceeds the cover amount (though His Honour indicated this may differ if the cover amount exceeds the claim).
  • Although this is a harsh result for the directors, it is in accordance with the purpose of the section, which is to prevent the depletion of funds available to a potential claimant.
  • The statutory charge has priority over all others affecting the insurance money and allowing the insured access to funds would put them in a better position than other secured creditors.


This case was the first time a court has considered an equivalent of Section 6 in the context of advancement of defence costs under a D&O policy. It is being appealed and will no doubt be closely followed.

However, it sets a disturbing precedent. The potential impact of this decision is relevant not only to D&O Policies, but also to other policies where defence costs are a critical part of cover, such as professional indemnity, management liability and financial institution policies.

If the NZ Court of Appeal upholds Lang J's decision, it is likely that courts in Australia will interpret equivalent sections (such as Section 6) consistently.

The insurance market is urgently looking at ways to protect defence costs from charges that may otherwise be available under Section 6. We anticipate such ways may include costs in addition limits, separate defence costs cover, or drop-down mechanisms.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.