Australia: D&O insurance policies: The Bridgecorp Case

Corporate Update
Last Updated: 10 December 2011
Article by Michael Reed and Jack Schmidtke

The High Court of New Zealand's recent decision in the Bridgecorp Case1 may have serious consequences for Australian directors seeking to rely on directors' and officers' insurance policies (D&O policies) to fund their defence costs in civil and criminal proceedings. The High Court found in the case that a statutory charge existed in favour of a potential claimant over monies payable to directors under a D&O policy. The decision has resulted in the insurer of the D&O policy being unable to advance monies to New Zealand directors for the directors' defence costs.

In light of the risk that the High Court's decision may be followed in Australian states and territories which have similar legislation, Australian directors and company officers should ensure that they have adequate cover for all likely claims and defence costs under their insurance policies.


The Bridgecorp Case concerns the Bridgecorp group of companies (the Bridgecorp Group), which borrowed money from the investing public to fund property developments in New Zealand, Australia and Fiji. The Bridgcorp Group collapsed and was placed in receivership in July 2007, owing investors nearly $500 million.

The directors of the Bridgecorp Group now face numerous civil and criminal claims, including prospective civil proceedings in respect of which orders for more than $450 million will be sought against them.

The Bridgecorp Group holds a D&O policy with QBE that provides cover for directors, including in respect of defence costs, up to a limit of $20 million. In general terms, the policy indemnifies the directors in respect of civil and criminal liability that they may incur as a result of their acts or omissions as directors. It also provides cover in respect of any costs that the directors may incur in defending civil and criminal proceedings seeking to establish such liability. The directors sought to use funds under their D&O policy to cover legal costs associated with the ongoing legal proceedings.

The key question in the case was whether a statutory charge existed in Bridgecorp's favour over all monies payable to the directors under the Bridgecorp D&O policy. It was submitted that the charge arose under section 9 of New Zealand's Law Reform Act 1936 (the Act.) It was argued that this section creates a charge in favour of a potential claimant over monies that may be payable under an insurance policy held by the person against whom the claim is made. On such an interpretation, section 9 operates to allow a third-party claimant to sue the insurer directly in the event the claimant is unable to pursue the insured (for example, if the insured is in liquidation.)

The wording of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) mirrors that of section 9 of the Act. Thus the outcome of the Bridgecorp Case is of significant importance to the future operation of insurance policies in Australia in circumstances where defence costs are a critical part of the cover.

Decision Drawing upon both New Zealand and Australian case law, Lang J found that section 9 of the Act did give rise to a statutory charge in favour of Bridgecorp over monies payable under the D&O policy to the directors. Accordingly, QBE was prevented from advancing defence costs to the directors under the policy as the potential liability of the directors exceeded the available limit under the policy.

Justice Lang made the following key decisions in his judgment:

  • The statutory charge created by section 9 is over "all insurance money" and no mechanism is provided under the Act for a release of funds to meet the insurer's other obligations to the insured under the policy where the claim exceeds the limit of cover. However, Justice Lang did indicate that this may not be the case if the limit of cover exceeds the claim.
  • The fact that the amount of a claim has not been determined will not prevent the statutory charge from coming into existence.
  • The charge can arise notwithstanding that the insurer has not yet accepted the claim, and/or where the insured has not established that the claim is covered by the insurance policy.
  • The statutory charge has priority over all others affecting the insurance monies.

Although Lang J conceded that the High Court's determination produced some "unsatisfactory consequences" for directors and company officers, His Honour noted that the decision was in accordance with the purpose of section 9 of the Act, which is to prevent a depletion of funds available to a potential claimant.

The decision has been appealed.

Consequences for Australian directors and company officers Until the decision is considered by New South Wales Courts or overturned on appeal, great uncertainty will remain regarding the impact of the decision on Australian directors and company officers seeking to rely on existing insurance policies to fund their defence costs.

The potential impact of the decision is relevant not only to D&O Policies, but also to professional indemnity, management liability and financial institution policies where defence costs are a critical part of the cover. An insurance policy that covers both defence costs and liability to potential third party claimants may no longer operate to provide defence costs to directors and company officers in instances where the potential claim is in excess of the cover limit.

In light of the uncertainty brought by the decision, some Australian insurers and insurance brokers are currently looking at ways to revise the terms of their existing D&O polices to ensure that coverage for defence costs continue to be accessible by insured parties. Directors and company officers should seek advice to ensure that their insurance policies still provide adequate cover and confirm what, if any, steps their insurers are taking to address the uncertainties provided by the case.


1 Steigrad & Ors v BFSL 2007 Limited & Ors, High Court of New Zealand CIV-2011-404-611

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.