Australia: Defence costs under D&O policies can be advanced safely, says NSW Court of Appeal

Last Updated: 28 July 2013
Article by Fred Hawke

Directors and officers involved in legal proceedings should be able to access defence costs under their D&O policies without fear that they will be subject to a statutory charge imposed by section 6 of the Law Reform (Miscellaneous Provisions) Act 1946, following the NSW Court of Appeal's decision in Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212 (Chubb v Moore).

Why was access to defence costs under D&O policies in doubt?

If a person is insured against a liability and that liability arises and the person is sued, they can then turn to their insurer to be indemnified up to the limit for which they are insured.

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 was designed to stop defendants from depleting insurance moneys to the detriment of a third party claimant. It provides "direct access" by imposing a statutory charge on the moneys payable under the insurance policy. Essentially, the intention of the section was to prevent an insured spending those moneys until any claims against them were determined.

The underlying reason is easy enough to understand, but the section is drafted in such a way that there has been some confusion about what, exactly, it covers. If a D&O liability policy obliges an insurer to advance defence costs to a director or officer, is that sum also subject to a charge in favour of the third party claimant?

In 2011, the New Zealand High Court said that a charge under New Zealand's equivalent of section 6 prevented access to defence costs.1 That decision, colloquially referred to as the "Bridgecorp" case, was then overturned by the NZ Court of Appeal.2 Until now, there has been some doubt as to what may be the position in Australia.

What is the scope of section 6?

The NSW Court of Appeal has now considered the Bridgecorp issue in Chubb v Moore. It also addressed a number of other issues arising out of section 6.

First, the court held that section 6 is not limited to "occurrence" based liability policies, but also applies to "claims made" insurance.

Second, the court held that section 6 does not create a charge where the alleged conduct of the insured giving rise to the claim for damages or compensation happened before the policy came into effect.

Third, the court held that the section also does not apply to claims brought in courts outside New South Wales, only those brought within it.

Defence costs are not caught by section 6

On the Bridgecorp issue, the court held that any statutory charge created by section 6 cannot apply to:

  • defence costs;
  • legal representation expenses; or
  • other costs and expenses

that are paid by the insurers in accordance with the policy before judgment is entered or settlement is agreed in respect of the claim for damages or compensation.

This is because the insured has a contractual right to his or her defence costs, and section 6 would have to state very clearly that it is altering that contractual relationship. It does not do so. If section 6 did apply, then an insurer could not safely pay defence costs if there was any possibility that the ultimate liability of the insured might exceed the amount available to meet that liability at that time. The wording of section 6 does not show that the NSW Parliament intended to have such a drastic impact on the contractual rights of insureds.

What about other payments under an insurance policy when there are multiple claims against an insured?

Finally, the NSW Court of Appeal held that if there is a valid basis on which to apply a charge under section 6 on insurance moneys, and the insured is faced with multiple claims, any payment made by the insurer under the policy by way of indemnity for the liability of the insured to pay damages or compensation to a third party claimant (excluding a payment of defence costs, legal representation expenses or costs and expenses) will constitute a valid discharge of the insurer. This is so as long as the payment is made before:

  • judgment is entered;
  • or a settlement is agreed,

in respect of a claim for damages or compensation of any other third party claimant.

Key messages for directors and officers

The NSW Court of Appeal, like the New Zealand Court of Appeal, has reached a decision on the application of a statutory charge which is different to that of the original Bridgecorp decision. This should provide some comfort to directors and officers needing access to defence costs that their insurers ought not to refuse to advance those costs when they are needed most.

Companies that purchased a defence costs only policy solely to avoid the statutory charge may find that they can reduce insurance costs if their directors are now comfortable to abandon the safety net of a costs only policy. They should of course consider any obligations to retired directors that may impact their ability to change their D&O program.

More generally for insureds, the Court's views on section 6 have somewhat limited its scope. A statutory charge will only arise if:

  • the third party begins proceedings in New South Wales; and
  • the event on which their claim is based occurred after the policy incepted.

The New Zealand Court of Appeal decision is subject to an appeal to the Supreme Court of New Zealand. It is not yet known whether the Chubb v Moore decision will be appealed to the High Court of Australia.

You might also be interested in...


1Steigrad v BFSL 2007 Ltd [2011] NZHC 1037

2Steigrad v BFSL 2007 Ltd [2012] NZCA 604.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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.