BRIDGECORP – 18 MONTHS ON
Whilst the legal environment for directors and officers continues to evolve and much of the focus, correctly so, remains on issues such as bribery, the Foreign and Corrupt Practices Act and exposure to cyber crime, the Bridgecorp decision continues to play out in New Zealand and Australia, creating ongoing difficulties for directors and officers.
Bridgecorp concerned a dispute over whether former directors of the Bridgecorp group of companies could obtain an advancement of their defence costs under the companies’ D&O policy, in circumstances where those directors faced potential third party civil claims significantly in excess of the D&O policy limit. The policy, like most D&O policies within the insurance market, aggregated cover for liability and defence costs. As the entire limit of the policy could be required to meet an award of damages in respect of the potential civil claims, the Court ruled that the whole “insurance fund” was subject to a statutory charge created by Section 9 of the Law Reform Act 1936 (NZ) in favour of the claimant directors. This meant that the insurer was obliged to preserve the insurance fund for the claim and the directors were unable to draw upon it for the advancement of defence costs to meet their defence costs.
With similar state-based laws existing in Australia, it raises the question: how will the Australian environment develop?
Eighteen months have now passed since the Bridgecorp decision was handed down and we have seen a number of developments in both Australia and New Zealand in that time.
Charges have been asserted over the proceeds of a number of D&O policies in New Zealand, including a D&O policy held by failed carpet maker Feltex. Indemnity was sought under the policy when Feltex directors faced claims from former shareholders of the company alleging that Feltex’s 2004 IPO prospectus contained misleading information.
Apr-Jun 2013 Issue
AIG Australia Limited