A decision of the New Zealand High Court last year cast doubt on whether directors could rely on D&O policies to fund their defence costs. It was held that civil claimants held the priority interest in Directors’ and Officers’ liability cover (D&O) under a statutory charge, and could prevent company directors from accessing the insurance funds to pay defence costs.
For further discussion of Steigrad v BFSL 2007 Limited HC Auckland  NZHC 1037 (15 September 2011), see our Legal Alert: NZ High Court Decision Necessitates Urgent Review of Directors’ & Officers’ Insurance Cover. This decision is currently being appealed in New Zealand.
This case created uncertainty in Australia because several states, including New South Wales, have very similar legislation to the provisions that created the charge over the policy in New Zealand.
In an attempt to clarify the issue, the NSW Supreme Court has been asked to consider a policy for the Centro Property Group, which collapsed nearly four years ago following the Board’s failure to disclose about $5.7 billion of debt.
A major Australian corporate insurer recently filed an application with the Court seeking declarations to clarify whether shareholders claiming against Centro in a class action have a priority claim on the D&O policy. The Court is expected to clarify how section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) might apply to the insurance policy.
The Centro shareholders’ class action is currently before the Federal Court sitting in Melbourne, with claims estimated to exceed $200 million.
We will continue to follow this matter and communicate any developments as they happen. If you would like help reviewing your policies in the meantime, or require any further information please contact David Grace on +61 7 3231 2444.