You may or may not have heard about some recent news on a case in the New Zealand High Court, Steigrad v BFSL 2007 Ltd (BFSL was part of the  Bridgecorp group), which has potential to cause Australian Boards concern.  This is because we share the same law (specifically in NSW and QLD) as New Zealand, so technically what happened there can happen here.

Please find below a quick summary for you to consider.

A Directors & Officers policy covers two things: the defence costs of the director and the actual damages payable to the third party (for example the shareholder).  So, what happens if both the third party (damages) and directors (defence costs) are entitled to access the D&O policy limit – whose claim has precedence (especially if the quantum of damages exceeded the policy limit)?  The NZ High Court ruled that third party claimants have priority under section 9 of the Law Reform Act 1936, which meant directors were stopped from accessing the policy for defence costs.

It should be noted that in the Steigrad case, the Bridgecorp group itself was insolvent, so the directors were not able to rely on their indemnification from the company – hence the Directors & Officers policy was all they had available to them.

What many Boards have therefore been asking is “is my Directors & Officers policy limit sufficient”?

Taking into consideration the likelihood of claim, the likely quantum of defence costs and damages, the financial situation of your company and the non-exec cover, it may be prudent to contact your broker to discuss if the limits are adequate.  If you do not consider there to be any urgency to adjust the limit currently, at next renewal it may be worth considering an increase in the limit.

Please call our office if you have any questions regarding this matter.