Bridgecorp’s Impact on International Liability Programmes: Does the Defence Costs Tap Remain Frozen?

New Zealand Over Globe

So how big a problem for international programmes is the Supreme Court decision in Bridgecorp about which I recently blogged? In other words, what impact does the decision have on large companies that buy their D&O (or E&O or other liability) insurance centrally, for example in the UK or in the US, and rely on those programmes to protect their local subsidiaries rather than buying local policies in New Zealand?

To answer that question we need to address another question first: To what extent does  Section 9 of the Law Reform Act 1936 have extra territorial effect outside New Zealand?

Ludgater Decision May Hold the Answer

Thankfully, the answer to that question is largely supplied by another New Zealand case decided in 2010 called Ludgater Holdings Limited v Atco Controls Pty Limited.  In that case Gerling Insurance Co. in Australia had issued a product liability policy to Atco, a company also based in that country, covering claims based on events occurring in New Zealand and elsewhere.  Following a fire in its business in Auckland, Ludgater alleged that Atco was to blame because of a defective capacitor negligently manufactured by that company.

Because Atco was in liquidation at the time of the claim, the question for the New Zealand Supreme Court was whether Ludgater could avail itself of Section 9 of the Law Reform Act to leapfrog over the rights of other creditors in the liquidation.  The Court concluded that the claimant did not have rights under the Law Reform Act because Gerling’s obligation to pay the claim arose in Australia where the policy of insurance was originally issued by it to Atco.  As the court put it:

Gerling’s obligation to pay Atco’s claim is an obligation to pay in Australia for that is naturally where Gerling could expect to be able to make payment and therefore where Atco could expect to receive it.  Both had their principal places of business there and the insurance arrangements were transacted there…. Atco was given no express right to demand that the payment be made anywhere other than in Australia and none is implicit…

In other words, in the Atco case, Section 9 did not have extra territorial effect.

What Fate International Programmes?

So how safe is it to assume, based on this authority, that an international programme issued by a global carrier to a London- or New York–headquartered parent and all its subsidiaries will escape the restrictions of the Bridgecorp decision in the event of a claim against a New Zealand subsidiary?  Sadly, it’s not my job to give legal advice (nor would my employers thank me for attempting to do so).

That said it does strike me that a relevant question under the law by which the insurance contract is governed will always be: Where must the judgment creditor enforce its debt against the insurer? If the answer is the insurer’s principal place of business (and provided this is not in New Zealand), Section 9 would seem to have no effect.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Australasia, Directors & Officers | Tags: ,

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