In a previous alert we considered the decision of the New Zealand Supreme Court in BFSL 2007 Limited (in liq) v Bridgecorp. Here, we summarise the current position in New Zealand and New South Wales, and compare the findings of the three New Zealand Bridgecorp judgments and the reasoning of the New South Wales Court of Appeal in Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212.

New Zealand

In the case presented to the Supreme Court of New Zealand, the parties had agreed that insurance moneys available for Ds'&Os’ defence costs did not fall within the scope of the statutory charge: at [25]. The Court accepted this, but went on to conclude that, because defence costs are incurred after the charge arises, the insurer’s liability to reimburse Ds&Os’ defence costs (defence costs liability) ranks behind the charge. Where there are insufficient funds to cover the liability of Ds&Os to meet the claims of third parties, reimbursement of defence costs was “at the peril” of the insurer: at [9]. The Court went so far as to say that, in such cases, “the insurer and the insured have made a poor bargain because the policy has not been properly drawn, overlooking the effect of the statutory charge”: at [117].

As the question before the Court was whether the Court of Appeal had correctly interpreted the statutory charge legislation, and not whether the Bridgecorp insurers were entitled to refuse to advance or reimburse defence costs, the parties must return to the High Court if they require clarification on that point: at [122].

New South Wales

For the purposes of its decision in Chubb, the NSW Court of Appeal did not need to decide the matter, but expressed the view that insurance moneys available to meet a defence costs liability did not fall within the scope of the charge. However, unlike the Supreme Court of New Zealand, it did not find any impediment to an insurer reimbursing Ds&Os for defence costs: see [120]-[135].

While an application was made for special leave to appeal this decision to the High Court of Australia, the underlying proceedings look likely to settle so the appeal may not go ahead.

Comparing New Zealand and NSW

Both New Zealand and NSW courts have found that insurance moneys available to meet a defence costs liability falloutside the scope of the statutory charge. However, in New Zealand, payments made in respect of defence costs liability may be characterised as voluntary. In NSW, while the views expressed in Chubb on this issue are not binding, the view has been taken that statutory charges have no impact on an insurer’s defence costs liability.

The table below summarises and compares the conclusions reached in the three New Zealand Bridgecorpdecisions and the view of the NSW Court of Appeal in Chubb.

Click here to view table.