Key Points:
New Zealand and NSW differ on whether an insurer can
advance defence costs while on notice of a statutory charge before
liability to the third party is established.
If a directors' and officers' liability policy obliges
an insurer to advance defence costs to a director or officer, is
that sum also subject to a charge in favour of the third party who
has a claim against the directors and officers?
This has been a live question in recent years, and has led to
some insurers withholding defence costs needed by directors and
officers. In the latest development, the Supreme Court of New
Zealand has in effect, concluded that a statutory charge over
insurance money under section 9(1) of the New Zealand Law Reform
Act 1936 (NZLRA) secures the amount available to
cover liability to a third party, so that the insurance cannot be
diminished by an advance of defence costs made to the insured after
the charge came into existence (in BFSL and Bridgecorp v
