Bridgecorp covers directors' legal costs
Bridgecorp's receivers may appeal a court decision allowing three former directors of the failed financier to use the group's insurance to defend themselves against a damages claim.
The Court of Appeal has ruled the directors can access Bridgecorp's directors liability insurance to reimburse them for their defence costs in a $442 million civil suit.
But Bridgecorp's receivers PricewaterhouseCoopers (PwC) are considering an appeal, claiming the directors breached their duties.
The latest decision overturns an earlier High Court ruling that Peter Steigrad, Bruce Davidson and Gary Urwin could not claim on the insurance for their defence.
Receiver Colin McCloy expressed disappointment: "We are considering an appeal against the decision," he said.
Following Bridgecorp's $460m collapse in 2007, Steigrad, Davidson and Urwin were convicted of Securities Act offences. Steigrad and Davidson were sentenced to nine months' home detention, 200 hours of community service and ordered to pay reparations of $350,000 and $500,000. Urwin was sentenced to two years in prison.
Now they face the $442m damages claim.
Steigrad went to the Court of Appeal to argue that a "charge" Bridgecorp had over its $20m QBE insurance policy did not prevent the directors from accessing the insurance money to pay for their defence bills.
The Appeal Court has agreed, saying the insurance contract provides for the directors' defence costs to be paid and Bridgecorp is not entitled to a statutory charge overriding that.
The fact the policy provided a single, aggregated amount to cover both defence costs and damages to third parties "cannot operate to deprive Mr Steigrad of the right to obtain reimbursement for his defence costs as that would render his defence costs cover, in practical terms, useless", it said.
The ruling means that if the damages claim is successful, the pool of funds available to compensate Bridgecorp investors will be less because some of it will go on the directors' defence bills.
The judgement also makes a ruling in a case between 3,100 shareholders in failed carpet maker Feltex and its insurers and directors.
The shareholders claimed that the company's Chartis Insurance policy could not be used to pay the directors' defence bills in the shareholders' $150m case against them.
Because the two cases were so similar the Appeal Court agreed to rule on them together.
The court has also said the shareholders are not entitled to a charge over money from the Chartis policy that would go to reimbursing the directors for their defence costs.
Chartis Insurance, now called AIG Insurance, said it took the case to the Court of Appeal because it believed the Steigrad decision could prevent directors from adequately defending themselves.
AIG funded the Feltex directors' defence costs and continued to do so in spite of the Steigrad ruling, the company said.
"We always maintained that the Steigrad ruling could have long-term consequences on the ability of New Zealand businesses to attract and maintain talented directors," AIG'S New Zealand CEO Cris Knell said.
"It's important to realise that a noticeable number of claims against businesses and individuals brought before the court are ultimately unfounded. The fact is that few people, no matter how highly paid, can bear the financial cost of the level of legal expertise required to defend themselves against D&O (directors and officers liability) claims."