Liability defence costs problem
There's been an ongoing legal case in New Zealand that affects a lot of companies and their directors. It's just been resolved in NZ's Supreme Court meaning the decision is final. The court ruling means that there's some serious uncertainty surrounding a client's ability to claim defence costs against anyone using a 'traditional' liability insurance policy.
In short, the impact of the Steigrad case is that if there's a liability claim against your company, or its directors and/or officers, then the Insurers for that policy can politely decline to fund a defence action because courts can now reserve the entire policy limit in favour of the claimant until settlement of litigation. That means there's no money available under the policy for your legal defence costs.
Because of this you might find yourselves paying for your own defence against a claim, even a spurious or unwarranted action.
Nothing new under the sun
With the Law Reform Act being around since 1936 this isn't new news, but Steigrad is the first time that a court has ruled thoroughly over an entire policy limit to apply it to a complainant.
When the original Steigrad decision was made back in 2011 many insurance companies evolved new 'defence costs' products to cater for this sudden gap in cover. These policies are an important part of the insurance protection for directors and officers who may be exposed to court action. It's important to note that they're structured so as not to accrue to any litigant and are specifically for defence costs only.
Some existing wordings already apply a separate limit for defence costs while others do not. If you have liability insurance I recommend a review of your cover with your broker to determine if your protection is as good as you think it is, or if you need to change anything. If you don't have liability insurance then I'd be asking why!
Remember, it's not just public liability or D&O. Professional indemnity, statutory liability, marine covers (e.g. ship repairers, marina operators) and other areas you might have forgotten about are all affected by this!
Talk to a professional
A good broker will be able to discuss liability issues with you and provide expert advice and solutions on what changes you may need to make in light of this court decision.
By Tim Wilkes, previously Commercial Broker @tim wilkes.
About the AuthorName: Rothbury
Like many of our business insurance clients we're a majority NZ owned company that was started by enterprising Kiwis in 1950. Today, New Zealand is a different place to when we first started. As a consequence, the way…
Like many of our business insurance clients we're a majority NZ owned company that was started by enterprising Kiwis in 1950. Today, New Zealand is a different place to when we first started. As a consequence, the way we respond to your business and personal protection needs has evolved and matured.
While our core business is still related to creating the best insurance solutions for you, our motivation and passion now lie in being unconditional advocates for our diverse range of clients. In other words people like you.Close