The battle for Bridgecorp's $20 million insurance cover hit the Court of Appeal today, with the failed lender's receivers arguing their claim should trump legal fees when the pay-out is made.
The former Bridgecorp directors Peter Steigrad, Bruce Davidson and Gary Urwin are appealing a ruling in the High Court last year that blocked access to the D&O policy to cover their defence costs.
Another appeal testing similar ground, involving Chartis New Zealand and former Feltex Carpets shareholder Eric Houghton, is being heard at the same time. Houghton is leading a class suit against the failed carpetmaker, which had indemnity cover with Chartis and wants guidance following the Bridgecorp ruling.
Counsel for the receiver, Murray Tingey, told Justices Mark O'Regan, Terence Arnold and Rhys Harrison in Wellington the structure of the Bridgecorp directors & officers' liability policy meant defence costs ranked behind a potential claim on liability and couldn't be drawn on.
Tingey argued the full amount should come to the receivers. By pooling the policy's limit, rather than divvying up how much could be allocated to defence costs and how much to liability, secured creditors had priority.
"When those directors came to claim their costs, the liability limit was exhausted by the charge, so the insurer can say we're not going to pay this," Tingey said. "They chose to take a policy with composite (pooling) - the reason they may have done that was for the benefit of the company, but that's just what the bargain is."
Michael Ring QC, counsel for Chartis, told the court it wasn't an either/or proposition, because "defence costs cover are fundamental" to the policy contract. The defence cover is designed to either prevent legal liability, or minimise it, with anything left over to go to a claimant.
Alan Galbraith QC, counsel for the former Feltex directors, said the obligation between the insurer and the insured party would be breached if defence costs couldn't be claimed, and would "increase exposure of the insurer" and "change the contract entitlements for the insured."
The hearing is set down for two days and is proceeding.