Hanover Group Holdings is in a High Court fight over an insurance policy worth up to $20 million.

This cover would be used for legal costs associated with the upcoming civil stoush between former Hanover directors and the Financial Markets Authority (FMA) or any damages that could be payable in that case.

The insurance wrangle centres on a directors and officers liability (D&O) policy Hanover took out in November 2007 with AIG and whether cover is provided for claims associated with certain Hanover prospectuses.

As it stands, AIG (now legally known as Chartis Insurance New Zealand) does not accept that two prospectuses released by Hanover Finance Limited and United Finance Limited are covered by the policy.


But Hanover's lawyer, Nathan Gedye, said this morning that a Hanover broker and AIG had agreed in 2007 there would be D&O cover for all prospectuses issued by the finance firm during the policy period.

"The agreement was reached on the phone and Hanover proceeded to renew on 2 November 2007 on that basis," Gedye said.

He said the matter was of "pressing importance" given the FMA case.

"With the directors of the three Hanover finance companies now facing substantial civil claims from the FMA, a proceeding live in this court, the extent of cover available under the 2007 policy for both claims and defence costs is a matter of pressing importance to both parties," Gedye said.

The FMA is suing six former Hanover directors and promoters over allegedly misleading or untrue statements made in company prospectuses.

The FMA is seeking compensation for investors who put $35m into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.

The market watchdog is also seeking penalty orders against the defendants, and if the claim is successful, the former directors and promoters could each face fines of up to $5m.