One insurance company is taking a punt it will be able to recoup pay-outs made to company directors who fail to defend court claims against them.

Chartis Insurance New Zealand is offering a new policy to “protect innocent directors and officers” after a recent High Court ruling that disallowed claims by former directors of the failed finance company, Bridgecorp, for legal defence funds under the company’s Directors’ and Officers’ Insurance Policy.

The so-called “Steigrad” decision found the directors could not make such a claim against an existing D&O policy because third party claims against the directors were “significantly in excess” of the available cover, if their actions against the directors were successful.

“This option ring-fences defence costs under existing D&O programmes,” said Ryan Clark, Chartis NZ’s financial lines manager.

“Directors will therefore still be able to fund a defence where their existing D&O limit is subject to a section 9 charge. At the same time, the original D&O limit is preserved to meet valid third party claims.”

Chartis Insurance New Zealand Ltd’s CEO, Cris Knell said in a statement: “Good D&O policies are about protecting the talented and honest; providing them with a secure platform to take risks and reach business goals. They are not about protecting shoddy business practices."

“In the event that the actions of directors are subsequently found to be unlawful, then all policy coverage ceases and insurers are entitled to recover all incurred costs back from the insured.”