The New Zealand High Court’s Bridgecorp decision on who is entitled to directors’ and officers’ (D&O) insurance proceeds has flowed on to Australia, with the NSW Supreme Court being asked to rule on a policy for the Centro property group.

Chartis has filed an application with the court seeking declarations intended to clarify whether shareholders claiming against Centro in a class action have a priority claim on the D&O policy, ahead of the payment of any defence costs incurred by Centro or its directors and officers.

The action is the first Australian test case of last year’s Bridgecorp decision, which prevented an insurer from paying defence costs under a D&O policy when a claim by the company’s receivers might exceed the policy limit.

Legal experts immediately predicted the decision would affect Australian D&O covers, particularly in NSW, which has similar legislation to New Zealand.

The Bridgecorp decision, which is being appealed, has raised questions about how D&O can operate as intended – to provide funds for company directors and executives to defend themselves against litigation.

The $200 million Centro class action is under way in the Federal Court in Victoria, but the NSW Supreme Court will be asked to clarify whether section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) applies to the insurance policy issued to Centro.