Skip Navigation

Costs & Expenses Solution

Under the Law Reform Act 1936, an injured third party can claim directly against another party’s insurer. In December 2013, the Supreme Court ruled that under Section 9 of the Act, where such a charge exists, any insurance funds that have a shared limit for defence costs and potential compensation cannot be used for defence costs. While this approach ensures that sufficient funds are available to compensate an injured party if the business or individual is found to be at fault, it may mean that the defendant is left with insufficient funds to afford the legal expertise to ensure a fair trial.

AIG has developed an innovative insurance solution to address this decision. We ring-fence costs and expenses under a separate limit of indemnity which can be accessed should a charge prevent payments from the existing insurance limit.

This solution protects potential damages for claimants, while ensuring funds are available to our customers for their legal defence. 



Simple, easy to implement solution

No separate policies are required - the solution is contained within one policy document. The solution requires only minimal changes to existing insurance programmes, you just need to choose the new costs and expenses limit of indemnity.

“Wash up” clause

We’ll reinstate the costs and expenses limit if defence costs could ultimately have been taken from the existing coverage, ensuring that funds remains available in the event of a second claim.

Preferred Solution

Originally released in response to the initial High Court judgement, AIG’s costs and expenses solution has become the preferred solution by many large companies in New Zealand and Australia.

Our costs and expenses policy is a single insurance policy with three sections:

  • Section A – includes all coverage available under an existing policy. This is the only section that has the potential for a section 9 charge to apply.
  • Section B – a new Costs & Expenses section that responds only if there is a charge over all of Section A.
  • Section C – the General Terms & Conditions and governing language of the policy.

All businesses that could have a claim laid against their managers or their business should check with their brokers to confirm if they have a separate costs and expenses limit in place.



The following two documents provide an overview of how the Costs and Expenses solution works and some practical examples.