When Power Goes Wrong · Who Pays? · Part 22

Who pays when a Crown-entity member or employee is sued?

The Crown Entities Act can allow a statutory entity to indemnify members, office holders and employees for defined good-faith acts and to insure them, but the protection is limited and cannot lawfully cover bad-faith or out-of-function conduct beyond the Act.

The fact that proceedings name an individual does not always mean the individual personally bears defence costs or liability.

Section 122 of the Crown Entities Act 2004 permits a statutory entity to indemnify a member, office holder or employee in respect of an “excluded act or omission”, including costs of defending or settling the related claim. The statutory definition centres on good-faith conduct in the performance or intended performance of the entity's functions.

Section 123 permits insurance but expressly excludes acts or omissions in bad faith or outside the performance/intended performance of the entity's functions.

The indemnity has a boundary.If indemnity or insurance is provided beyond what the Act permits, s 125 requires the beneficiary to repay the excess cost to the entity.

Good-faith functional conductPotential statutory indemnity/insurance.

Bad faithExpressly outside the insurance protection in s 123.

Defence costsCan be included within lawful indemnity.

OverpaymentRecoverable from the member/officer/employee if protection exceeded the Act.

“The public body pays” is therefore not automatic; the conduct must fit the indemnity regime.

Primary statuteCrown Entities Act 2004, ss 120–126.

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