In this practice area
Disputes under D&O policies over cover for claims, investigations and inquiries against directors and officers, including Side A, B and C cover and conduct exclusions.
What D&O cover does
Directors and officers liability insurance protects individuals who manage companies against claims arising from their conduct in that role, and often extends to regulatory investigations, examinations and inquiries. It is usually written on a claims-made basis and has three main parts. Side A covers directors and officers directly where the company does not or cannot indemnify them, for example on insolvency. Side B reimburses the company where it has indemnified its directors and officers. Side C, where included, covers the company itself, typically for securities claims.
Disputes arise when the insurer relies on a conduct exclusion, an insured versus insured exclusion, a prior claims or known circumstances exclusion, or non-disclosure. They also arise over whether a regulator's notice is a claim, how defence costs are advanced, and how a limited aggregate limit is shared among several insured persons.
The legal framework
The Corporations Act 2001 (Cth) sets limits on what a company may do for its officers. Section 199A restricts the indemnities a company can give, and section 199B prohibits a company from paying a premium for insurance against liability, other than for legal costs, arising from a wilful breach of duty or a contravention of sections 182 or 183. Most D&O policies are drafted around these limits.
The Insurance Contracts Act 1984 (Cth) applies, including section 13 (utmost good faith), section 28 (non-disclosure remedies), section 40(3) (notification of facts) and section 54. Conduct exclusions for dishonesty or fraud usually apply only after a final adjudication or admission, and severability clauses usually stop the conduct or knowledge of one insured being imputed to another. In New South Wales, the NSW Court of Appeal's decision in Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212 illustrated how the former statutory charge could interfere with the payment of defence costs under D&O policies. That charge was abolished when the 2017 third party claims legislation replaced it.
How these matters run
D&O disputes often begin with an ASIC notice, a liquidator's examination summons, a class action or a claim by a lender. The immediate issues are notification, consent to lawyers, and advancement of costs. Directors facing a regulator or liquidator need funding quickly, so urgent applications for declarations are sometimes required.
Where several insured persons share one policy limit, priority of payments clauses and the order in which costs are paid become important. Former directors may have different interests from current directors or the company.
How GopherWood Lawyers acts
We act for directors, officers and companies in the underlying claim and in the coverage dispute. We advise on notification, respond to reservations of rights, press for advancement of defence costs, and resist the use of conduct exclusions before any adjudication.
Where the interests of individual insureds diverge from the company's, we advise on separate representation and the effect of priority of payments clauses.