D&O Insurance Reaching Bankrupts and their Trustees
D&O Insurance typically extends to cover to the estates, heirs, legal representatives or assigns of directors in various circumstances including those where a director has died or become bankrupt.
The Full Court of the Federal Court of Australia has recently turned its attention to this extension in circumstances where a director declared himself bankrupt before the liquidator of his company brought insolvent trading proceedings against him and the trustee of his estate. Typically, such a declaration would defeat the liquidator’s claim.
The question before the Full Court was whether the D&O Policy responded to the liquidator’s claim even if the claim was unlikely to succeed and the insured, therefore, unlikely to have any liability. The relevant clause provided as follows: -
This policy shall apply in the event of the death or incompetency or bankruptcy of a Director or Officer to their estate, heirs, legal representatives or assigns, for Loss incurred due to any Wrongful Act of such Director or Officer for which he would have received cover under this Policy.
The Full Court dismissed the insurer’s appeal against a primary determination that the clause responded in these circumstances. In so doing, it reaffirmed the commercial purpose of the clause as follows: -
‘The commercial purpose of Extension 2(g) is reflected in the recognition that at the time of death, incompetency or bankruptcy, the Director has not “received cover” and that the Extension was to apply and so the Policy was to “apply” (and give “cover”) for Loss, due to a wrongful act of the Director for which he or she would have received cover, implicitly, if he or she had not died, become incompetent or bankrupt.’
Markel Syndicate Management Limited v Taylor as Liquidator of Heading Contractors Pty Ltd (In Liquidation) [2021] FCAFC 198
The 2020 General Insurance Code of Practice
Parts 9 and 10 of the 2020 General Insurance Code of Practice support insurance consumers experiencing vulnerability and financial hardship.
Part 9 requires subscribers to the Code to ensure that their staff are trained to understand when consumers may be experiencing vulnerability and decide how best to support those consumers in the circumstances. Part 10 focuses upon the standards which subscribers adopt for communicating to consumers who are experiencing financial hardship.
Subscribers were required to implement procedures to comply with Parts 9 and 10 of the Code by 1 January 2021.
The General Insurance Code Governance Committee has been monitoring the level of implementation and has now handed down its report ‘Parts 9 and 10 of the 2020 Code- review of subscribers’ implementation of Vulnerability and Financial hardship obligations’ in which the Committee records that while not all subscribers met the 1 January 2021 timeframe, many had, and the balance subsequently did.
Hopefully, the Code and its implementation will see consumers experiencing these challenges, receive more uniform and compassionate support from the insurance industry.
Certainly, the signs are incredibly positive.
Edition 2 – 26 November 2021