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Updated: Nov 15, 2021

The Supreme Court of Victoria recently oversaw an interesting debate about the operation of a fairly typical “major shareholder” exclusion clause in a D&O policy issued by AIG Australia.

The exclusion clause provided that:

 ‘The Insurer shall not be liable to make any payment under this policy in connection with any Claim brought by any past or present shareholder or stockholder who had or has:

(i) direct or indirect ownership of or control over 15% [or] more of the voting shares or rights of the Company or of any Subsidiary; and

(ii) a representative individual or individuals holding a board position(s) with the Company.

This type of exclusion clause falls within the category of exclusion clauses which turn upon the features of the claimant. The particular features focus upon the claimant’s interest (if any) in the insured.

The question which the Supreme Court had to determine was whether there was a particular point in time when the claimant must hold an interest in the insured? What if that interest changes from time to time?

Oz Minerals Holdings Pty Ltd (formerly Zinifex Ltd) and Oz Minerals Ltd (formerly Oxiana Ltd) merged on 20 June 2008.

Representative proceedings were commenced against Oz Minerals Ltd in February 2014 concerning a number of alleged misrepresentations leading up to the merger.

OZ Minerals Ltd commenced contribution proceedings against OZ Minerals Holdings Pty Ltd and its directors and officers on 19 June 2014.

OZ Minerals Holdings Pty and its directors and officers sought indemnity from its D&O insurer in respect of the contribution claim brought by OZ Minerals Ltd.

The insurer denied indemnity in respect of that claim. OZ Minerals Ltd fell within the major shareholder exclusion.

The following diagram illustrates that while OZ Minerals did not satisfy the requirements of the exclusion prior to the date of the merger (20 June 2008), it did comply with those requirements at the time the contribution claim was made.

Oz Minerals Holdings Pty Ltd and its directors argued that the exclusion did not apply because OZ Minerals Ltd did not hold any interest in OZ Minerals Holdings Pty Ltd at the date of the wrongful act.

The insurer argued that it was sufficient if OZ Minerals Ltd held its interest in OZ Minerals Holdings Pty Ltd at the time the claim was made.

After addressing the parties’ extensive arguments, the Court found in favour of the insurer.

The following passage captures the essence of the Court’s conclusion:-

'The exclusion clause has the capacity to apply in myriad circumstances. I accept that it may apply in circumstances where none of the risks agreed by the parties or identified by the Insurer materialise, either at the time of the Wrongful Act or at the time of the Claim. That does not, however, make it uncommercial to provide for such risks.’

The reality is that insurers do not like claims being brought against their insured by parties who hold a significant interest in the insured. There are a number of practical reasons why.

At their heart lies the possibility that the claimant will control the insured in a manner which is detrimental to the insurer’s interests.

The headnote to this case suggests that the Court was upholding an argument that OZ Minerals held its interest in OZ Minerals Holdings Ltd at the time of the wrongful act and at the time the contribution claim was made. I suspect that in light of the facts and the passage quoted above, the Court was really saying that it was enough that at some point in time OZ Minerals Ltd held an interest in OZ Minerals Holdings Pty Ltd.

Furthermore, it being an interest which satisfied the requirements of the exclusion, the exclusion applied.

The name of the case is OZ Minerals Holdings Pty Ltd & Ors v AIG Australia Ltd [2015] VSC 185 (6 May 2015).

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