Liberty Managing Agency Limited in its Capacity as Managing Agent for Lloyd's Syndicate 4472 for the 2016 Year of Account & Ors v Marwan Chedid & Anor

A D&O policy may make avoidance for fraudulent misrepresentation or non-disclosure conditional on a final decision of a court, tribunal or regulator, or a formal written admission. That condition postpones avoidance while the allegation remains unresolved. Public policy against protecting an insured from proved fraud does not invalidate an agreement regulating the period between allegation and proof. Defence-cost cover also remains available for unproven criminal allegations, including bribery. If fraud or criminal wrongdoing is later established, the policy’s exclusion or retrospective avoidance consequences may arise. Pending that resolution, the insurer must comply with its obligation to advance defence costs.

The claim concerned D&O insurance provided to Petrofac and its officers. Two former officers faced criminal charges under the Bribery Act 2010, and their existing defence-cost cover was nearing exhaustion. The insurers issued letters purporting to avoid the policy for alleged fraudulent misrepresentation and non-disclosure.

Robin Knowles J ordered an expedited trial of three preliminary issues: the construction of Clause 8.2; whether the defence costs were uninsurable as a matter of public policy because of the alleged bribery; and whether the insurers had to continue advancing costs pending resolution. No factual or expert evidence was called.

1. Disposition. Issue 1 was answered No, Issue 2 was answered No, and Issue 3 was answered Yes. The insurers remained obliged to advance the defendants’ defence costs.
2. Construction. The policy was to be construed objectively, applying the approach in FCA v Arch [2021] UKSC 1. Clear words were required before concluding that the parties had removed a common-law remedy. Under Abram Steamship Co v Westville Shipping Co [1923] AC 773, avoidance ordinarily operates as a self-help remedy. Clause 8.2 clearly altered that position. Its requirement that fraudulent conduct be established by a final decision or formal admission was a condition precedent to avoidance, not surplusage. The same drafting technique appeared in Clause 5.1.
3. Public policy. Pearson & Sons v Lord Mayor of Dublin [1907] AC 351 and HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 concerned the consequences of proved fraud. They did not prevent parties from regulating the period between allegation and proof. The commercial rationale was supported by Wilkie v Gordian Run Off Ltd (formerly known as GIO Insurance Ltd) [2005] HCA 17 and by the authorities on pay-now-sue-later provisions, including Society of Lloyd’s v Leighs, Lyon & Wilkinson [1997] CLC 1398 and Deutsche Bank AG v Unitech Global Ltd [2013] EWHC 2793 (Comm). The contrary views in Onley v Catlin Syndicates Ltd [2018] FCAFC 119 were obiter and were not accepted under English law.
4. Insurability. Following Coulson v News Group Newspapers Ltd [2012] EWCA Civ 1547, there was no public-policy bar to indemnifying defence costs for unproven criminal allegations. The principle applied to alleged bribery. The policy’s treatment of criminal fines and its reference to the Bribery Act 2010 supported that conclusion. The Companies Act 2006 provisions concerning company indemnities to directors, including sections 232 and 233, were irrelevant to the separate insurance obligations.
5. Advancement. Since the insurers failed on Issues 1 and 2, the parties accepted that Clause 6.3 required the insurers to continue advancing defence costs pending determination of the disputed allegations.

This was a first-instance decision. The judgment records that Robin Knowles J ordered an expedited hearing of the three preliminary issues; no appeal is stated.