UK Court: D&O Insurers Must Advance Costs Pending Fraud Ruling
A UK court ruled that specific D&O policy language prevented an insurer from avoiding coverage and required it to advance defence costs for former officers accused of bribery, until placement fraud is formally established by a court.
The English Commercial Court, in Liberty Managing Agency Ltd v Chedid, examined a D&O policy's non-avoidance clause. Insurers on a £45 million excess layer sought to avoid the policy for two former officers accused of bribery, alleging the officers committed fraud when the policy was placed. The court held the policy's specific language required the insurer to continue advancing defense costs until the alleged placement fraud was "established by a final decision of a court, tribunal or regulator."
The decision shifts the immediate financial risk from the insured directors to the insurer, underscoring that an insurer's common-law right to avoid a policy can be contractually restricted. This highlights the critical importance of precise wording in non-avoidance clauses, conduct exclusions, and cost-advancement provisions, especially across different layers of a D&O insurance tower where inconsistencies can create coverage gaps. Insurers were granted permission to appeal the first-instance decision. Counsel should review clients' D&O policies to ensure wording clearly defines the trigger for avoidance, confirming that cost-advancement obligations remain intact pending a final adjudication of alleged wrongdoing.