TressCox panel gives tips of how to improve D&O Cover

Part III of the TressCox 2012 Insurance Seminar Series held in Sydney on 24 July 2012 and Melbourne on 26 July 2012, saw TressCox Partner Michael Bracken, a specialist in Financial Services and Corporate Risk, Senior Associate Sarah Wheeler, and Associate Levina Chim, discuss some new insights to help Directors improve the structure of their D&O cover.

Our TressCox panel highlighted some recent Court decisions which may change the shape of Director accountabilities. Michael and Sarah discussed the recent Federal Court decision of Centro and the High Court decision of James Hardie, both of which reinforce the responsibilities that Directors must face when they sit on a Board particularly their financial acumen and the limits on reliance on management.

Sarah raised issues about the impact of the New Zealand High Court decision in Bridgecorp where claimants asserted a charge over all of the available insurance moneys under the D&O policy and prevented the insurer from advancing defence costs to the directors to fund their defence. This concern has yet to be resolved by an Australian court.

Levina and Michael explored recent statutory changes under the Consumer Law and examined changes to proportionate liability and looked at the implications of new penalties and their impact on Directors.

Recommendations

Our panel strongly recommended that Directors should review their D&O cover and also consider each component of their primary cover to assess whether liability and risk they encounter in their particular industry may potentially exhaust cover for a Director under each of Side A,B or C of the primary policy.

Michael highlighted the fact that Directors of large public companies are increasingly requiring Stand Alone Side A coverage as a condition of serving on boards, and that ‘Stand Alone Side A Cover’ may help to overcome some of the limitations.

 Directors need to consider a range of issues when arranging D&O insurance, including whether their own individual position is protected and how they are sharing their indemnity limits with the corporate balance sheet.

 We had very interactive sessions with our audience in both cities. Some of the more pertinent questions were:

• Does a director need to record any material concerns in the minutes of a board meeting?
• How is director coverage under a D&O policy affected by the appointment of a liquidator to the company?
• How do the new prohibitions on a company indemnifying a director for penalties under the Consumer Law affect D&O insurance cover?
• Can a Director structure their D&O to prevent a Bridgecorp situation?

Please join us for Part IV of the TressCox Insurance Seminar Series which will be presented by TressCox Senior Associate, Marini Mann. The presentation will focus on the issues surrounding Non-Disclosure and recent Court decisions. The seminar will take place in Sydney on 25 September 2012 and Melbourne on 27 September 2012.

Section 54 for breakfast? Part 5 of our Seminar Series in November will be a Breakfast seminar

In response to the positive feedback we have received on our 2012 Insurance Seminar Series Five Tricky Issues,  Part 5 of the series will also be run as a breakfast seminar, starting at 7.30am. Join us for breakfast on Wednesday 28 November in Sydney or Friday 30 November in Melbourne where TressCox Partner, Mark Sheller  will discuss Section 54 of the Insurance Contracts Act.

Can’t make breakfast? Our regular evening sessions will also be held on Tuesday 27 November in Sydney and Thursday 29 November in Melbourne, starting at 5.30pm. Further details will be available on the TressCox website in the coming weeks.

Protecting the assets of company directors and other individuals of a corporation?

Insurance Seminar Series 2012: Part 3 – Directors and Officers (D&O) Liability Insurance.

The third seminar of our Insurance Seminar Series focuses on Directors and officers and for those in this position the need to be more vigilant in carrying out their duties and obligations in light of recent Court decisions which change director accountabilities. In addition, directors may be caught in the crossfire of increasing surveillance of companies by regulatory authorities.

All directors need to understand the recent changes to the legal framework and to work out how they may need to change their practices and behaviour going forward in order to address these potential risks including considering how to obtain and maximise protection from liability and legal claims under a D&O Insurance Policy.

TressCox Financial Services and Corporate Risk Partner Michael Bracken, Senior Associate Sarah Wheeler and Associate Levina Chim will be presenting.

 The seminar will cover:

• An introductory overview of the scope of a D&O Insurance Policy;
• Recent court decisions and changes in the law relating to directors;
• Implications for D&O cover and negotiating coverage.

JOIN US in Sydney on Tuesday 24 July 2012 and in Melbourne on Thursday 26 July 2012 as we look at Directors and Officers Liability Insurance.

TressCox Insurance Seminar Series for 2012 Launched

With the success of our seminar series throughout the last several years I am excited to be launching our Insurance Seminar Series for 2012, which this year will focus on five tricky issues affecting the Insurance Industry. These issues are both topical and highly relevant, and may even change the way people live and do business in Australia.

Our first topic this year is entitled ‘Flood’.

The recent Queensland and New South Wales floods have been some of the most devastating in years, and as such, have shaken the Insurance Industry irrevocably. Policy changes, coupled with greater environmental uncertainty means it is increasingly more important to understand how such natural disasters are defined by the industry, and what risks they pose.

Our Insurance blog has touched on several flooding and insurance developments, in particular Senior Associate Lauren Wakeling’s post “The government to introduce a standard ‘flood’ definition” which looked at the Federal Court’s announcement of it’s proposals for the introduction of a standard definition of ‘flood’ to be included in all new or renewed home and contents insurance policies. And Senior Associate Sarah Wheelers post “An insurance industry response to Australia’s recent natural disasters” which looks at the industry body, the Australian and New Zealand Institute of Insurance and Finance, address of the community’s concerns, and the insurance industry’s reputation, offer a tool to improve the understanding of insurance and how it relates to managing life’s many risks.

In continuation of this topical subject on Tuesday 20 March 2012 in Sydney and Thursday 22 March in Melbourne Senior Associate Lauren Wakeling will be presenting our first seminar of the series for the year, she will be discussing:

• Industry reactions to the recent flooding events,
• Government reforms and the new standard definition of “flood”,
• Insurance Contracts Act changes and developments, and
• The outlook for the future.

I invite you to JOIN US for the first seminar of the series, where we will be discussing an issue that currently has widescale impacts along the Eastern seaboard.

The production of insurance policies – where are we now in 2011?

We have seen that insurance policies in favour of both directors & officers and companies have been discoverable upon an application made under s247A of the Corporations Act, (http://www.tresscox.com.au/resources/resource.asp?id=612).

In the recent case of London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674, the Federal Court has confirmed that insurance policies form a part of the ‘books’ of a company, and are capable of inspection by an applicant under s247A, if it is for the purpose of investigating whether there are good grounds for instituting a derivative action against its directors or the company itself.

The Court confirmed that it is not relevant for it to find that the nature and extent of cover provided to a company or its directors’ and officers’ is a matter in dispute before granting the order for inspection. What is relevant is that the purpose of the applicant is to allow them to consider the economic viability in pursuing their proposed action.

What then of the applicant that isn’t seeking an order under s247A?

In Lehman Brothers Australia Ltd v Wingecarribee Shire Council [2009] FCAFC 63, the Full Court of the Federal Court held that an insurance policy may be discoverable under s23 of the Federal Court of Australia Act, where it can be shown that failure to do so will result in an abuse or frustration of its processes. Unfortunately (or fortunately for insurers) there has been no developments in the sphere of insurance policies being discoverable pursuant to an order under s23.

However, in light of the High Court stating that the definition of ‘abuse of court process’ is ‘insusceptible of a formulation comprising closed categories’ (see Gleeson CJ, Gummow, Hayne and Crennan JJ at [9] in Batistatos v Roads and Traffic Authority of NSW (2006) 227 ALR 425), the door is left ajar for an applicant to present facts that may satisfy the Court to make an order requiring discovery of insurance policies.

A policy can also be inspected under compulsion of a contract, as was held by Rein J on 11 November 2011 in BOS International (Australia) Ltd v Babcock & Brown International Pty Ltd [2011] NSWSC 1382. His Honour found that an insurance policy in favour of Babcock & Brown International Pty Ltd (‘Babcock’) is an ‘asset’ and, in accordance with a loan facility, should be produced by Babcock to one of its lenders, BOS International (Australia) Ltd. It is debatable whether this case is capable of wider import, considering it turned on an extensive analysis of the terms of the loan facility in place between the two.

Food for thought, doesn’t it seem incongruous that it is a valid consideration for a person making an application under s247A, to consider the economics of pursuing a claim against a company or its directors or officer, but an irrelevant consideration for other claimants?