A recent High Court decision has highlighted an important feature of Directors’ and Officers’ (D&O) insurance: the protection provided by a policy can be particularly important before allegations against a director or officer have been determined.
In Liberty Managing Agency Ltd & Ors v Chedid & Anor [2026] EWHC 2354 (Comm), the Commercial Court considered whether D&O insurers were required to continue advancing defence costs where allegations of fraudulent misrepresentation, non-disclosure and bribery remained unresolved.
The Court concluded that, under the wording of the policy in question, defence costs had to continue to be advanced while those allegations remained unproven.
Allegations versus established wrongdoing
The case involved two former officers of Petrofac who face criminal charges relating to alleged bribery offences, to which they have pleaded not guilty. Their defence costs had initially been funded through a £15 million primary D&O policy and a further £15 million first excess layer. With those limits approaching exhaustion, attention turned to the £45 million second excess layer.
The second excess insurers sought to avoid the policy in relation to the two individuals, alleging fraudulent misrepresentation and fraudulent non-disclosure when the insurance was placed. Those allegations were disputed and had not been established.
Central to the dispute was the policy’s non-avoidance wording. This provided that avoidance for fraudulent conduct could occur where that conduct had been established by a final decision of a court, tribunal or regulator, or through a formal written admission.
The Court found that this wording prevented the insurers from relying on the disputed allegations to avoid the policy before the required determination or admission had taken place. As a result, the insurers remained obliged to advance the defence costs.
Why defence costs matter
D&O insurance is often associated with damages or settlements arising from claims against directors and senior decision-makers. However, defence costs can themselves represent a substantial exposure.
Regulatory investigations, criminal proceedings and complex litigation can continue for months or years and require extensive legal representation. In the Liberty case, the Court noted that the insured individuals said they could not fund their own defence once the underlying insurance limits were exhausted.
The judgment therefore illustrates an important distinction between an allegation of wrongdoing and an established finding of wrongdoing.
The Court found no public policy reason preventing insurance from meeting the cost of defending allegations of criminal wrongdoing while those allegations remain unproven. That does not mean proven fraud or dishonesty is necessarily covered. Rather, it recognises the role D&O insurance can play during the period in which liability has yet to be determined.
Importantly, the judgment also noted that if the relevant wrongdoing is subsequently established, there may be financial consequences for the insured individuals. Depending on the applicable policy provisions, insurers may then be entitled to rely on exclusions or avoidance and seek recovery of defence costs previously advanced.
The importance of policy wording
The decision should not be read as establishing that D&O insurers must fund defence costs in every case involving allegations of fraud or dishonesty. The outcome depended significantly on the wording of the particular policy.
Protecting directors and officers
Claims and investigations involving directors can be complex, lengthy and expensive, even where allegations are ultimately not established. Effective D&O insurance is designed to provide financial protection against these exposures, including the potentially significant cost of mounting a defence.
The Liberty judgment is therefore a useful reminder that the quality of D&O protection cannot be assessed by policy limits alone. The terms governing defence costs, exclusions and avoidance can be equally important in determining how a policy responds when a director or officer faces a serious allegation.
Businesses should review their D&O arrangements carefully to understand not only what is insured, but when cover can be restricted or withdrawn and how defence costs will be funded while allegations remain unresolved.
W Denis has extensive experience arranging Directors’ and Officers’ Liability insurance and can assist businesses in reviewing existing programmes and assessing the scope of protection available to directors and senior management.
To discuss your insurance requirements, contact Daniel Moss at Daniel.moss@Wdenis.co.uk or on 0044 (0) 113 2439812.
