Lyndon Parnell. 30 th April Copyright Lyndon Parnell - Finrisk Pty Ltd - April

Transcription

1 Lyndon Parnell 30 th April 2014 Copyright Lyndon Parnell - Finrisk Pty Ltd - April

2 GOVERNANCE TRANSPARENCY ACCOUNTABILITY This presentation contains information which is copyright to Lyndon Parnell and Finrisk Pty Ltd. It may not be copied or reproduced in any form without the written permission of Lyndon Parnell. The information contained in this presentation provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insured s should consult their insurance and legal advisors regarding specific coverage issues. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

3 Overview What is D & O Insurance? What does the insurance policy cover? Major Policy exclusions What is a claim? Triggers of liability Civil Penalties Defence costs Understand your D & O Policy Not all policies are the same! Some Claims D & O Risk Management Copyright Lyndon Parnell - Finrisk Pty Ltd - April

4 D & O Insurance insurance payable to the directors and officers of a company, or to the corporation itself, to cover damages or defence costs in the event they are sued for wrongful acts while they were with that company. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

5 Definition of a Wrongful Act Wrongful Act means any act or omission, including but not limited to any error, misstatement, misleading statement, neglect, breach of trust or breach of duty committed, attempted, or allegedly attempted or attempted by: (a) for purposes of coverage under Insuring Clauses (A) and (B) an Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against such Insured Person solely by reason of such Insured Capacity; or (b) for purposes of coverage under Insuring Clause (D): an Organisation. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

6 D&O Insurance Policy Cover The liabilities of directors Corporations Act 2001 (Cth) Common law and equitable duties Fiduciary Duties Duties of Skill & Care Statutory Duties Shareholder Actions Trade Practices OH&S Employees Insolvent Trading Defence Costs The indemnification and insurability of directors Three Insuring Clauses Side A Indemnities Directors & Officers when the Company cannot Side B - Protects the Company when it indemnifies Directors & Officers (company reimbursement) Side C - Securities cover (only for Publicly Listed Companies) Copyright Lyndon Parnell - Finrisk Pty Ltd - April

7 Construction of D&O Policy Side A - the Directors any loss suffered by a director where the director has not been indemnified by the company or where the company is not permitted to indemnify the director Side B the Indemnifying Company any sums paid by the company to the director by way of indemnification for the director s own liability. claim for sums incurred on behalf of director Side C the company itself Copyright Lyndon Parnell - Finrisk Pty Ltd - April

8 What is not covered? The Corporations Act prohibits insurance to respond to allegations of Wilful Misconduct and Insider Trading by Directors or Officers. Wilful Deliberate and intentional conduct Knowledge and intention - Knowingly a failure to perform required duty. Defence costs are covered against these allegations but are withdrawn if proven guilty or admission of guilt Copyright Lyndon Parnell - Finrisk Pty Ltd - April

9 D & O - Major Exclusions Pending & prior litigation Pollution Breach of contract or liability assumed under contract Deliberate acts Fraud / Wilful violation of law Lack of good faith Secret profits or advantage Ex turpi causa (illegality defence) Major shareholder Insured v Insured Insolvent trading Bodily injury / property damage Obligations to company & other board members Actions brought by ASIC or Liquidator acting for the company Copyright Lyndon Parnell - Finrisk Pty Ltd - April

10 CLAIMS Definition of claim a civil proceeding commencing by the service of a complaint, summons, statement of claim, writ or similar pleading...against a director alleging facts or circumstances that constitute a Wrongful Act writ or letter before action Thorman v New Hampshire Insurance Co Ltd [1988] 1 Lloyd s Rep 7 Copyright Lyndon Parnell - Finrisk Pty Ltd - April

11 CLAIMS MADE AND NOTIFIED COVER Triggers of liability Claims Made Policy Claim made and notified during currency of policy Discovery period following non-renewal Circumstances which may give rise to a claim Insurance Contracts Act 1984 (Cth), s 40 Date of wrongful act Retroactive date, policy year or no date Copyright Lyndon Parnell - Finrisk Pty Ltd - April

12 CIRCUMSTANCES The Insured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the period specified in the Schedule which may give rise to a loss or claim against them Notice to whom? What is notice intention of insured? Insured aware of relevant circumstances Insured aware of possibility of claim What are circumstances? Causal link may, likely to HLB Kidsons v Lloyd's Underwriters [2009] Lloyd s Rep IR 178 CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Copyright Lyndon Parnell - Finrisk Pty Ltd - April

13 Claim against Director or Officer Director or Officer seeks indemnity from Company Entitled to indemnity Not entitled to indemnity Company indemnifies Director or Officer Insolvent Company CANNOT indemnify Director or Officer Company will not indemnify Director or Officer but is solvent Company reimbursement policy responds Directors & Officers policy responds Copyright Lyndon Parnell - Finrisk Pty Ltd - April

14 What are Civil Penalties? Civil Penalties are a hybrid between Criminal and Civil law and are aimed at punishing white collar offenders through a civil court process rather than criminal proceedings. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

15 DEFENCE COSTS defence costs reasonable fees, costs and expenses incurred for the principal purpose of representing the assured; investigation costs; extradition costs; bail bond and civil bond premiums; prosecution costs, and asset and liberty expenses; public relations expenses; travel costs In addition to or included as part of the indemnity? (erodes limit) Choice of legal team? Hammer Clause - The right to settle Copyright Lyndon Parnell - Finrisk Pty Ltd - April

16 Understand Your Policy Wording Companies and their Corporate Officers need to understand what their D&O policies do and do not cover Ensure the insured name is correct Pay careful attention to policy wordings, consider extensions that might extend cover and also look at other risk management strategies such as a clear focus on quality Corporate Governance. Focus on the policy cover not the premium Copyright Lyndon Parnell - Finrisk Pty Ltd - April

17 Not all policies are the same!!! What are the standard insuring clauses? Definition of Directors and Officers How broad is definition of claim? How broad is definition of loss? What are the policy exclusions? Is there a severability clause? How are defence costs advanced? Choice of legal team / jurisdiction? Appropriate sum insured limits & deductible Copyright Lyndon Parnell - Finrisk Pty Ltd - April

18 Some D & O Claims ASIC Civil Penalty Proceedings (Centro; James Hardie) Failure to Disclose Litigation (Bradken Limited) Breach of Duty Insolvent Trading Discrimination Trade Practices Act Class Actions - (Banksia; Leighton; Treasury Wine Estates; Worley Parsons) The defence costs should be covered even if a claim is vexatious or unfounded. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

19 As a minimum a D&O policy must : provide cover for pecuniary penalties. not contain an insured versus insured exclusion. provide for the advance payment of defence costs without any discretionary language and/or sub limits. provide for costs of representation at inquiries. Provide order of payment clause Provide cover for both the Company & Directors Copyright Lyndon Parnell - Finrisk Pty Ltd - April

20 Directors and officers should :- Be aware of the period of cover Risk Management Review all claims and potential claims Notify immediately any circumstance likely to give rise to a claim during the policy period in order to avoid prejudicing the benefit of cover under the policy for any subsequent claim that may arise. All claims should be notified on receipt Do not make any admissions or engage in settlement discussions which may prejudice the insurer s subrogation rights Follow the policy s notice requirements. Claim reporting requirements will differ between insurers Retain appropriate experts early and always with the insurer s consent Keep a record of all notifications made to insurers and keep insurers informed of developments at all times Obtain written confirmation from insurers in relation to any notifications made Ensure your Insurance Broker knows and understands D & O insurance. Copyright Lyndon Parnell - Finrisk Pty Ltd - April

21 Checklist Ensure that your insurance broker and legal adviser know and understand D & O Insurance and the Corporations Act. Check that the Company Constitution allows for Directors to be indemnified. Directors should have a Deed of Indemnity from the Company. All D & O policies and Insurers are not the same Focus on the cover not the premium and understand your D & O policy wording. Does the policy allow for Civil Penalties and Pecuniary Penalties? Check the definitions: Insured; Wrongful Act; Claims; Loss; Defence Costs; Formal Investigations; Reasonable Fees. Understand how Defence Costs are advanced. Can you choose your own legal team? Delete Insured v Insured Exclusion. Delete if possible major shareholder exclusion. Include a broad Severability Clause. Include an Order of Payment Clause. Is the Allocation Provision appropriately worded? What jurisdiction applies to the construction and enforcement of the policy? Calculate appropriate policy limits for both Directors and the Company and have separate limits for both. Risk Manage your D & O Insurance. Notify the Insurer of any circumstance likely to give rise to a claim in writing immediately. Copyright Lyndon Parnell - Finrisk Pty Ltd - April