Authored by Patrick Bracher.
The New Zealand High Court, faced with a policy exclusion in a directors & officers policy that required a final judgment that the insured did, in fact, gain the personal profit or advantage, and intended to do so, held that findings of a lower court which may not have been dealt with by the appeal court judgment are relevant for the purposes of determining whether there is liability. The court found however there was no causal connection between the personal profit or advantage intended and in fact achieved by the directors from the wrongful act and the specific wrongful acts relied on.
The policy was a Directors and Officers Liability and Company Reimbursement Insurance Policy covering the directors of a company which had gone insolvent owing about $110 million to creditors. The Supreme Court had ordered directors of the company to pay the liquidators about $40 million in compensation plus interest. The insurer paid the first $20 million and the remaining indebtedness was in dispute.
It was held that the requirement that the insured person “did, in fact, gain personal profit or advantage” requires definitive rather than equivocal proof. Although the Supreme Court judgment was a final judgment, the findings in the High Court or Court of Appeal could still be relevant for the purposes of finding liability. It was held that the phrase “profit or advantage” has a wide meaning. “Advantage” encompasses any gain or benefit such as an opportunity to make a profit which can constitute a business advantage. Personal advantage applies to anything that makes the director better off or improves their personal circumstances. The phase is sufficiently broad to embrace a commercial opportunity, or the avoidance of a negative commercial event. The next issue was whether the company was an “Insured Person” for the purposes of the policy. Throughout the policy that phrase was used for the individual directors and not for the company. The question arose whether the insurer’s had to indemnify the Goods and Services Tax payment by the company. It was held that the indemnity payment indemnified the directors and not the company. In the context of the case the company was a third-party claimant only not the insured. The insurer therefore did not have GST liability.
The decision is fairly specific to its facts and the wording of the policy but the reasoning as to the meaning of the phrases used in D&O policies is instructive. The lesson is to ensure that the wording of these phrases are clear in the context of the policy.