Authored by Patrick Bracher.
In September 2026 the English High Court held that a Directors & Officers second excessive layer insurer was obliged to fund the criminal defence costs of two directors who were facing criminal charges relating to alleged bribery offences. Insurers, who relied on allegations made in the ongoing criminal case, had purported to avoid the contract for fraudulent misrepresentation and non-disclosure but the policy did not permit avoidance until “such fraudulent conduct is established by a final decision of a court”.
The two defendant directors were involved in a long-running prosecution and their defence costs were expected to exceed the first two layers of cover of £30 million. The insured directors’ position was that they were unable to fund their own defences costs so that insurers avoidance would imperil their ability to defend themselves at the trial. The court held that this would give an unfair advantage to the insurers. The directors would have a greater chance of being convicted if they could not put up a proper defence and the failure of the insurers to fund the defences would give them a better chance of not having to pay the indemnity. The requirement that fraudulent conduct must be “established by a final decision” is a temporal requirement. It identifies “establishment” as the key point in time when there can be an avoidance on the grounds of proven dishonest conduct, not before.
Another exclusion in the policy excluded liability for conduct arising out of deliberately dishonest or deliberately fraudulent acts “where such behaviour or gain is established by a final, non-appealable adjudication” in the underlying proceedings. Insurers cannot refuse to defend or pay defence costs because fraud is being alleged. They only have the right to withdraw or reclaim coverage once fraud is proved.
This wording would operate similarly in South Africa. However, if the insurer is able to prove fraudulent conduct by the insured prior to commencement of the policy and prove a pre-contractual fraudulent misrepresentation, the policy can be avoided without any debate as to the meaning of the wording of the void policy.
Liberty Managing Agency Limited & Others v Chedid and Salibi [2026] EWHW 2354 (Comm)