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FEATURE

ONE OF THE MOST IMPORTANT BENEFITS OF A DIRECTORS' & OFFICERS' LIABILITY (D&O) INSURANCE POLICY IS THE REQUIREMENT FOR THE UNDERWRITER TO MEET THE DEFENCE COSTS OF AN INSURED. THIS ARTICLE CONTAINS A BRIEF OVERVIEW OF THE ROLE AND SCOPE OF THIS CLASS OF INSURANCE AS WELL AS AN ANALYSIS OF TWO KEY ISSUES DEALT WITH IN THE JUDGE'S REASONING IN THE ASIC V RICH DECISION.

Introduction

In February 2010, the Australian Securities and Investments Commission (ASIC) announced that they would not appeal the decision in Australian Securities and Investments Commission v Rich1 (ASIC v Rich). Handed down in November 2009, Austin J2 of the Supreme Court of New South Wales ruled that ASIC had failed to prove its case against two former executive directors of the collapsed One.Tel. As part of the orders made by Austin J in the case, ASIC was required to pay Mr Rich's costs of $13.8 million, which comprised $9.6 million in costs and $4.2 million in interest.

One of the most im portant benefits of a Directors' & Officers' Liability (D&O) insurance policy is the requirement for the underwriter to meet the defence costs of an insured. This article contains a brief overview of the role and scope of this class of insurance as well as an analysis of two key issues dealt with in Austin J's reasoning in the ASIC v Rich decision.

Directors' & Officers' Liability Insurance

D&O insurance provides important protection for company directors and officers. When appropriately drafted and sufficient limit is purchased, D&O insurance will, subject to the policy's coverage terms, operate to preserve the personal assets of company office holders who are faced with a claim being brought against them.

Importantly, D&O insurance provides protection for individuals faced with a claim, both when they are entitled to indemnification from the corpora organisation, as well as when they are not. The D&O policy form is structured in the following major sections:

* insuring agreements

* exclusions and

* other terms and conditions.

The insuring agreements describe what the policy covers and are typically framed in terms such as: The insurer shall pay on behalf of each insured person, loss on account of a claim for a wrongful act occurring before or...

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