Australia: Third party access to D&O insurance policies in litigation - the conflict between disclosure rules & confidentiality

Insurance Update March 2012

BOS International (Australia) Ltd v Babcock & Brown International Pty Ltd [2011] NSWSC 1382

On 11 November 2011, the Supreme Court of New South Wales handed down a decision ordering the defendant (BBIPL) to produce to the plaintiff (BOSI) copies of directors' and officers' insurance policies held by BBIPL or any other company within the Babcock & Brown group (of which BBIPL was a part) which would respond to a claim made during the period 1 January 2006 to 1 January 2011.

This case raised an interesting question as to the interaction of conflicting disclosure and confidentiality requirements under different agreements. However, the decision may be of limited use as precedent as it was very much based upon the construction of the particular terms of a particular agreement within its own factual matrix.


BOSI managed a facility on behalf of a number of lenders who lent to BBIPL AUD3 billion pursuant to a syndicated facility agreement on 4 December 2008 (the Agreement). The Agreement provided at clause 10.1(l) that BBIPL was obliged to:

"provide [BOSI] with any other information the [BOSI] or a Lender requests relating to the assets, operations, accounting methods or financial position of [BBIPL] or any other member of the [Babcock & Brown Group] promptly on being requested to do so".

The Agreement further provided that BBIPL was to:

"insure, and maintain insurance in relation to, its business and assets against those risks and to the extent as is usual for companies carrying on the same or substantially similar business"

Throughout the relevant period, BBIPL was an insured under directors' and officers' insurance policies (the D&O Policies) each containing a confidentiality clause which provided:

"The Insureds shall make all reasonable efforts not to disclose the existence of this policy to any person except to professional advisers or as required by law or court order and shall only state within the Company's annual report that the Company has agreed, or otherwise, to pay a premium for this policy but shall not publish the nature of the liability covered by this policy, the name of the Insurer, the Limit of Liability or the Premium paid for this policy."

A number of entities within the Babcock & Brown Group, including BBIPL's parent company, were placed in liquidation. Although this did not include BBIPL, BOSI wanted to ascertain whether BBIPL's policies would respond to claims which some of the companies might subsequently have brought against their directors and officers and to quantify the prospects of recovering the value of such claims. It therefore sought copies of all insurance policies in respect of BBIPL's directors and officers and other members of the group which would respond to claims notified between 2006 and 2010 and certificates of currency for all such policies.

In light of the confidentiality clauses contained within the D&O Policies, BBIPL refused to produce them, and BOSI brought proceedings in the Supreme Court of New South Wales to compel their production.

Whether the D&O Policies were assets for the purposes of the Agreement

BOSI argued that clause 10.1(l) of the Agreement provided for access to the D&O Polices on the basis that:

  • a claim by BBIPL against its directors and officers was a chose in action
  • a request for copies of the D&O Polices was a request for information relating to an asset, as the worth of the chose in action may be dependant upon whether any judgment against the directors and officers would be met by the insurer
  • a request for copies of the D&O Polices therefore fell within clause 10.1(l).

BBIPL, in response, argued that, in the context of sophisticated parties which should be aware of the confidentiality provisions contained within insurance policies:

  • the term "asset" as used in clause 10.1(l) could not mean insurance polices as insurance policies are forms of protection obtained in respect of an asset, and so would fall outside of the term "asset"
  • in any event, the rights under an insurance policy are merely contingent rights or assets, which are dependent on a circumstance giving rise to a claim which falls within the terms of the policy (no such circumstance existing in this case)
  • the natural meaning of "asset" does not include a contingent asset.

Judgment in favour of BOSI

Justice Rein ruled in favour of BOSI, stating that a request for the D&O Polices was a request for information relating to the assets or financial position of BBIPL. On this basis, clause 10.1(l) of the Agreement required BBIPL to produce copies of the D&O Policies to BOSI. His Honour's reasoning was as follows:

  • the rights associated with the D&O Polices were a chose in action, and accordingly an asset within the ordinary meaning of the term ("asset" not having been defined in the Agreement)
  • the fact that the asset was contingent on an event which may never occur (and which BOSI had not contended had occurred) was irrelevant
  • any claim against BBIPL's directors and officers would also amount to a chose in action
  • such assets being intangible, the D&O Polices were the best source of information about them, and a request for their production was properly to be classified as a request for information about assets as opposed to a request to produce the assets themselves
  • further and alternatively, if a claim were made against BBIPL, the existence of any policy which may cover a portion of that liability would be information relevant to the financial position of BBIPL, and so would fall within clause 10.1(l) of the Agreement
  • BOSI could not be presumed to have been aware of the practice of including confidentiality provisions in directors' & officers' policies because the practice was not sufficiently "notorious" within the banking sector. In light of this, the practice could not form part of the factual matrix relevant to the construction of clause 10.1(l) of the Agreement.

His Honour was clear in his judgment that both the size of the loan facility in place and the fact that BBIPL's parent company, along with various other Babcock & Brown companies, had been placed in liquidation had influenced his thinking. He noted that in that context the request did "not arise out of idle speculation on the part of the lenders".


It is settled law that the bundle of rights that an insured has under a policy of insurance is a chose in action and is assignable at law. This was not disputed by BBIPL; the operative question in this case was whether the contingent nature of the asset took it outside of the meaning of clause 10.1(l) of the Agreement. It is unlikely that any general principle could be drawn from the court's conclusion that, on the wording of the Agreement, the chose in action was an asset as contemplated by clause 10.1(l).

This is however an important case in that it shows that boilerplate clauses in other contracts can trump confidentiality clauses contained in policies of insurance despite the potential consequences of breach of those confidentiality clauses (such as potential loss or reduction of coverage under the policy should any prejudice be suffered by underwriters). It is notable that in this case the confidentiality clause allowed disclosure "as required by law or court order".

It is also interesting in that, to a degree, this appears to have been a court sanctioned fishing trip to ascertain the depth of the pockets of potential targets for litigation. His Honour did, however, comment that the motivation behind the request was irrelevant to whether or not BOSI should be granted access to the documents in accordance with the Agreement.

As a general proposition, companies entering into significant debt agreements should be aware that the terms of any such agreement may well require that they disclose the existence of and / or provide details of insurance policies of which they are beneficiaries despite any confidentiality obligations imposed by those policies. However, as shown in this case the context of the request for disclosure and the precise wording of the obligation will likely be determinative of the outcome of any proceedings brought to compel disclosure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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