Australia: Where Did My Insurance Go?

Last Updated: 4 June 2008
  • Directors may find that their insurance policy is not there when they actually need it
  • as the renewal season approaches, companies and their officers should be reviewing their D&O insurance to ensure the best possible coverage.

You know that your company has taken out D&O insurance, but will cover be there when you actually need it? Unless the policy adequately addresses the effect of the actions of fellow directors, you may find that the policy has effectively gone up in smoke

A change afoot?

With reports of the $150-170 million settlement in the landmark Aristocrat Leisure class action to be primarily funded by insurers, the coming insurance renewal season will be viewed with interest. Will insurers continue to treat Australia as a benign claims environment?

Although premiums are dependent on a variety of factors, substantial write-downs arising from the sub-prime crisis, poor investment returns and increased claims exposures are likely to result in a withdrawal of capacity and consequent hardening of the market. The federal government's announcement of a survey of company directors, which will canvass whether their liability exposure affects their decision-making, is unlikely to alter the liability landscape in the short term.

How does D&O fit in?

Apart from protection against any legal liability, it is vital that your D&O policy provides up-front defence costs cover, as such costs can be crippling regardless of whether you are ultimately liable for any wrongdoing.

D&O policies are some of the most diverse in the market and there is scope for significant differences between policies. It is therefore vital that they are reviewed to ensure adequate coverage.

The severability problem

One of the issues that refuses to go away is severability. As a single D&O policy covers a variety of directors and the company itself, the acts or omissions of one insured (e.g. a director) have the potential to prejudice the claims of another innocent insured.

D&O policies commonly provide that the wrongdoing of one insured shall not prejudice the rights of innocent insureds in respect of conduct exclusions (e.g. dishonesty) and that the insurance proposal will be considered a separate proposal for each insured. The intention is that non-disclosure or misrepresentation by one insured should not affect the rights of innocent insureds.

However, such protections only go so far. There has been a long-running debate as to whether they adequately protect against the insurer's right to cancel the policy or to avoid the policy from inception. Unless the policy is treated as a separate contract entered into with each insured (severable for all purposes), cancellation or avoidance of the contract may operate against all insureds, regardless of what is in the policy.

What to do about cancellation and avoidance?

To address concerns about cancellation and avoidance, some insurers have strengthened their severability clauses to provide that:

  • they waive all rights to avoid or cancel the policy, except for the non-payment of premium
  • they will only seek to reduce their exposure in the event of fraudulent misrepresentation or non-disclosure
  • that such reduction of liability will only be asserted against the person guilty of the fraudulent misrepresentation or non-disclosure.

What about a statutory right that entitles avoidance?

Debate remains as to whether a clause in the policy itself will be effective where a statutory right exists entitling avoidance from inception thus, preventing the contract from coming into being in the first place. For this reason, some insureds have taken the additional step of putting the insurer's agreement to treat the policy as severable in a separate agreement. However, this is not yet commonplace in the Australian market given legal authority to the effect that, even where a contract is void from inception, the agreement of the parties in certain clauses may be preserved. It is therefore arguable that a clause in the policy providing that it should be treated as a separate contract with each insured would be given effect, even where the policy is void from inception.

An example – severable for all purposes?

From an insurer's perspective, concerns remain about treating the policy as severable for all purposes, as this may alter the intended effect of other sections of the policy. As an example, in the context of the compromise or settlement of a claim without the insurer's consent, it would seem contrary to the intention of the parties that one insured could make admissions and settle a claim while other directors assert that such admissions or settlement cannot be taken into account in respect of the claim under the policy.

The way forward

Severability remains a vexed issue. However, you can request that your policy be treated as a separate policy for each director (at least for certain purposes), so that the conduct of another director cannot affect your entitlements. The insurer could also agree to waive all rights to avoid or cancel a policy except for the non-payment of premium.

This complex issue is just one of many that can arise in the context of D&O insurance, and highlights the need for careful legal review of your policy, so it is there when you need it!



Charles Cowper

t +61 2 9931 4724


Ray Giblett

t +61 2 9931 4833


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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.