Nine Lloyd's market insurers must continue paying defence costs for two former Petrofac officers facing bribery charges, after a Commercial Court judge ruled their attempt to pull coverage came too soon. 

The decision, handed down on September 11, 2026, turned on a clause in the directors' and officers' insurance policy that barred the insurers from walking away unless fraud had first been established by a court, tribunal, or regulator - or formally admitted. Since neither condition had been met, the avoidance was ineffective. 

The two defendants are former officers of Petrofac Ltd, the London-listed oilfield services group. Both face criminal charges under sections 1(1) and 1(2) of the Bribery Act 2010 and have pleaded not guilty. Their trial is due to begin at Southwark Crown Court on November 2, 2026, and is expected to run until at least February 12, 2027. 

The policy at the centre of the dispute was the second excess layer in Petrofac's D&O programme, providing £45 million of cover in excess of £30 million. Both defendants had been receiving defence costs from the primary and first excess layers - carrying a combined £30 million limit - but that funding was about to run out. 

On August 10, 2026, the insurers' solicitors sent letters avoiding the policy against the two defendants on the grounds of alleged fraudulent misrepresentation and fraudulent non-disclosure in the placement of the cover. The defendants disputed both the avoidance and the underlying allegations. 

With the criminal trial less than two months away, the defendants applied for urgent relief. On August 19, 2026, a Commercial Court judge ordered an expedited hearing of three preliminary issues, which took place on September 9. No witness or expert evidence was called; the case was argued entirely on points of construction and insurance law. 

The central battleground was Clause 8.2 of the policy, headed "Non-Avoidance." The clause stated that the insurer "shall not avoid this policy ... on the grounds of misrepresentation or non-disclosure," except where the insured had fraudulently misrepresented or failed to disclose material information - and where "such fraudulent conduct is established by a final decision of a court, tribunal or regulator or by a formal written admission of the Insured." 

The insurers argued those closing words were surplusage - that they merely restated the ordinary position that an insurer who avoids must ultimately prove its case if challenged. On that reading, avoidance remained a self-help remedy: the insurer could walk away immediately, at risk of being held liable later if wrong. 

The judge rejected that argument. Reading the clause as a whole, the words "shall not avoid," followed by "except," followed by the requirement that fraud "is established by" a specified decision or admission, set out a clear temporal sequence. The insurer could not avoid until the fraud had been objectively determined. The closing words were not surplus; they were the clause's principal work. 

That interpretation was reinforced by a parallel provision elsewhere in the policy. The conduct exclusion - Clause 5.1 - barred the insurers from relying on an exclusion for deliberately dishonest or fraudulent acts unless the conduct had been established by "a final, non-appealable adjudication in the underlying proceedings" or a formal written admission. The judge found the same "allegations now, consequences after adjudication" logic ran through multiple policy provisions, and the insurers did not contend that Clause 5.1 lacked a temporal requirement. 

The commercial logic was straightforward. Directors and officers buying this cover would want their defence costs to continue while allegations remained unproven. Without that protection, an insurer's unilateral assessment could strip them of funding at a critical moment - as was happening here, weeks before a criminal trial. The judge noted that D&O insurers had good reason to offer this protection too: in a competitive market, it made their policies more attractive. 

The insurers' primary argument was that, regardless of how the clause was interpreted, public policy prevented it from taking effect. The well-established principle, drawn from authorities including HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] and Pearson & Sons v Lord Mayor of Dublin [1907], is that contractual clauses cannot protect an insured from the consequences of their own fraud. 

The judge found this principle did not apply. The authorities addressed the consequences of proven fraud. Clause 8.2 did not immunise anyone from proven fraud - it preserved the right to avoid once fraud was established. What the parties had agreed was a mechanism for the period between allegation and proof, regulating how unproven fraud should affect their contractual relationship. There was no English authority holding that public policy prevented parties from making such an agreement. 

Several considerations supported that conclusion. First, the Court of Appeal's decision in Coulson v News Group Newspapers Ltd [2012] established that there is no public policy bar to indemnifying someone for the costs of defending unproven criminal allegations. Second, the courts have upheld "pay now, sue later" provisions as effective to insulate claims from unproven cross-claims for fraud. Third, the conduct exclusion in Clause 5.1 - which the insurers did not argue was ineffective - operated on the same logic. The judge saw no principled basis for treating Clause 8.2 differently, particularly where the fraud alleged in the criminal proceedings was likely to be the same fraud underpinning the avoidance. 

The insurers relied on the Australian Federal Court's decision in Onley v Catlin Syndicates Ltd [2018], which supported their position. The judge acknowledged the support but noted that no equivalent clause existed in that case, and the relevant observations were obiter. He declined to follow them as a statement of English law. 

On the second preliminary issue - whether the defence costs were uninsurable as a matter of public policy because the underlying allegations involved bribery - the judge was equally direct. The seriousness of the allegation did not change the analysis. Bribery charges remained unproven. The policy had been carefully drafted to exclude criminal fines and penalties from the definition of loss while specifically including Bribery Act violations in the definition of wrongful act. The drafter plainly contemplated that defence costs for bribery allegations would be covered. 

The insurers also pointed to section 232 of the Companies Act, which restricts companies from indemnifying their directors, subject to section 233 which permits the purchase of insurance. The judge dismissed this as irrelevant. The case concerned an insurance policy issued by the insurers, not a direct indemnity from Petrofac to its officers. 

With both preliminary issues decided against the insurers, the third followed by concession: the insurers remain obliged to advance the defendants' defence costs promptly and on an incurred basis, within 21 days of receiving sufficiently detailed invoices. 

The judge observed, citing the Australian High Court's decision in Wilkie v Gordian Runoff Ltd [2005], that without ongoing defence costs funding, individual directors facing serious criminal charges would frequently lack the means to defend themselves properly. An insurer's withdrawal of cover would not only expose the insured to potential criminal penalties but could also improve the insurer's own prospects of resisting payment under the policy - a circularity the non-avoidance clause was designed to prevent. 

For D&O underwriters and claims teams, the ruling draws a clear line: where a policy requires fraud to be established before avoidance can bite, the insurer must keep paying until it gets that determination, however strong it believes its case to be.