A group of Lloyd's syndicates went to the Court of Appeal on Thursday seeking to overturn a High Court ruling that requires them to continue funding the legal defence of two former Petrofac executives facing a criminal bribery trial.
Marwan Chedid, former chief operating officer of Petrofac, and George Salibi, former chief operations officer, face charges brought by the Serious Fraud Office that they offered and paid agents more than $30 million to influence the awarding of contracts worth approximately $3.3 billion in Petrofac's favour. Both have pleaded not guilty. The trial is now expected to start on 23 November at Southwark Crown Court.
Both defendants rely on Petrofac's D&O insurance to fund their legal costs. The D&O programme's primary layer and first excess layer were nearly exhausted. A second excess layer - a £45 million limit provided by reinsurers - came into scope, and it is the reinsurers' attempt to withdraw that coverage that is now before the Court of Appeal.
As Insurance Business reported in September, Mr Justice Jacobs rejected the syndicates' High Court application in September, ruling that insurers cannot withhold funding unless and until the bribery allegations are proven in court. Four of the nine insurers originally listed to appeal - Samford Underwriting, Gracechurch UTG (formerly ANV), MS Amlin, and MSI - are pursuing the appeal. Liberty Managing Agency confirmed to City AM that it is not appealing.
Macfarlanes partner Lorna Emson told City AM: "This is a very important case for the insurance industry, for white-collar criminal defendants and defence practitioners. With the increasing criminalisation of the boardroom, and the widening of scope to attribute the liability of senior management to corporates, the Court of Appeal's decision in this case will be significant."
The question applies to every D&O policy where criminal conduct is alleged: must the insurer keep paying legal costs while the defendant maintains innocence? Mr Justice Jacobs said yes, absent a proven finding of fraud. The appellants say the policy language gives them the right to withdraw funding based on the nature of the alleged conduct, before any verdict.
A ruling for the syndicates would give insurers broader grounds to decline defence cost payments when criminal proceedings involve alleged deliberate misconduct - before a verdict is reached. A ruling upholding the High Court decision would confirm that D&O policies must respond throughout a criminal process regardless of the seriousness of the allegations.
Petrofac itself pleaded guilty in October 2021 to seven counts of failing to prevent bribery under the UK Bribery Act. The corporate entity's position is settled. The question now is whether personal cover for its former executives survives the individual allegations they face - and whether, more broadly, D&O defence costs can be withdrawn at the point where insurers judge the alleged conduct to be beyond redemption, rather than at the point where a court finds it proven.
