Directors Denied Indemnity Under Their D&O Policy

The recent NSW Supreme Court judgement of Martin John Green in his capacity as liquidator of Arimco Mining Pty Ltd (in liquidation) v CGU Insurance Limited & Ors [2008] NSWSC 825 addresses the need for companies and their directors to provide full disclosure of their financial standing to their insurers before entry into a policy of insurance.

In mid-December 1998 the directors of Arimco Mining Pty Ltd (Arimco) provided a signed proposal form to its D&O insurer, CGU, when arranging a renewal of the D&O policy. Amongst other things, the proposal made representations to the effect that Arimco was a financially strong company with a strong profit and cash balance of over AUD12 million. On the basis of the proposal, CGU issued a D&O policy to Arimco. However, the financial representations in the proposal were incorrect. At the time the directors provided the proposal to CGU, Arimco was in fact in financial trouble and had a negative cash balance, and the directors were